Calcutta High Court
Principal Commissioner Of Income ... vs Purvanchal Leasing Ltd on 21 January, 2022
Form No.(J2)
ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction (Income Tax)
ORIGINAL SIDE
Present :
The Hon'ble JUSTICE T. S. SIVAGNANAM
And
The Hon'ble JUSTICE HIRANMAY BHATTACHARYYA
ITAT/203/2017
IA NO.GA/2/2017 (Old No.GA/1778/2017)
PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL-1, KOLKATA
VS
PURVANCHAL LEASING LTD.
Appearance:
Ms. Sucharita Biswas, Adv.
Mr. Soumen Bhattacharjee, Adv.
...for the appellant.
Mr. J.P. Khaitan, Sr. Adv.,
Ms. Swapna Das, Adv.
Mr. Siddhartha Das, Adv.
for the respondent.
Heard on : 21.01.2022
Judgment on : 21.01.2022
T.S. SIVAGNANAMM J. : This appeal of the revenue filed
under Section 260A of the Income Tax Act (the 'Act' in brevity)
is directed against the order dated 19th October, 2016 passed by
the Income Tax Appellate Tribunal, C-Bench, Kolkata (the
'Tribunal') in ITA No.1429/Kol/2013 for the assessment year
2006-07.
The revenue has raised the following substantial
questions of law for consideration:
(i) Whether on the facts and in the circumstances of the
case, the Learned Tribunal erred in law in treating
the income from trading in shares as capital gains
and not business income without determining whether
shares held by the assessee as investment (thereafter
giving rise to capital gains) or stock in trade
(therefore giving rise to business profit)?
(ii) Whether on the facts and circumstances of the case,
the Learned Tribunal erred in law in not appreciating
that an under assessment made by the Assessing
officer in a particular assessment year cannot be the
basis of the principle of consistency for all the
following assessment years?
(iii) Whether on the facts and circumstances of the case,
the Learned Tribunal erred in law in not appreciating
that circular no. 6/16 dated 29/2/2016 is not at all
applicable in respect to assessment year 2006-07?
We have heard Ms. Sucharita Biswas, learned standing
counsel assisted by Mr. Soumen Bhattacharjee appearing for the
appellant/revenue and Mr. J.P. Khaitan, learned senior counsel
assisted by Ms. Swapna Das, learned counsel and Mr. Siddhartha
Das, learned counsel, appearing for the respondent/assessee.
The assessee is a company engaged in the business of
investment in shares, mutual funds and debentures for several
years. For the assessment year under consideration AY - 2006-
07, the assessee filed the return of income on 30th November,
2006 disclosing a total income of Rs.4,91,85,610/-. The
assessee declared short-term capital gain on purchase and sale
of shares and mutual funds. The assessment was completed under
Section 143(3) of the Act by order dated 30th June, 2008 in
which the short-term capital gain as declared by the assessee
was accepted by the assessing officer. The Commissioner of
Income Tax, Central-1, Kolkata (CIT) invoked his power under
Section 263 of the Act and passed an order dated 4th March, 2011
holding that the assessing officer did not properly examine the
question as to whether the gain on purchase and sale of shares
and security had to be assessed under the head of "capital
gain" or "income from business". The CIT directed the assessing
officer to make a fresh assessment. Pursuant to such direction,
the assessing officer examined the question and held that the
gain on sale of shares had to be under the head of "income from
business".
Aggrieved by such order, the assessee preferred an
appeal before the Commissioner of Income Tax (Appeals), Central
-1, Kolkata contending that in the past, that is, for the
assessment year 2005-2006, similar transactions were considered
as giving rise to short-term capital gain and merely because
there was large volume and frequency of transactions, it cannot
automatically make the transaction as trading in shares. The
assessee, therefore, contended that the principle of
consistency should be followed as the revenue for the previous
assessment year has accepted the similar transactions to give
rise to short-term capital gain and cannot take a contrary view
in the subsequent assessment year on the same set of facts. The
assessee further pointed out that for the assessment year 2007-
08 proceedings were initiated by the CIT under Section 263 of
the Act and the assessee's case was accepted by the revenue and
the proceedings initiated under Section 263 were dropped.
