AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (5) TMI 525
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....of share transactions carried out by the assessee, the Assessing Officer proceeded to examine the issue as regards the head of income under which profit on sale of shares was chargeable to tax in the hands of the assessee. On such examination, he treated, for the following reasons, the profit earned by the assessee on sale of shares as its business income : "(a) That the main activity of the assessee is share trading and the advisory income was earned only from one party namely Indea Capital Pvt. Ltd., Singapore. (b) The assessee indulged in 434 trading transactions which resulted in STCG and 90 other transactions involving shares which were held for more than a year. (c) That the assessee invested Rs. 10.39 crores on which he earned dividend of Rs. 7.80 only lakhs i.e., return of 0.78 per cent hence the intention of the assessee that shares were purchased as investment cannot be proved. He could have got better returns by depositing in banks. (d) That the transactions carried out by the assessee can be given either the colour of investment or the colour of business. (e) That as per the case of Pari Mangaldas Girdhardas v. ....
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....tions which resulted in short term capital gain and 55 transactions where resulted in long term capital gain. (e) The average number of days the shares was held in case of short term capital gain was 115 days and in case of long term capital gain was 523 days. (f) The Assessing Officer had stated that dividend earned by the assessee was Rs. 7.80 lakhs out of investment of Rs. 10.30 crores giving yield of 0.78 per cent this is incorrect. The average amount invested in stock was Rs. 3.48 crores of which dividend of Rs. 7.80 lakhs was received which works out to return of 2.24 per cent. All the investments were made with a duel purpose of earning dividend and to encash capital appreciation. If dividend is considered as the only criteria, asset like gold, land which do not yield any income cannot be considered as investment at all. Still people invest in these assets with an intention of deriving benefit of long term capital gain appreciation. (g) The Assessing Officer relied on Pari Mangaldas Girdhandas v. CIT [1977] CTR 647 and the test applied is against the facts of the case. (h) That for the last 11 years the share transaction w....
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....d and sold were treated by it as investment. He found that a similar treatment was given by the assessee company right from its incorporation in the year 1994 and the income earned by it from share transactions was always assessed under the head "Capital Gains". He further found that the assessee had never borrowed money for making investments in shares and it was never engaged in intra day trading or trading in futures and options. He also found that substantial investment was made by the assessee in unlisted company and in mutual funds and the ratio between investment and turnover in shares was 1:3. Keeping in view all these findings of fact recorded by him and relying inter alia on the decision of Lucknow Bench of the ITAT in the case of Sarnath Infrastructure (P.) Ltd. v. Asstt. CIT [2010] 124 ITD 71 as well as that of Mumbai Bench of ITAT in the case of Gopal Purohit v. Jt. CIT [2009] 29 SOT 117, the learned CIT (Appeals) held that the share transactions were carried out by the assessee in the capacity of investor and not of a trader and accordingly he directed the Assessing Officer to treat the profit earned by the assessee from share transactions as capital gains and not bus....
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....hereas 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 realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. (6) How the company (assessee) is authorized in memorandum of association/article of association? Whether for trade or for investment? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice versa. (7) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records ....
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....y these companies, corporations or undertakings." The assessee company thus was incorporated to carry on the business of analysis and research on the financial and other parameters of companies, corporations or undertaking with a view to advise clients in taking investment decisions. To carry on the business of trading in shares was not the main object of the assessee company. It was only authorized to make investment in shares as per the incidental or ancilliary objects of the Memorandum of Association. In consonance with these clauses of the Memorandum of Association, only one portfolio i.e., investment was maintained by the assessee in respect of shares in its books of account right from the incorporation in the year 1994 and all the shares purchased and sold were treated in the books of account as investment. This treatment given by the assessee in the last 14 years was never questioned by the Department and even the profit from the share transactions declared by the assessee as capital gains was accepted by the Department. The shares held by the assessee as investment were always valued at cost. In the profit & loss account for the year under consideration, advisory income wa....