TaxTMI 
TaxTMI 
2010 (10) TMI 15
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....erse or not?" 2. The respondent-assessee, filed return of income on 31.10.2001 declaring total income of Rs.58,69,534/- for the assessment year 2001-02. The assessee is a Chartered Accountant, has derived income from his profession and also from purchase and sale of shares shown as short term and long term capital gain and also interest income. He had also shown income from speculation business. After examination of the books of accounts and details of purchase and sale of shares of Euro Asian Securities Ltd. (substituted by shares of Home Trade Limited), the Assessing Officer came to the conclusion that the income shown from sale of shares of Euro Asian Securities Ltd. was, in fact, assessable as business income of the assessee. According to the Assessing Officer the dealing in the shares of Euro Asian Securities Ltd. was an adventure in the nature of trade and assessable as business income. The Assessing Officer framed assessment under section 143(3) of the Income Tax Act, 1961 (the Act) vide assessment order dated 9.10.2003 determining the total income at Rs.1,90,11,008/- and treated an amount of Rs.1,72,86,250/- as income from adventure in the nature of trade and also disall....
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.... different addresses available on the record to produce necessary details regarding the transaction in question. However, the said summonses were returned by the postal authority with the remark "not known". Thereafter, the assessee was asked to produce representative of Maniram Consultants along with the information called for from them, but the assessee failed to produce the Director of the said Company and also did not furnish any information called for by the Assessing Officer from Maniram Consultants. In the circumstances, the assessee had failed to prove as to when the shares in question were transferred in the name of the assessee. It was urged that the Assessing Officer had rightly drawn inference from the facts and material on the record of the case, that the transaction in question was an adventure in the nature of trade and hence, the income earned on account of purchase and sale of the shares of Home Trade Limited was business income of the assessee and could not be treated as long term capital gain. It was submitted that the Assessing Officer had recorded categorical finding that 12500 shares of Home Trade Limited were sold by M/s Yatin Shah & Co., a share broker and s....
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....the same as capital realization. That, had the transaction been an "adventure in the nature of trade", he would have invested the proceeds from the shares in other shares. Inviting attention to the order made by the Commissioner (Appeals) it was submitted that the Commissioner (Appeals) has considered the evidence in detail and has come to the conclusion that the transaction in question is not an "adventure in the nature of trade", but that the amount realized from the sale of shares is a capital gain. That the Tribunal, upon appreciation of the evidence on record, has concurred with the findings of fact recorded by the Commissioner (Appeals). That both the appellate authorities having recorded concurrent findings of fact, in absence of any material to the contrary having been produced on record by the revenue, no interference is warranted by this Court and as such, the appeal deserves to be dismissed at the threshold. 6. The undisputed facts of the case are that, in the return of income, the assessee had claimed that an amount of Rs.1,72,86,250/- was exempt in view of the provisions of section 54EC of the Act as the assessee had made investment in the Bonds of NABARD at Rs.1,03....
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....sessee also produced a copy of the agreement with Maniram Consultants. The Assessing Officer issued summons to Maniram Consultants, but the same were received back unserved with the remarks "not known". Summonses were also issued to M/s Yatin Shah & Co., the share broker, which was served, but no reply was received. 7. The Assessing Officer observed that the quantum of dealing, its frequency and its repetitive transactions tantamount to dealings in shares and not investments. According to the Assessing Officer, one of the criteria to decide the nature of income is to ascertain the nature of commodity purchased, quantity of purchase and subsequent improvement. In the present case, the nature of the commodity purchased is shares, which is a highly commercial commodity commanding premium price. That in today's context, purchase of shares takes precedence over any other commodity like gold, diamonds, land, etc. and has higher margin of profitability. The Assessing Officer did not accept the explanation of the assessee that the transactions should be viewed in the normal circumstances, as according to him the entire economy today is controlled by movement of shares and the rise and f....
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....at Rs.750/- within a period of 14 months). Therefore, looking from any angle, the whole transaction proves the profit making intention of the assessee. The Assessing Officer, ultimately, held that the transaction of purchase and sale of shares of Euro Asian Securities Ltd. (Home Trade) was an "adventure in the nature of trade" and as such, was required to be taxed under the head of "income from business or profession" and not as "long term capital gain". 8. Before the Commissioner (Appeals), on behalf of the assessee, it was inter alia submitted that the profit on purchase and sale of shares or investment in mutual funds is always shown as on capital account, that is, capital gain either short term or long term and it had been accepted as such in the earlier years. Merely because the assessee was a Chartered Accountant and was conversant with the share market, it could not be concluded that the intention of the assessee was that of carrying on business of trading in shares. It was pointed out that the Assessing Officer had wrongly concluded that majority of the shares were disposed of within a period of 6 to 12 months so as to arrive at the conclusion regarding frequency and mag....
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....ny standards. [d] The fact that one share split into 5 shares and the share holding of the appellant swelled by 5 times, could not be attributed to the appellant. It was not an act of the appellant. Further, as held by the Hon'ble Supreme Court in the case of Rameshwar Prasad Bagla (87 ITR 421), the volume of the shares purchased and sold cannot be the sole reason for treating the transaction as "adventure in the nature of trade." [e] The transactions in question are at arms length. The A.O. has not been able to prove the nexus between the appellant and the other parties. There is no evidence on the record to suggest or to substantiate the claim of the A.O. that a syndicate had been formed among the 4 above mentioned parties. [f] In the present scenario, there is an unprecedented boom in the stock market whereby FIIs have invested in a big way. These FIIs are not treated as traders and their income inspite of huge volume, and frequency, is treated as capital gains. Even the Life Insurance Corporation of India has been indulging in the reshuffling of shares. But by that reason alone, the department cannot tax the surplus on the sale of other shares as "business income". ....
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....hammed Meerakhan v. Commissioner of Income Tax, Kerala, [1969] 73 ITR 735 and Khan Bahadur Ahmed Alladin & Sons v. Commissioner of Income Tax, Andhra Pradesh, [1968] 68 ITR 573, and that the issue involved in the present case is squarely covered in favour of the assessee and against the revenue by the said decisions. 11. From the facts noted hereinabove, it is apparent that both the Tribunal as well as Commissioner (Appeals) have recorded concurrent findings of fact to the effect that the assessee had disposed of most of the shares held by him after more than a year or two; the investment made in the shares of Home Trade Ltd. was not very high; the assessee had not repeated the transactions of purchase and sale of shares of M/s Home Trade Ltd.; the assessee had not shown the shares in question as stock in trade; after the shares in question were sold, the assessee made investments under the provisions of section 54BC in the Bonds of NABARD, and the profit of purchase and sale of shares or investment in mutual fund was always shown on capital account, that is, capital gains either short term or long term, and that the same was accepted as such in earlier years. 12. O....
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....ating that he had treated the same as long term capital gain; as well as the fact that the assessee had not split the shares in lots but had sold the same in one lot; it is not possible to agree with the contention raised on behalf of the revenue that the transaction in question is an "adventure in the nature of trade" and therefore, the income derived by the assessee from the said transaction is a business income and cannot be treated as capital gain. Insofar as the second ground for holding the transaction in question to be an adventure in the nature of trade, viz., that the assessee was not the legal owner of the shares and was not having physical possession thereof, is concerned, if the said ground were to be accepted, then, as had been rightly contended on behalf of the assessee, there was no transaction in the hands of the assessee and as such, there was no question of taxing the said transaction merely on the ground that the assessee had offered the same as capital gain. It is nobody's case that delivery of shares allotted was not taken at all. The shares were held by Maniram Consultants as security towards loan advanced to the assessee indicating that the assessee was the o....