TaxTMI 
TaxTMI 
2012 (2) TMI 14
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....se as to why short term capital gain shown at Rs. 10,52,137/- should not be treated as business income in stead of capital gains. In reply, the assessee vide letter dated 24.12.2008 while giving a note on style of operation, time devotion and number of transactions submitted as under : "(a) From the working on record it can be clearly seen that the average length of holding of a share is more than 125 days which is close to 4 months (b) The assessee has not borrowed any amount from outsider on loan to invest in the shares. (c) The assessee has only deployed funds with a long term view as amounts are only borrowed from family members having liquid capital available with them as the members in turn also have not borrowed money from any outsider (d) the primary business activity pursued by he assessee is that of an insurance agent earning commission income from government insurance companies." However, the AO did not accept the assessee's explanation. He observed that the claim of the assessee of treating share transaction as capital gain is not acceptable in view of he following criteria : "1. Transactions are carried out regular ....
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....d. CIT(A) while applying the ratio of the decisions of the Tribunal in the case of ACIT v. Mr. V. Nagesh and Vice-versa in ITA No. 5410/Mum/2008 and C.O. No. 151/Mum/2009 (AY:2005-06) dated 24.9.2009 and in the case of Sadhana Nabera v. ACIT in ITA No. 2586/Mum/2009 dated 26.3.2010 held that the AO was justified in treating the short term capital gain of Rs. 10,52,137/- as business income. 4. Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us challenging in all the grounds the order of the ld. CIT(A) in treating the income of Rs. 10,52,137/- as business income instead of short term capital gains. 5. At the time of hearing, the ld. Counsel for the assessee while reiterating the same submissions as submitted before the AO and the ld. CIT(A) further submits that the assessee is an Insurance Agent earning substantial income in the form of commission from insurance business as under : Assessment year Insurance Commission income 2004-2005 39,51,977 2005-2006 1,20,41,137 2006-2007 60,32,400 He further submits that the assessee is a regular investor in shares and has made investment in shares of various companies since last ....
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....from Loans & Advances on the asset side of the Balance Sheet. Further, the loans from family members are also not bearing any interest. He further submits that the stock markets in the country has experienced substantial boom during the financial year 2005-2006. Due to the bull-run in the stock market the capital appreciation was fast. The amount of capital gains for all the assessees in general was very high during this period as compared to other years. In other words, at the end of March, 2005 it was 6492.84 and it moved to 11279.96 at the end of March 2006. Thus the sensex had gained 4787.14 points and in percentage terms, the yeary gain of sensex was 73.73%. In support, he placed on record chart showing the BSE Sensex during the financial year 2005-2006 and the printouts from the web-site of the BSE Sensex during financial year 2005-06 appearing at pages 13 to 17 of the assessee's paper book. 5.1 On the frequency of transactions, the ld. Counsel for the assessee submits that the assessee has earned short term capital gain in respect of total 52 scripts and the maximum frequency of transactions in any particular script is 7 and that too just one script at the short interval.....
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....get his desired return in either of these forms, he is not bothered about the form of return. However, he submits that in the subsequent assessment year, the assessee has received substantial amount of dividend i.e. Rs. 3,96,900/- for assessment year 2007-08 and Rs. 8,01,503/- for assessment year 2008-09. 5.4 On the issue of investment out of borrowed funds, he submits that in the balance sheet as on 31.3.2005, there was a loan from family member Shri Manisha Dodia Rs. 6,64,300/- which has been paid in the year under consideration and a new loan of Rs. 90,000/- from family member Shri Bhavi Karvat was taken that was without interest, therefore, no borrowed funds were utilized for investment in shares and no interest was paid. 5.5 With regard to the objection of the AO that the assessee has mostly traded in the same scripts such as Kothari Pet, ION Exchange, KGN Denim, Venus Remedies etc., he submits that Kothari Pet is at Sr. No. 12, ION Exchange is at Sr. No. 19, KGN Denim is at Sr. No. 23 and Venus Remedies is at Sr. No. 52 of details of script-wise short term capital gain on sale of shares appearing at pages 3 to 6 of the assessee's first paper book. As can be seen there f....
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....(14) of the Act defines "capital asset" to mean property of any kind held by an assessee, whether or not connected with his business or profession. The definition of "capital asset" does not, however, include "stock-in-trade" held for the purpose of business. Section 2(22) of the Act defines "dividend" to include any distribution by a company of accumulated profits, whether capitalized or not. Section 2(42-A) defines "short-term capital asset" to mean a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer. Section 2(42-B) defines "short term capital gain" to mean capital gain arising from the transfer of a short term capital asset. Under Section 28(i) of the Act, the profits and gains of any business carried on by the assessee, at any time during the previous year, is chargeable to income tax under the head "profits and gains of business or profession". Under Section 45(1) of the Act any profits or gains, arising from the transfer of a capital asset effected in the previous year, is deemed to be income of the previous year in which the transfer took place. Section 111-A, inserted by Finance Act, 2004, relates to tax on....
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.... is borrowed to purchase goods for the purposes of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchases and disposal in that particular item? If purchase and sale are frequent, or there are substantial transactions in that item, it would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value? Former will indicate intention of trade and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (5) How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realiza....
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....at the assessee in assessment years 2004-05 and 2005-06 has shown long term capital gains and short term capital gains on sale of shares and even in the year under consideration i.e. in assessment year 2006-07 the AO has treated the investment in shares and mutual funds as long term capital gain amounting to Rs. 4,55,172/-. We further find that the assessee has maintained regular books of account, wherein he has treated investment in shares and mutual funds as investment and has shown gain arising therefrom as long term capital gain and short term capital gains. The AO neither treated the said entries recorded in the books of accounts as non genuine entries nor has rejected the books of account while treating the income arising from short term capital gains on sale of shares and mutual funds as business income instead of short term capital gains claimed by the assessee. We further find that the average period of holding of shares sold by the assessee giving rise to the short term capital gains is as under : Period Range STCG % of total STCG More than 250 days 1,20,926 11.76% Between 150 to 250 days 1,72,282 16.75% Between 100 to 150 days 2,69,305 ....