TaxTMI 
TaxTMI 
2011 (3) TMI 496
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...., the ld. Commissioner of Income tax (Appeals) erred in upholding the disallowance of expenses u/s 14A of the Income tax Act, 1961 made by ld. Assessing Officer. b. For that on the facts and in the circumstances of the case, the ld. CIT (Appeals) erred in upholding the disallowance u/s 14A made by ld. A/O amounting to Rs.5742/- on account of Securities Transaction Tax. c. For that on the facts and in the circumstances of the case, the ld. CIT (Appeals) erred in upholding the disallowance u/s 14A made by ld. A/O amounting to Rs.13662/- and Rs.2363/- on account of Demat Charges and Share Transfer exp. respectively. d. For that on the facts and in the circumstances of the case, the ld. CIT (Appeals) erred in upholding the disallowance u/s 14A made by id. A/O amounting to Rs.221623/- on account of interest paid. e) For that on the facts and in the circumstances of the case, the ld. CIT (Appeals) erred in upholding the disallowance u/s 14A made by id. A/O so far as it concerned to other expenses calculated @ 0.5% of the average value of total investments. Alternative but without prejudice to above ground: For that on the facts ....
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....d accordingly recorded in the books. As such the assets (shares) categorized under the head 'investment' are to be treated as capital assets and the profit on sale of such assets are taxable under the head 'capital gains'. In the light of observations made by the Hon'ble ITAT, Kolkata Bench in the case of Reliance Trading Enterprises Ltd. (supra), I am of the opinion that the shares/units purchased with an intention of earning dividend in addition to the prospect of making profit on sale of such investment shares at an opportune moment without making any hurry for sale ignoring dividend. Respectfully following the ratio laid down as above by the ITAT, Kolkata Bench in the case of Reliance Trading Enterprises Ltd. and the ratio laid down in the cases discussed, I allow the ground of the appellant raised against treating the net surplus as business income. I, accordingly, direct the A.O. to treat the net surplus as income from capital gains as claimed by the appellant." Hence this appeal by the department. 6. The ld. Departmental Representative submitted that ld. C.I.T.(A) relied on the decision of I.T.A.T., Kolkata Bench in the case of DCIT vs. Reliance Trading E....
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.... and the shares held as stock-in-trade. In this regard, he referred to pages 3 to 6 of the paper book, which contained the details of the units and shares sold in the assessment year under consideration. He submitted that the said statement also contained the period of holding of the units and shares. The ld. A/R submitted that out of the total amount of Rs.3,74,97,575/- there is a long-term capital gain, on which STT was also paid, aggregating to Rs.2,77,70,029/-. Further, there was also long-term capital gain of Rs.4629388/- on which STT was not paid and the said capital gain was claimed after taking the benefit of indexing and offering tax at the rate of 20%. The ld. A/R further referred page-2 of the order of ld. C.I.T.(A) and submitted that there was further longterm capital gain of Rs.43,36,475/-, on which also no STT was paid but the assessee has also not claimed the benefit of indexing and has offered tax at the rate of 10%. The ld. A/R submitted that out of the total long-term capital gain/short-term capita gain of Rs.3,74,97,575/-, there is a long-term capital gain of Rs.3.67 crores approximately. He submitted that on perusal of the said statement placed on pages 3 to 6 o....
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....ve heard the rival contentions of the parties and perused the material placed on record. The A.O. observed that the assessee has shown capital gains on transactions of shares and units of Mutual Funds and the surplus (net profit) of Rs.3,74,97,575/- on such transactions has been claimed as out of sale of investments. The A.O. treated the said surplus as assessee's income from share trading business. Therefore, the issue before us is whether the surplus earned by the assessee out of sale of shares/units was its capital gain or whether the same was assessee's business income. We observe that the A.O. considering the volume of transactions and period of holding of the shares/units held that the assessee in an organized and systematic manner did share transactions and income/surplus out of such regular business was assessee's business income and not capital gain on sale of investments, as claimed by the assessee. There is no dispute to the fact, as is evident from the balance sheet as at 31/3/2006 (page 39 of the paper book) that the assessee during the assessment year under consideration has maintained two separate accounts, one in respect of shares/units held as investment (Rs.22,37,....
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....,64,275/-, which was 25% of the opening stock and retained the balance 75%. In natural course of share trading business, in our considered opinion, there must be purchase during the year and the total turnover is to be much more of the total holding of stock. Therefore, the allegation of the department that there was heavy volume of transaction in respect of assessee's investments is not found to be correct. 9. The crucial test as laid down by various Hon'ble Courts to decide whether a transaction is in the nature of 'investment' or 'trading'is to be judged by initial intention of the person at the time of purchases of shares/units. In the case of the assessee, as stated above, we observe that at the time of purchase of shares/units, necessary entries have been made in the books under the head 'Investment in shares', which was also duly reflected in the balance sheet under the head 'Investment'. Most of the shares/units have been held for a long period and gains on sale of such shares/units have been accounted for as capital gain consistently. In the instant case, the shares/units held under 'investment' head have been shown at cost and not cost or market value whichever ....
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....rent factors whether any share and security was to be held as "investment" or "trading". When the shares are accounted for in the books as investment shares, the volume of transaction of such shares cannot alter its status from investment to trading. Profit on sale of such investment shares held as capital assets are assessable under the head capital gain. The period of holding such assets cannot determine its status or change it from investment (capital) to trading (stock-in-trade). The audited a/cs. For the A. Y. 2004-05 and the earlier years placed in the Paper Book made it clear that every year the assessee had acquired shares for trading purpose and separately also for investment purpose with an intention to earn dividend income in addition to the prospect of making profit on sale of such investment shares at an appropriate opportune moment without making any hurry for sale ignoring dividend. The investment shares and securities purchased and held till their sale had dual purpose i.e. for earning dividend as an incidental income as well as to make profit on sale at appropriate time. The conclusions drawn by the A.O. by treating the investment shares as trading shares was based....