Income Tax Appellate Tribunal - Mumbai
Jawahar R. Dhrona, Mumbai vs Department Of Income Tax on 30 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "I" : MUMBAI
BEFORE SHRI D.K.AGRAWAL, JUDICIAL MEMBER
AND
SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER
ITA. No.142/Mum/2010
Assessment Year 2005-2006
Income Tax Officer 15(2)(2) Shri Jawahar R. Dhrona
Mumbai - 400 008 vs. Mumbai - 400 054
PAN AHAPD3141Q
(Appellant) (Respondent)
ITA.No. 143/Mum/2010
Assessment year 2006-2007
ACIT-15 (2) vs. Shri Jawahar R. Dhrona
Mumbai-400 008. Mumbai - 400 054
PAN AHAPD3141Q
(Appellant) (Respondent)
For Revenue : Shri Om Prakash Meena (D.R.)
For Assessee : Shri D.V.Lakhani (A.R.)
Date of Hearing : 30-10-2012
Date of pronouncement : 30-10-2012
ORDER
PER N.K.BILLAIYA, A.M.
Both these appeals by the Revenue are directed against the two separate Orders of the CIT(A)-26, Mumbai dated 29-10-2009 pertaining to the assessment years 2005-2006 and 2006-2007. As common issues are in involved in both the appeals though quantum may differ both the appeals are taken-up together for the sake of convenience.
22. ITA. No. 142/Mum/2010 :- The Revenue is aggrieved by the Order of the CIT(A) who treated the income of Rs.16,87,326/- as short term capital gain instead of business income and ground No.2 relates to the direction that assessee may be treated as a non-resident. As decision of ground No.2 will decide the fate of ground No.1, therefore, ground No.2 is taken-up first.
3. It is the say of the assessee that he is a non-resident Indian and it is the say of the Assessing Officer that assessee is a resident. During the course of the appellate proceedings, it is seen that the assessee has filed details in respect of his stay in India in the previous year and during the year preceding to previous year. The CIT(A) after considering the details filed by the assessee came to the conclusion that assessee is a non-resident Indian (NRI). It is the say of the Revenue that the CIT(A) has grossly erred in considering the submission of the assessee without providing any opportunity to the Assessing Officer by ignoring the facts that no such evidences were produced by the assessee during the assessment proceedings.
4. We have perused the Orders of the lower authorities and also the paper book submitted by the assessee. We find that the submission of the D.R. has considerable force as no details were produced before the Assessing Officer during the course of assessment proceedings. Therefore, in the interest of justice and fair play, we restore this issue back to the file of the Assessing Officer. The Assessing Officer is directed to verify the details of stay of the assessee in India and decide afresh whether the assessee status is of Resident or Non-Resident, after giving a reasonable opportunity of being heard to the assessee.
5. Coming back to the issue involved in ground No.1 relating to the treatment of short term capital gain as business income by the Assessing Officer in our considered view the finding of ground No.2 would decide the fate of this issue because as per the RBI directions non-resident Indian have to take delivery of the shares and give delivery of the shares sold under the scheme 3 and are not allowed to trade. This aspect has also been dealt with at length by the Tribunal in ITA.No. 3229/Mum/2009 and 3230/Mum/2009 in the case of ITO vs. Shri Salil Sevantilal Shah. Whereas the Tribunal at page 11 in para 12 has held as follows :
"12. One of the most important aspect in favour of the assessee is that the assessee is a NRI and as such not allowed to trade in shares in view of the RBI regulations. Assessee could have possibly invested in shares and that too through portfolio investment schemes through certain authorised dealers. In the case of Fidelity North Star Funds & Others In-Re [supra] following questions were raised -
(i) Whether profits from the sale of portfolio investments in India will be treated as business income;
(ii) Whether the applicant could be regarded as having a permanent establishment in India'
(iii) If the Income Is found to be In the nature of business income whether the applicant will be taxable In India; and
(iv) whether the income from the portfolio investments would be taxable in India at the fixed rate of 20 per cent under section ll5ADof the Income Tax Act, 1961.
And the answers given by the authorities are as under:
"(i) That the transactions were only in the nature of Investment in capital assets to earn capital gains because"
(a) the whole scheme meant for Ells was to invest in securities in India to receive income from them so long as they hold the same and realize capital gains on their transfer.
