TaxTMI 
TaxTMI 
TaxTMI 
2011 (7) TMI 535
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....s well as an investor in shares, securities and mutual fund. The assessee is also a finance company involved in investment and other activities. For the assessment year under consideration, the assessee filed its return of income along with books of account, tax audit report and other details in support of the return, declaring a total income of Rs. 3,29,61,078.91. In the return of income, the assessee disclosed capital gain on sale of investments, which included long-term capital gain (LTCG) of Rs.2,50,40,713.45, LTCG (with indexation) of Rs.93,393.20, short-term capital gain (STCG) of Rs.98,47,306.44 (with 10% tax), STCG of Rs.11,500/- (with full tax) and STCG (mutual fund) of Rs.29,65,479.02 (with 10% tax). The A.O. in the assessment order has stated that the activities of the assessee remained the same over the years. He, however, observed that the initial purchase of shares by the assessee was not for the purpose of investment but with a view to earn profit by resale of those shares and holding of shares as stock-in-trade or investment will not depend on the basis of entry made in the books of account. He, therefore, denied the claim of the assessee and treated the above LTCG ....
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....A/R supported the order of ld. C.I.T.(A) and submitted that the facts in the assessment year under consideration are similar to the earlier assessment years 2004-05 and 2005-06 and the Tribunal in ITA No. 944 (Kol)/2008 for assessment year 2004-05 by its order dated 03/10/2008 in the appeal filed by the department on similar issue has treated the profit on sale of shares, securities and mutual funds as capital gain and following the said order, the Tribunal for the assessment year 2005-06 in ITA No. 2024 (Kol)/2008 by its order dated 13/3/2009 dismissed the appeal of the department and confirmed the order of ld. C.I.T.(A) that the income of the assessee on sale of shares, securities and mutual funds is to be treated as capital gain and not as business income. The ld. A/R submitted that the copies of the said orders of the Tribunal are placed on record. He further submitted that the ld. C.I.T. (A) has given detailed finding after considering the cases cited by the A.O. at pages 8 to 12 of the impugned order by holding that profit on sale of shares, securities and mutual funds is the capital gain of the assessee and not business income. The ld. A/R further referred page-12 of the pap....
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....id list at page-12 in which the holding was only for 2 days or for a period of less than one month and how it could be inferred that the said shares were purchased by the assessee for the purpose of investment, the ld. A/R submitted that the said shares were also purchased for the purpose of investment and also entered in the books of account. As such he submitted that the intention of the assessee is relevant and the period of holding is not material. The ld. A/R referred page-4 of the paper book and submitted that the assessee in its P/L Account has also shown the total capital gain of Rs.3,29,61,078.91. At the time of hearing, attention of ld. A/R was also drawn to the fact that one of the objects of the assessee is dealing in shares and securities, but in the P/L Account there is no closing stock of securities shown by the assessee. The ld. A/R submitted that the assessee sold the brought forward closing stock of securities in the assessment year under consideration and has shown the income of Rs.80 lakhs in its P/L Account. The ld. A/R submitted that the assessee purchased the shares under the investment portfolio out of its own fund not out of borrowed money and to substantia....
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....ook filed before us. There is no denying the fact that as per the accounts maintained the assessee had acted both as a trader as well as investor in shares as per the Memorandum and Articles of Association. Accounts were maintained for trading/business shares which are held as stock-in-trade and separately for investment shares which are held and shown in Balance Sheet under the head "investment" representing capital assets. The decision used to be taken by the assessee at the time of purchase itself based on different 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....
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....be treated as those in the nature of investment transactions and the profit received therefrom should be treated either as short-term or, as the case may be, long-term capital gain, depending upon the period of the holding. The Tribunal has observed in 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 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. There cannot be any dispute about the basic proposition that entries in the books of account alone are not conclusive in determining the nature of income. The Tribunal has applied the correct principle in arriving at the decision in the ....
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....ture Fund sold in the assessment year under consideration. Considering the facts that the other mutual funds have been shown by the assessee under the head 'investment' in the preceding assessment years and the said facts have been accepted by the Tribunal in respect of the earlier assessment years that they were purchased by the assessee as investment and not under the head 'stock-intrade', we are of the considered view that the ld. C.I.T.(A) has rightly held that the STCG on sale of above mutual funds aggregating to Rs.29,65,479.02 is to be assessed under the head 'capital gain'. 9. Now coming to the STCG of Rs.11,500/- shown by the assessee in respect of the shares of Sree Pathi Pharmaceuticals (11,500 units), there is a profit of Rs.11,500/- and as per chart, it is stated that the said profit is taxable @ 30%. Considering the fact that the period of holding is only 9 days but it has no revenue effect as the STCG claimed by the assessee is offered to be taxed @ 30%, we do not consider it necessary to go into the details as to whether the said profit is to be assessed under the 'STCG' or as 'business profit'. 10. Now coming to the STCG of Rs.48,47,306.44 shown by ....
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....ly are - what is the intention of the assessee at the time of purchase of shares; whether the assessee has borrowed money to purchase and paid interest thereon; what is the frequency of such purchase and disposal in that particular item; whether the purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value; and how the value of items has been taken in the balance sheet. Thus, no single factor can be said to be decisive factor and no single principle can be laid down to determine the nature of the transaction, i.e. trading activity or investment. Each case has to be decided based on the particular facts of the said case. 10.1. We further observe that the assessee has claimed LTCG as well as STCG in respect of purchase and sale of its shares held under investment portfolio and we have held that the LTCG claimed by the assessee is justified. Considering the facts and circumstances of the case, we are of the considered view that merely because the assessee has held some of the shares for a period of less than 12 months along with the other shares under the head 'investment', there cannot be sub-division of transaction and to hol....
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.... held by assessee for a period of 30 days or more be accepted. However, in respect of shares which were held by the assessee for a period of less than 30 days, the A.O. will examine the same as to whether those shares were transacted for investment purposes or trading purposes after giving opportunity of hearing to the assessee. Therefore, the ground of appeal taken by the department is allowed in part for statistical purposes, as indicated above. C.O. No. 42 (Kol)/2010: 11. The cross-objection of the assessee is delayed by two days. The ld. A/R explained the delay and prayed for condonation of the same, to which the ld. Departmental Representative did not object. We, therefore, condone the delay and admit the cross-objection for disposal. 12. In the cross-objection, only ground taken by the assessee is against the disallowance of Rs.8,48,305/- made u/s. 14A of the Act read with Rule 8D of I.T. Rules on account of empted dividend income of Rs.9,85,958/-. The A.O. made the aforesaid disallowance by applying Rule 8D of the Rules read with Sec. 14A of the Act on the ground that the dividend income of Rs.9,85,958/- is exempted u/s. 10(34) of the Act. In the firs....