TaxTMI 
TaxTMI 
2011 (11) TMI 253
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....e had undertaken a large number of transactions of purchase and sale of shares, which have been listed in a tabular form on page no. 5 of the assessment order. The table shows that the assessee undertook transactions in shares of 19 companies. In each scrip there were a number of transactions. The summary of the number of transactions in six scrips has been furnished on page 6 of the assessment order. After considering various submissions, it has been held that the transactions are in the nature of business. The business income from the transactions has been estimated at Rs. 7,90,34,891/-. 2.1 Aggrieved by this order, the assessee moved an appeal before the ld. CIT(Appeals). After considering the assessment order and the submissions made before him, it has been held that the transactions resulted in STCG and not business profits. Accordingly, the order of the AO has been reversed. 3. Before us, the ld. CIT, DR referred to page no. 4 of the assessment order, wherein the broad propositions laid down in Board circular no. 4/2007 have been summarized. The gist is that the nature of the income has to be decided by examining the following factors:- (i) substantial nature o....
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....ent year 2006-07, in which business profits from M/s Variety Book Depot amounted to Rs. 4,03,907/- and STCG amounted to Rs. 2,32,33,691/-. Thus, the assessee has been systematically indulging in share transactions leading to substantial profits year after year. 3.3 Our attention has also been drawn towards the balance-sheet of this year, which shows debit of Rs. 90,68,293/- in the capital account of M/s Variety Book Depot and sundry creditors of about Rs. 21.22 crore. On the basis of these facts, the argument is that even withdrawals have been made from the business accounts of M/s Variety Book Depot for investment in shares. Accordingly, it is argued that the transactions are in the nature of business and, therefore, the profit of Rs. 8,78,16,545/- is taxable as business income. 4. In reply, the ld. Counsel for the assessee submitted that the assessee has been conducting the business as proprietor of M/s Variety Book Depot. The turnover in this business amounted to about Rs. 20.13 crore in this year. The assessee has also been investing small amounts in shares. The shares are held as investments. The assessee earned profit of about Rs. 8.00 crore on sale of shares in this ye....
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.... delivery based. 4.4 In the light of the aforesaid facts, it is argued that the surplus from transactions of this year can be taxed only as STCG. 5. In the rejoinder, the ld. CIT, DR again referred to the details of the transactions placed in the paper book from page nos. 30 to 32. The details show scrip-wise profit or loss and the details of transactions. It is argued that looking to a huge number of transactions undertaken by the assessee, the activity only can be said to be in the nature of business. 6. We have considered the facts of the case and submissions made before us. The facts are that the assessee is an individual and admittedly he is carrying on the business of marketing and distribution of books and magazines. He has also been deriving income from purchase and sale of shares. The surplus realized from such transactions has been shown and taxed on capital account in earlier years. In assessment year 1999-00, the assessee was not able to prove that the transactions were of sale of shares undertaken through Quantum Securities (P.) Ltd. and, therefore, the amount of Rs. 76,04,946/- was brought to tax u/s 69A. However, the fate of this addition is not known. Furth....
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....nd sale may be examined as habitual dealing will indicate intention of trade. The ratio between purchase and sale and the holdings may also furnish an indicator as to whether the asset is held on capital account or stock-in-trade; (iv) the duration of holding may be ascertained so as to examine whether the intention was to hold on to the assets for enjoying dividend and appreciation or it was to earn profit; (v) the method of valuation is also an indicator. If the shares are valued at cost, the indication would be that they are on investment account but if they are valued on cost or market price, whichever is less, it will indicate that they are held as stock-in-trade; (vi) the credit of sale proceeds to a particular account may not be sufficient to arrive at the conclusion whether the shares were held on investment account or as stock-in-trade, and (vii) the Board circular no. 4 of 2007 dated 15.06.2007 states that an assessee can have both portfolios, one for trading and other for investment provided separate accounts are maintained having distinctive features and no intermingling takes place between the two portfolios. 6.2 Further, reliance has been placed on the ....
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.... CIT [IT Appeal No. 2586 (Mum.) of 2009, dated 26-3-2010], the assessee was an individual and she was a director in a few companies. All the companies were involved in business of trading of shares. The assessee showed surplus realized from transactions in shares as STCG. The AO took the view that looking to frequency of transactions, the surplus is assessable as business income. This view was affirmed by the CIT(Appeals). It was pleaded before the Tribunal that the assessee is a high net worth individual and she has undertaken only delivery based transactions. It was found that most of the shares were held for a period ranging between 31 to 90 days in respect of which surplus was realized. There was no share holding for more than six months in which gains were earned. The minimum period of holding was one day and maximum was 180 days. Therefore, it was held that purchase of shares and sale thereof after a short period does indicate that there was a motive to earn profit in a short period. 6.5 The case of Madan Gopal Radhey Lal (supra) was also distinguished. In that case bonus shares were held as stock-in-trade, which were allotted to the assessee on original holding from time ....
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.... are held for a period of one year or more will be treated as long term capital asset contrary to other assets where the holding period to treat such asset a long term is more than 36 months Thus even after holding the shares for more than 12 months and showing such intention from the conduct, the Assessing Officer cannot replace his opinion for that of the assessee in holding that the shares are held as stock in trade and profit from which is to be assessed as business income. In all such cases the intention is manifested by the assessee himself by his conduct and other relevant factors as considered by the learned CIT(A). It is also seen that the shares were treated as investment in earlier year and which fact has been accepted by the Assessing Officer. The assessee has also earned huge dividend income from such shares. The Assessing officer merely because of the total volume of transaction is substantial, is guided to hold the income as business income. However, he failed to recognize that the volume of transaction includes the appreciation in shares also and such appreciation has been offered for tax. If volume of transaction is the criteria, what is to be examined is how frequ....
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....has been shown under the wrong head. It was submitted that he had been an investor over a period of 50 years and profits on sale of shares were offered for taxation on capital account. The assessee had also earned substantial dividend over a period of time. The investment was made out of own funds. The short-term capital asset was also held for 122 days. The Tribunal held that the overwhelming position was in favour of the assessee especially because he had been taxed as an investor in earlier years. 7.3 In the case of Bothara Pemraj Manakchand v. Dy. CIT [2011] 47 SOT 148/13 taxmann.com 177 (Pune), the assessee had shown income from purchase and sale of shares as LTCG and STCG. The AO came to the conclusion that the assessee had undertaken the activity of purchase and sale in a systematic manner and, therefore, the profit was business income. The Tribunal observed that the AO was mainly guided by frequency of transactions and that the assessee was riding high in the boom period and wanted to make quick bucks. What is to be seen is not the magnitude of the transactions but the intention behind the transactions. The assessee had been holding shares as investments from year to yea....
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....ier, the assessee had purchased 5000 shares out of which 2000 shares were sold in the earlier year. The AO had accepted that the shares were held on investment account as the gain from sale of 2000 shares was taxed under the head "capital gains". Remaining 3000 shares were sub-divided in 15000 shares in this year. The inference would be that 3000 shares sub-divided into 15000 shares were also held on investment account. In respect of 15000 sub-divided shares, the assessee received 1,80,000 bonus shares. Bonus shares can be issued only out of accumulated profit in the form of general reserve available with the issuing company. Issuance of such shares does not enhance the value as the reserves of the issuing company get reduced on issuance of bonus shares. Therefore, the nature of bonus shares has to be taken as same as the original shares. This view finds support from the decision in the case of Madan Gopal Radhey Lal (supra). Accordingly, it has to be held that the original equity shares and the bonus shares were held on investment account. 10. This brings us to the final determination of the question. We find that the shares were treated as investments, investments were made fr....