(b) The expression "Income received in respect of securities" in cl.(a) connotes the Income therefrom when the securities held by a FII are intact, e.g. dividends. interest, etc. like fruits from a tree or a 4 rent from an immovable property. The term 'Income' employed therein, having regard to the context, can, by no stretch of imagination, be assumed as income arising from the transfer of such securities for the simple reason that such type of Income is referred to In cl. (b) where the income Is specified as being by way of short-term and long-term capital gains arising from the transfer of such securities. It was against deduction of expenditure such as by way of salary of the staff, etc., expenditure in obtaining loans and paying interest thereon that Parliament guarded, by providing in clause (a) of section 115AD(2) that no deduction shall be allowed in computing income in respect of securities referred in clause (a] of sub-section [1).
(c) The plethora of legislative provisions unmistakably pointed out that an FII was not registered for carrying on trade in securities; it could only invest in securities for the purpose of earning income by way of dividends and interest and realizing capital gains on their transfer. Trading in securities by a FII was prohibited.
(d) It would be preposterous to impute an Intention to FIIs, who responded to the offer of Investment in securities in response to the guidelines, got themselves registered under the SEBI Regulations and undertook to abide by those regulations that they would, in the very first step itself, have intended to violate all the legislative requirements which provided them the opportunity to enter the capital market in India.
(ii) That therefore, the question did not require any ruling.
There is no scope for reading the SEBI (Foreign Institutional Investors) Regulations, 1995,as permitting trading in securities. The securities. The expression "or otherwise deal in" in regulation 3(1) means other than buying and selling, e.g. lending/borrowing permitted under regulation 15(8). It cannot be understood to mean doing business in securities because trading itself involves buying and selling and if it is construed to mean the expression becomes otiose. Regulation 15A of SEBI Regulations permits dealing in offshore derivative Instruments only and none other. The words "transact business" and the '"transaction of business"
in clauses (a) and (c) respectively of sub-regulation (3) of regulation 15 postulate transaction of sale and purchase, they do not refer, as such, to the trading activity. Transacting business is 5 different and distinguishable from carrying on business. Transact business is a general term which refers to carrying on all types of activities whereas business transaction refers to only commercial trading activities. These words and expressions, in the context in which they are used, do not deal with the subject of trading In securities much less do they permit activities of trading in securities by a FII.
In the case before us also the RBI has issued the following directions which have been intimated to the assessee by HDFC Bank through their letter which has been filed before us.
"NRIs / OCBs have to take delivery of the shares /Convertible debentures and give delivery of the shares/ convertible debenture sold under the scheme and are not allowed to trade."
The above clearly shows that when as per the SEBI regulations (in the case before us RBI regulations) the assessee was not permitted to do in trading then gains received from sale and purchase of shares can be only taxed as capital gains".
6. Respectfully following the findings of the Tribunal (supra), we restore this issue back to the file of the Assessing Officer. The Assessing Officer is directed to decide this issue after giving a finding on the residential status of the assessee if the assessee happens to be a non-resident, then the income has to be treated under the head "capital gains". Accordingly, ground No. 1 and 2 are allowed for statistical purposes.
7. Ground No.3 relates to the allowance of dividend income of Rs.1,59,109/- as exempt from tax under section 10 (34). It is seen from the assessment order that the Assessing Officer has treated the dividend received by the assessee as his business income. Because of the opinion of the Assessing Officer, as the assessee is trading in shares, the dividend income of such shares and securities are also part and parcel of the business income. When this matter was agitated before the CIT(A), the learned CIT(A) gave a 6 categorical finding that dividend income is exempt under section 10 (34) of the Act.
8. We have considered the Orders of the lower authorities as the CIT(A) has rightly held that dividend income is exempt under section 10 (34) of the Act we do not find any reason to interfere with the findings of the CIT(A) which are upheld. Ground No.3 is accordingly dismissed.