Therefore, the assessee contended that the finding rendered by
the assessing officer was erroneous. The Tribunal examined the
contention and after noting the factual position has granted
relief to the assessee. It is contended before us that the
volume of transaction was rightly noted by the assessing
officer by which the intention of the assessee can be culled
out. It was further submitted that for the assessment year
under consideration (AY 2006-07), the shares and stocks have
been treated as stock in trade and not as an investment as was
the case in the assessment year 2005-06 or 2007-08. It was
further submitted that the principles of res judicata is not
applicable to the provisions of the income tax and in this
regard placed reliance on the decision in the case of
Commissioner of Wealth Tax -vs- Meatles (P) Ltd. Reported in
(1984) 19 Taxman 116 (Delhi).
We have heard Mr. Khaitan on the above submissions.
Firstly, we note that the contention of the revenue that the
shares and mutual funds that were sold during the year which
resulted in the income has been shown as stock in trade and not
an investment is a factually incorrect submission. Though the
learned standing counsel contended that she has oral
instructions to say so the facts are otherwise. On going
through the order passed by the Tribunal in paragraph 10
therein we find that the Tribunal has recorded that it has been
held as an investment and not as a stock in trade. Similar
finding has also been rendered by the CIT. Therefore, the said
contention cannot be accepted. The second submission is with
regard to the volume of transaction which, according to the
revenue, is to be noted to ascertain the intention of the
assessee. It was pointed out by the learned senior counsel for
the respondent that only less than 1/3rd of the total
transactions was held for a short period. That apart, the
volume of transaction cannot have any impact to consider as to
whether the transaction would give rise to short-term capital
gain or not. This aspect of the matter was rightly dealt with
by the Tribunal by taking note of the fact that similar
transactions were accepted by the department for the previous
year and the subsequent assessment year as giving rise to
capital gain and not as business income. In fact, for the
subsequent investment year 2007-08, proceedings initiated under
Section 263 were dropped by the CIT on being satisfied with the
nature of the transaction. Hence, if the same volume of
transactions were not the subject matter of any review by the
authorities, a solitary stand cannot be taken for the
assessment year under consideration alone. In any event, the
volume of transaction cannot have any impact to assess as to
whether it would give rise to short-term capital gain
especially when the fact is not in dispute that the assessee is
engaged in the business of making investment in shares, mutual
funds and debentures etc. for several years. Therefore, the
second contention raised by the revenue also is not tenable.
With regard to the plea of res judicata is concerned, the
Tribunal rightly noted the law that rule of res judicata is not
applicable to income tax proceedings but the principle of
consistency will definitely apply. In the preceding paragraphs
we have set out the facts to show as to how the department has
examined the returns filed by the assessee for the previous
assessment year and the subsequent year. Therefore, we find
that there cannot be different yardstick for the assessment
year under consideration when facts and circumstances are
identical. Reliance has been placed on the decision in the case
of Meatles (P) Ltd. (supra). The said decision is clearly
distinguishable on facts as could be seen from paragraph 5 of
the judgment which arose under the Wealth Tax Act, 1957 wherein
the department urged that an inadvertent admission was made in
the income tax appeal for exclusion of the income from
assessment. Therefore, it was held that the Tribunal cannot be
prevented from giving an independent finding in the wealth tax
appeals. The said decision is wholly inapplicable to the facts
and circumstances of the case on hand. The learned senior
counsel for the respondent placed reliance on the decision in
the case of Commissioner of Income-Tax, Kolkata - III Vs.
Merlin Holding (P) Ltd., reported in [2016] 56 taxmann.com 37
(Calcutta) equivalent to [2015] 375 ITR 118 (Cal). In the said
case the Court found that the frequency cannot alone go to show
the intention was not to make an investment. Thus, the Tribunal
rightly appreciated the legal position and granted relief. The
learned senior counsel placed reliance on a circular issued by
the CBDT dated 29th February, 2016. This circular having been
issued only in the year 2016 obviously cannot be referred to
test the correctness of an order of assessment passed for the
assessment year 2006-07. For the above reasons, we find that
there is no error or perversity in the order passed by the
Tribunal.
In the result, the appeal (ITAT/203/2017) fails and is
hereby dismissed. Consequently, the substantial questions of
law are answered against the revenue.
With the dismissal of the appeal, the stay application
(GA/2/2017) stands closed.
(T. S. SIVAGNANAM, J.)
I agree.
(HIRANMAY BHATTACHARYYA, J.)
S.Das/sp3
