TaxTMI 
TaxTMI 
2010 (10) TMI 573
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....e assessee-company is an investment company and is also engaged in moneylending business. It has offered income from moneylending business as business income and profit/loss arising out of sale of shares taken under capital investment portfolio has been declared under the head "Capital gains". During assessment year (for asst. yr. 2005-06), the assessee derived income from dividend of Rs. 8,51,258 and earned profit on sale of investments of Rs. 3,05,77,117, which included long-term capital gain of Rs. 2,03,98,173 and short-term capital gain of Rs. 1,01,78,590. In the return of income, the assessee has claimed short-term capital gain of Rs. 1,01,78,590 to be taxed at special rate of 10 per cent. The assessee-company all along in the past treated the investment made in shares/securities as capital asset. Accordingly, all profit/loss on sale of such investments were accounted for under the head "Capital gain". Depending on the period for which the shares were held, the gain out of sale of investments was bifurcated into long-term capital gain or short-term capital gain and reflected in the P and L a/c, as the case may be. During the course of assessment proceedings, the AO observed th....
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....ed speculation loss of Rs. 59,279. This loss is in the spot market as well as in the F and O market. As regards the loss in the spot market, it is seen that the assessee has traded throughout the year. An investor would not indulge in the speculative transactions. 6(b) The magnitude of purchase and sale is very large. The statement of so called short-term capital gain, filed with the return of income runs into 9 pages. 95 per cent of these transactions have taken place after 1st Oct., 2004, to claim the benefit of lower rate of taxation. 7(a) Shri Vivek Mundra, who is a managing director of the assessee company (he has signed return of income as well as balance sheet) is also a director in a share brokerage company viz. M/s Jet Age Securities (P) Ltd. Also, the M/s Jet Age Securities (P) Ltd. has acted as share broker in the assessee's share dealings. 7(b) The assessee is a non-banking finance company. It has established office, office equipments and employees. The loans given as well as the loans received are from the directors, relatives of the directors, or companies or firms where directors or relatives of directors are interested parties. As such,....
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....; (1) that the assessee had never been a dealer in shares, (2) he has been exhibiting the shares as investment from the inception which fact is clear manifestation of intention of investment, (3) purchase and sales were by reason of the mercurial behaviour of the shares creating uncertainty which led to alterations of the portfolio, and (4) the sudden buoyancy of certain industrial sectors and industrial units required adjustment of investment portfolio, and (5) the gains arose fortuitously without any calculation. 14. As earlier said, the law is familiar with the requirement of such changes in investment in both long and short spans. The provision permissive of short-term capital gain is acknowledgement of this ground reality. 15. Under the circumstances, it is submitted that treating the assessee's changes in investment as business activity is totally uncalled for and against facts. The above-referred decision of the Hon'ble Supreme Court will show that the facts of the case of the appellant are totally different. Further, it was also observed in the said case as under:- "Learned counsel also refer....
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.... assessee is constantly showing all the shares as investment since its incorporation it is not fair on the part of the Revenue to treat the same as business income of the assessee. Therefore, he requested to uphold the order of the learned CIT(A). 7. After hearing the rival submissions and on careful perusal of the material available on record, we find force in the submissions of the assessee that the assessee is an investor and made the investment only for the purpose of earning dividend. The learned Departmental Representative has not been able to produce any evidence in support of his contention that the assessee is in the business of share dealing except by stating that the volume of transactions are more. This contention of the learned Departmental Representative is not acceptable when once the assessee has recorded the same in the investment portfolio. We also find that while giving relief to the assessee, the learned CIT(A) has examined this issue in detail and the relevant observations of the learned CIT(A) are as under:- "4.1 I have gone through the assessment order and the submissions of the appellant. The observations of AO that the managing director ....