TaxTMI 
TaxTMI 
2010 (7) TMI 663
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....ng to the period 1-4-2004 to 30-9-2004 was Rs. 2,95,953. The Assessing Officer did not agree with the treatment given by the assessee and treated the income as business income. While doing so, he followed the Circular No. 4/2007, dated 15-6-2007, which lays down some of the guiding principles in deciding this issue. The principles, which the Assessing Officer applied were: (a) Volume and frequency of transactions - The Assessing Officer noted that the assessee has sold shares to the tune of Rs. 2,99,83,303 and the cost of their purchases was Rs. 2,70,93,635. The total number of scrips involved were 35 and the total transactions came to 70. (b) Average holding period of various scrips - The Assessing Officer noted that 70 per cent of the transactions have a holding period of one month or less and none of the shares have been held for more than 200 days i.e., seven months. The investment in shares other than those of the related concern, M/s. Twin Earth Securities Pvt. Ltd., was to the tune of Rs. 61 lakhs, which was 22 per cent of the cost of shares sold implying thereby tha 78 per cent of portfolio was sold. The magnitude of purchase and sale and the ratio between....
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....ircular, the assessee can have two portfolios - he may have income from both the heads i.e., capital gains and business income. He noted that the CBDT circular clearly lays down that it is permissible that an assessee can divide his shares partly as investment and partly as stock-in-trade by giving suitable treatment in the accounts. Merely because an assessee was dealer for some shares and securities, he does not cease to be an investor forever. Based on the circular of CBDT and various judicial decisions, he noted that some of the parameters or guidelines favour the assessee whereas certain other parameters and guidelines go against the assessee. 4.1 The parameters or guidelines which according to the CIT(A) favour the assessee are as under: (a) In its Balance Sheet regularly shows some amounts of shares under the investments column and valued at cost. Thus for the year ending 31-3-2005, the assessee's investment was shown at Rs. 4,65,71,697 while at the beginning of the year it was Rs. 5,09,03,846. (b) It has a capital base of Rs. 6.98 crores and so majority of investments in shares are out of its surplus funds. (c) It has also dividend income at Rs....
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....acts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in holding that the income arising from the sale of shares wherein the holding period is less than 31 days be treated as business income as opposed to short-term capital gains as claimed by your appellant. Your appellant respectfully submits that the same be considered income from short-term capital gains. Revenue's grounds of appeal : 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that for the transaction which has a period of holding more than (31 days) one month should be treated as from investments as short-term capital gains. 2. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." 7. The learned counsel for the assessee while arguing for both the appeals submitted that all purchases and sales by the assessee are delivery based and that at no point of time the purchase and sale of shares had been effected or squared off on the same day. He submitted that all purchases are shown and treated as investment in the books and not as stock-in-trade....
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.... be treated as capital gain and not as business income. He also relied on the following decisions and submitted that in the instant case, the entire profits on sale of shares has to be treated as short-term capital gain as against partly business income and partly short-term capital gain held by the CIT(A) : (i) Jt. CIT v. Dinesh Kumar Gupta [2005] 2 SOT 126 (Delhi) (ii) Janak S. Rangwalla v. Asstt. CIT [2007] 11 SOT 627 (Mum.) (iii) Bombay Gymkhana v. ITO [2009] 27 SOT 58 (Mum.) (URO) (iv) Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT [1966] 61 ITR 428 (SC). 8. The learned DR, on the other hand, while supporting the order of the Assessing Officer submitted that considering the frequency and volume of transactions in purchase and sale of shares by the assessee it can be fairly concluded that the assessee was engaged in the business of trading in shares. As regards the contention of the assessee that the revenue has accepted the profit from sale and purchase of shares as capital gain in the preceding year, he submitted that the principle of res judicata does not apply to income-tax proceedings since each assessment year is separate and ind....
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....Board of Direct Taxes (CBDT) through Instruction No. 1827, dated August 31, 1989 had brought to the notice of the Assessing Officers that there is a distinction between shares held as investment (capital asset) and shares held as stock-in-trade (trading asset). In the light of a number of judicial decisions pronounced after the issue of the above instructions, it is proposed to update the above instructions for the information of assessees as well as for guidance of the Assessing Officers. 5. In the case of Commissioner of Income-tax (Central), Calcutta v. Associated Industrial Development Company (P.) Ltd. (82 ITR 586), the Supreme Court observed that: Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. 6. In the case of Commissioner of Income-tax, Bombay v. H. Holck Larsen (160 ITR 67), the Supreme Court observed....
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....as investment or stock-in-trade." 12. We find, the legal principles as laid down by courts on account of treatment of an income as 'business income' or 'capital gain' can be summarised as under: (a) It is possible for an assessee to be both an investor as well as dealer in shares. (b) Whether a transaction of sale and purchase of shares is a trading or investment transaction is a mixed question of law and fact. (c) Whether a particular holding is by way of investment or of stock-in-trade is a matter within the knowledge of the assessee and it is for the assessee to produce evidence from the records as to whether he maintained any distinction between shares held as investments and those held as stock-in-trade. (d) The treatment in the books of an assessee is not conclusive and if the volume, frequency and regularity at which transactions are carried out indicate systematic and organized activity with profit motive, then it becomes business profit and not capital gain. (e) Purchase with intention to resell can constitute capital gain or business profit depending on circumstances like quantity of purchase and nature of activity. (f) No sin....
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....o 90 8.11 2179178 2400862 221684 4 91 to 200 10.81 1825424 2084497 259073 37 27093635 29983303 2889668 17. From the above chart it is seen that the shares are held for a few days only and in very few cases for a few months but in no case it is exceeding 200 days. Purchase of shares during the year and selling them frequently in short period, in our opinion, do indicate that the assessee has purchased the shares with a motive to earn profit in a short period. Therefore, the facts of the instant case do not persuade us to hold that the shares were held as investment since these are not held for such a long period so as to treat the same as investment. The frequency and volume of the transactions in the instant case give an impression that the assessee did not intend to acquire the shares with business motive. In the case of an investment a person usually watches the market over a longer period of time before selling of the shares. The earning of dividend and the appreciation of the shares is the primary consideration. It is only a trader who would look for short-term gains from purchase and sale of shares. Therefore, the ....