TaxTMI 
TaxTMI 
2011 (3) TMI 874
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....ime director of M/S. CM Securities Private Limited. The business of M/S.CM Securities Private Limited is that dealing in shares and securities. The Assessee is mainly engaged in day-to-day activity of the said company. The Assessee is therefore well versed in the business of trading in shares and securities. He gives Technical, Fundamental, corporate advisory analysis and consultancy services to the corporate regarding the shares and stock markets. 3. The Assessee in his individual capacity buys and sells shares. For AY 2006-07, the Assessee filed return of income in which he declared short-term capital gain(STCG) on purchase and sale of shares and long-term capital loss (LTCG) in purchase and sale of shares. The issue in this appeal is as to whether the STCG declared by the Assessee has to be assessed as STCG or as "Income from Business". 4. In the income and expenditure account, the assessee credited consultancy fees received of Rs. 10,00,000, commission received of Rs. 1,80,000 and profit from trading in future & options of Rs. 77,14,289, totalling Rs. 88,94,289. Against these receipts the assessee claimed various expenses of Rs. 86,992 and the net surplus of income over e....
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....aken. The assessee has treated the income arising out of the first category as income from capital gains and that arising out of second category i.e. transactions where no delivery is required to be taken, as business income. The holding period of the 3079124 shares bought & sold, the profit on which has been treated by the assessee as Short-Term Capital Gains (STCG) was as under: No. of Shares Holding period % of total 770317 Upto 1 week 25% 874619 Upto 1 month 28% 1275061 Upto 6 months 42% 159127 More than 6 months 5% The dividend on shares earned by the assessee of Rs. 10,67,385 constituted 1.44% of the total income (including dividend) from share transactions. 8. The AO was of the view that considering the volume of transactions, frequency, utilization of borrowed funds the fact that the assessee is carrying out purchase and sale of shares in organized and systematic manner the AO called upon the assessee to show cause as to why the income offered under the head STCG should not be taxed under the head income from business. 9. The assessee submitted in reply that he was the director of CM Securities Pvt. Ltd. and was mainly e....
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.... and their holding with the assessee remains beyond few days but that will not change the nature of transactions. He held that the Assessee has also taken loans to do share business. The Assessee can therefore be said to be engaged in the business of share trading and running a full-fledged office for this purpose. Thereafter the AO referred to the CBDT Circular No.4/2007 dated 15/6/2007, wherein the department has laid down certain guidelines for deciding the question as to whether income from sale of shares will give raise to capital gain or income from business. The AO thereafter applied the test laid down in the circular to the case of the assessee and came to the following conclusion. "1. Whether the purchase and sale of securities was allied to his usual trade or business/ was incidental to it or was an occasional independent activity. The assessee is having predominant activity of dealing in shares where the transactions were entered into continuously and regularly during the assessment year under consideration. 2. Time devoted to the activity and the extent to which it is the means of livelihood. In the given case the share related activity is the predominant ac....
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....8,74,459 and disallowed the benefit of lower rate of tax on profit and sale of shares. The AO also treated the gain of Rs. 40,77,711 which was declared under the head capital gain and which was a gain on short term speculation transaction as income from business. 13. Aggrieved by the aforesaid order of the AO the assessee preferred an appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee on the sole ground that the facts in the present assessment year and assessment year 2005-06 were identical. The CIT(A) held as under: "6.1 I have considered the submissions of the representative and the stand taken by the AO. The appellant was assessed under section 143(3) for the A.Y. 2005-06 and his income on sale of shares was treated as Capital Gains. Though the AO had proposed to treat capital gain as business income, on explanation by the appellant, the proposal was dropped for A.Y. 2005-06. This is clear from the copy of assessment order placed on record. Further, the details submitted by the appellant reveals the following facts:- (a) During he year under appeal, the appellant bought and sold shares of 38 companies as against shares of 23 companies in....
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....) the revenue has preferred the present appeal before the Tribunal. 16. The ld. D.R relied on the order of the AO and further submitted that borrowings were substantial in this year and that the value of the shares dealt with by the assessee were also high. The ld. Counsel for the assessee on the other hand submitted a comparative chart of the facts as prevailed in A.Ys. 2005-06 and 2006-07 and submitted that the action of the CIT(A) in treating the gain on sale of shares as STCG was justified. In this regard a copy of order of assessment for A.Y. 2005-06, wherein the stand of the assessee was accepted by the AO himself was also filed. Further reliance was placed on the decision of ITAT Mumbai in IT Appeal No.6429/M/2009, in the case of ACIT v. Naishadh V. Vachharajani, wherein it was held that volume and frequency of transactions, would not be decisive in holding that STCG is in fact business income. Alternatively the assessee submitted that if for any reason the Tribunal comes to the conclusion that the STCG is income from business then to the extent of shares sold during the previous year which was opening stock of shares as on 1/4/2006 and bonus shares and right shares (whic....
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.... like nature and quantity of article purchased, nature of the operation involved. Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242 (SC). (e) No single fact has any decisive significance and the question must depend upon the collective effect of all the relevant materials brought on record. Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC). 18. The above tests have again been reiterated by the CBDT in its Circular referred to by the AO in the order of assessment. Keeping in mind, the above broad principles, we shall now examine the case of the assessee. The assessee during the previous year had entered into transactions of purchase of shares of about 38 companies totalling to Rs. 31,51,52,676 and all those shares were sold for a value of Rs. 37,89,50,348. The above transactions were effected by actual delivery of shares at the time of purchase and sale. Besides such transactions, the assessee had also entered into transactions of purchase and sale of shares where there was no actual delivery. The net profit after expenses on such transactions was Rs. 40,77,711. Both the aforesaid transactions were in respect of transaction of purchase and sale of shares where the holding ....
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....p; 7. The Assessee also invested shares of private limited companies and unlisted companies. 8. The Assessee did receive substantial dividend income on shares. 9. The Assessee held the shares as investment in its books of account and not as stock-in-trade. Factors which may go against the Assessee in accepting the plea that the income is question is STCG and the reply of the Assessee on the same are as follows: 1. The conduct of the assessee in showing income from delivery based transactions as STCG and non-delivery based transaction as business income only shows that but for actual delivery even income from those transactions would have been considered as speculative income and business income. The income from delivery based transactions are sought to be projected as STCG only because there was actual delivery and because they were shown as investments in the books of account of the assessee. The submission of the Assessee on this aspect is that on the same set of facts, the revenue in A.Y. 2005-06 accepted the plea of Assessee that gain on purchase and sale of shares is STCG though in that year also, the Assessee indulged in non-....
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....perate as res judicata to preclude the authorities from holding such transactions as business activities in current year?" The Hon'ble Bombay High Court held as follows: "3. In so far as Question (b) is concerned, the Tribunal has observed in paragraph 8.1 of its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The revenue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings. The Tribunal correctly accepted the position, that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The revenue did not furnish any justification for adopting a divergent approach for the Assessment Year in question. Question (b), therefore, does not also raise any....