TaxTMI 
TaxTMI 
2016 (7) TMI 663
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....count of sale and purchase of units. The details of the transactions resulting in the short term capital gain and long term capital gain were given as Annexures to this order. 4. The AO was of the view that the frequency and volume of the transactions which have resulted in the long term capital gain and short term capital gain declared by the assessee was of such a nature that it has to be construed that the assessee indulged in the business of purchase and sale of shares/unit and therefore long term capital gain and short term capital gain had to be construed as income from business. In response to query in this regard by the AO, the assessee submitted that the shares and units in question were reflected as investments in the balance sheet and were not stock in trade of any business carried on by the assessee. The assessee also pointed out that in the past such income was declared under the head capital gain and accepted by the revenue. It may be mentioned here that in A.Y.2003-04 assessment u/s 143(3) was completed in the case of the assessee wherein identical nature of income was accepted by the AO as income under the head capital gain. AO however made a reference to the CBDT ....
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....usiness of purchase and sale of shares/unit. The assessee pointed out that as per the main objects of the Memorandum of Association of the assessee was that its business was to act as export house carrying on the manufacturing activity, Import and export of engineering products etc. The assessee pointed out that as per the CBDT's Instruction No.1827 dated 31.08.1989 distinction has to be made between shares held as stock in trade and shares held as investments. The assessee specifically pointed out that the guidelines laid down in the circular clearly specify that no single criterion listed in the said instruction was decisive and the total effect of all the criteria should be considered. The assessee specifically pointed out that units of mutual funds are generally redeemed and they are listed and sold in the market. Such redemption cannot be treated as any systematic activity in the nature of business. The assessee again reiterated its stand that identical income had been accepted in the past by the revenue as income under the head capital gain. CIT(A) on consideration of the aforesaid grounds held that the income in question has to be assessed under the head capital gain. The fo....
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....tal effect of all the criteria should be considered, Moreover, these tests and guidelines, in my opinion, cannot be applied for units in Mutual Fund which are not available for sale in the open market. In view of the totality of facts I have no hesitation to hold that the action of Assessing Officer to treat the transactions relating to purchase and sale of units shares as a trading activity is ne t proper. A.O. is accordingly directed to consider the profit resulting from such Transactions under the head capital gains and quantify the income' as per law. These grounds are, therefore, allowed for statistical purposes." 7. Aggrieved by the order CIT(A) revenue has preferred the present appeal before the Tribunal. 8. The learned DR relied on the order of the AO. The learned counsel for the Assessee relied on the order of the CIT(A) and the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Gopal Purohit 228 CTR 582 (Bom). 9. We have considered the rival submissions. The issue to be decided is as to whether the STCG on transaction of purchase and sale of units of mutual funds and shares undertaken by the assessee during the previous year is to be assessed under t....
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....t it as capital gains or business income. The circular gives a choice to the assessee to define the income earned from share or securities sale as capital gains or business income. The treatment in the books of accounts by the Assessee of the shares/units sold in its books of accounts as investments would be very important factor to be considered and should be sufficient to hold that shares/units held as investments cannot be treated as giving raise to income from business. 11. Keeping in mind, the above broad principles, we shall now examine the case of the assessee. The assessee during the previous year had entered into transactions of purchase and sale of units of mutual funds of 42 different mutual fund schemes. There were 8 transactions of purchase and 7 transactions of sale of shares. The shares purchased and sold were that of listed companies. It cannot also be said that the volume and frequency of transactions was high so as to draw an inference that the Assessee was engaged in business. The Hon'ble ITAT Mumbai Bench in the case of Janak S.Rangwala Vs. ACIT 11 SOT 627 (mum) has held that magnitude of the transaction does not alter the nature of the transaction. The total i....
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....ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The revenue did not furnish any justification for adopting a divergent approach for the Assessment Year in question. Question (b), therefore, does not also raise any substantial question." 14. The above decision of the Hon'ble Bombay High Court is clearly applicable in this case. As we have already seen that the AO in AY 03-04 accepted similar income as capital gain. It is not disputed by the revenue that the facts and circumstances in the AY 03-04 & 04-05 are identical. Though the rule of res judicata is not applicable but the principle of consistency will definitely apply and on that basis the claim of the Assessee should be held to be proper. 15. For the reasons given above, we confirm the order of the CIT(A) and dismiss the appeal by the revenue. 16. In the result, appeal by the revenue is dismissed. C.O.No.92/Kol/2010: 17. Grounds raised in the Cross Objection are as follows :- "1. That on the facts and in the circumstances of the case, Ld. CIT (Appeals) is wrong and unjustified in....