9. Ground No.4 relates to the deletion of Rs.6,30,000/- made by the Assessing Officer under section 69B of the Act. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has made investment in shares of TATA Consultancy Services Ltd. to the tune of Rs.6,30,000/-. According to the Assessing Officer, this amount is nowhere reflected in the books of accounts maintained by the assessee. It is the say of the Assessing Officer that particulars were given to the assessee, so that he could give complete break-up of the investments made in shares and securities. However, during the year the assessee has not given true details of investment. In the absence of any supporting evidence of investment made in shares of TCS the Assessing Officer went on to add a sum of Rs.6,30,000/- under section 69B of the Act. During the appellate proceedings, the assessee filed bank statement of standard chartered bank bearing Account No.23110014329 and stated that the money has been withdrawn from this back account and the debit is duly reflected in the bank statement. It is the say of the assessee that he has applied for 700 shares of TCS at the price of Rs.900/- per share. However, the assessee was allotted 37 shares @ Rs.850/- per share and the balance amount of Rs.5,98,550/- was refunded by the Company to the assessee. It was pointed out by the assessee before the CIT(A) that the refund amount is also reflected in the bank statement with HSBC. The CIT(A) after considering the facts and evidences submitted by the assessee came to the conclusion that the assessee has clearly shown the source of investment and therefore, there is no reason to sustain the addition of 7 Rs.6,30,000/- and accordingly, deleted the addition made by the Assessing Officer.
10. Before us, learned D.R. strongly contended that the CIT(A) has considered the evidences which were never before the Assessing Officer. Atleast the CIT(A) should have call for a remand report by giving an opportunity to the Assessing Officer to examine all these evidences.
11. Per contra, the Counsel submitted that the Assessing Officer did not give any opportunity to the assessee to explain his case.
12. After hearing both the parties, in our humble opinion, the CIT(A) erred in adjudicating the issue by admitting additional evidence. In the interest of justice and fair play, we restore this issue back to the file of the Assessing Officer. The assessee is directed to furnish the bank statements to substantiate his claim that investment has been made from the bank account. The Assessing Officer is directed to verify all the details submitted by the assessee, after giving a reasonable opportunity of being heard. Ground No.4 is allowed for statistical purposes.
13. In the result, appeal of the Revenue is partly allowed for statistical purposes.
14. ITA. No. 143/Mum/2010 :- Issues raised by ground No. 1 and 2 are identical to that of issues raised in Ground No.1 and 2 of ITA.142/Mum/2010 for the assessment year 2005-2006. Following our findings in the said appeal, we restore this issue back to the file of the Assessing Officer to be decide as per the directions given in ITA.No.142/Mum/2010.
15. Ground No.3 relates to the deletion of addition of Rs.25,000/- made by the Assessing Officer by invoking section 14A. During the course of the assessment proceedings, the Assessing Officer noticed that the assessee has earned dividend income amounting to Rs.1,15,753/-. The Assessing Officer was of the opinion that some portion of expenses pertain to tax free income and 8 accordingly disallowed a sum of Rs.25,000/- invoking the provisions of section 14A of the Act.
16. Before the CIT(A), assessee contended that the income generated from the investment in shares has been taken as capital gains and no expenditure is attributable for earning dividend of Rs.1,15,753/-. After considering the facts and submissions of the assessee, the learned CIT(A) deleted the addition holding that as the income from share transactions has been held as capital gains, any disallowance will have NIL effect in respect of correct heads of income. The CIT(A) further held that the Assessing Officer himself has admitted in para 7 of the assessment order that the dividend income is received from long term investment.
17. We have carefully perused the Orders of the lower authorities and find that dividend has been received from investment made in earlier years. On that, note we do not find any infirmity in the finding of the learned CIT(A) and it is confirmed. Ground No.3 is dismissed.
18. In the result, appeal of the Revenue is partly allowed for statistical purposes.
Order pronounced in the open Court on 30th day of October, 2012.
Sd/- Sd/-
(D.K.AGRAWAL) (N.K.BILLAIYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Date 30th October, 2012
VBP/-
9
Copy to
1. Income Tax Officer 15(2)(2), Matru Mandir, Room No. 110, Tardev, Mumbai - 400 008.
2. Shri Jawahar R. Dhrona, 14-Rajshree Bldg., Dattatray Road, N.Reliance VB World, Santacruz (W), Mumbai - 400 054 PAN AHAPD3141Q
3. CIT(A)-26, Mumbai.
4. CIT, City-15, Mumbai
5. DR "I" Bench
6. Guard File (True Copy) By Order Asst. Registrar, I.T.AT. Mumbai Benches MUMBAI.