TaxTMI 
TaxTMI 
2011 (8) TMI 631
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....apital gain; and (v) Redemption proceeds of Marico Preference Shares of Rs. 35,860, claimed as exempt u/s 10(33) of the Act. 3. The assessee has not declared any receipt from business, but has claimed a loss of Rs. 54,536/- under the head 'income from business'. The Assessing Officer found this business loss disallowable on the basis of facts disclosed by the assessee. He tried another cock in the sense that he sought to treat the transactions of sale of shares as assessee's business transactions and to tax the profits thereon as 'business income'. During the year, the assessee sold shares worth Rs. 88,90,860/- and purchased shares worth Rs. 71,18,738/-. The profit on sale of shares realized was Rs. 41,07,392/-. This receipt was proposed to be taxed as profit on sale of shares by the Assessing Officer and he called for assessee's objections thereon. The assessee made following submissions against the proposed action of the Assessing Officer: "(A) There are only 10 instances of purchase of Shares and 3 instances of Sale of Shares during the year. (B) In support of the contention that the profit and sale of shares is taxable as 'Capital Gai....
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....The assessee held total number of shares of 50,868 as on 1.4.2004 which were reflected in its Balance Sheet at the cost of Rs. 1,89,95,710/-. Until 2004-05, the assessee has been reporting the income on trading of shares as 'business income'. During the year 2004, it has converted part of its shareholdings as 'investment' and has disclosed this fact in its final accounts filed alongwith the return of income for assessment year 2004-05. To the above facts, the Assessing Officer has finally applied few tests laid down by the Hon'ble Gujarat High Court in the case of Pari Mangaldas Giridas v. CIT, 283 ITR 338 (sic), and has observed as under : "10.5.1 Firstly, the assessee had started his activity of purchase .of shares as a Trader. This proves that the purchase of shares was with an intention of dealing in such shares with a view to earn profit. 10.5.2 Secondly, the purpose of the sale of shares in the case of the assessee was to reinvest in the purchase of new shares as evidenced by its bank account and the demat account furnished by the assessee. 10.5.3 Thirdly, although the assessee has treated such shares as 'Investments' in his books of accounts, t....
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....ng the year are taxable as capital gains or as business income. The AO held the same to be business income as against appellant's contention that it is t as capital gains. The AO has cited various reasons to justify his action ach of those reasons is listed below together with appellant's counter for the same. (1) That, initially when the appellant bought the shares in year ended 31-03-2002 and 31-03-2003 they held them as stock in trade which reflects their profit motive. Answer:- (i) Even when a person buys shares for being held as investments, they are brought with a motive to make and realise capital profit which is assessable to tax as capital gain. Mere motive to make profit is not enough. (ii) Assessing Officer ought to have considered the action of the appellant to hold all the shareholdings as investment with effect from 1.4.2003 which was clearly signified and disclosed in the notes on accounts to the audited statements of accounts for year ended 31-03-2004 (iii) Further, throughout the period, the appellant was acting only as an investor rather than as trader which is proved by the average holding period of shares being more than two years....
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....ecisions support the position that an assessee can simultaneously be carrying on business as an investor as well as trader in shares and that income from business of investments is taxable as capital gains. * Ramamirtham case - 306 ITR 239 (Mds.) * CIT v. Trishul Investments Ltd. [2008] 305 ITR 434 (Mds.) * CIT v. Karamchand Thaper & Sons Ltd. 115 ITR 250 (Cal.) Whereas the appellant have been carrying on business only as investor in shares by holding their entire portfolio as investments. Other decisions cited CIT v. Gopal Purohit Appeal NO.1121 of 2009-(2010) 228 CTR (Bom.) 582 In this case it was held that all delivery based transactions are to be held as investment transactions and profits arising therefrom are to be taxed as short term or long term capital gains only. All the transactions of the appellant are only delivery based which has not been disputed by Assessing Officer. Note regarding the specific issues raised in the assessment order and appellant's submissions The AO has relied on the decision of the Supreme Court in G. Venkataswamy Naidu & Co. v. CIT (35 ITR 594) to emphasise the proposition that if an asset was initially purchased with the sole inte....
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....pecial rate of 10% is prescribed for taxing short term capital gains which signifies the intension of the law makers that even in a situation where the shares are sold in less than one year, still it can give rise to only short term capital gains and need not necessarily be business income. Therefore, this test of initial intention to make profit is not a correct test to be applied in the case of shares to decide whether it is an investment or a trading activity. Again, in paragraph 9 of the assessment order, the' AO has cited the decision of the Gujarat High Court in Pari Mangaldas Giridas v. CIT (283 ITR 338 Guj.) and listed out the various tests laid down in that decision to determine whether a particular purchase and sale of share is an investment or a trading activity. At the outset it is submitted that the citation mentioned in the assessment order is wrong. The correct citation is CIT v. Rewashanker A. Kothari (283 ITR 338 Guj.). The report of the said case law is attached herewith. Out of the six criteria laid down in this decision, the last criterion is the most important test viz., the volume, frequency, continuity and regularity of transactions of purchase and sale....
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....ares of these companies available for sale in the market being limited thereby forcing the appellant to purchase their requirement in various lots. Necessary statistics to this effect were already furnished as part of those submissions. No doubt, while initially buying the shares, the appellant have accounted the same as stock in trade up to 31.03.2003. But, throughout, their intention as well as conduct is by way of an investor as highlighted by the aforesaid facts and statistics. That is why, they formalized such intension and conduct by reclassifying their entire portfolio of shares as on 01.04.2003 as investment. Hence, just because they accounted the shares in the first two financial years as stock in trade, it is not correct to impute the motive of trading in such shares when the facts speak otherwise. Moreover, as already submitted in writing, the facts of the appellant's case are squarely covered by the decision of the Mumbai ITAT in Bright Star Investments case quoted earlier. Therefore, we hereby submit that the AO has quoted the right decision of the Gujarat High Court which is in fact favourable to the appellant's case but wrongly applied its ratio by overlook....
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....of the amendment to section 111A and thus to reduce the tax liability. 6. The Id CIT(A) ought to have appreciated the fact that the shares were sold as soon as they were converted into 'investments' defying the very definition of 'investment'. 7. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored." 8. We have considered the rival submissions and have carefully treaded through each and every aspect of this complicated issue. After considering the written submission filed before the ld. CIT(A) on which the ld.AR has heavily relied on and the reasoning given by the Assessing Officer in his order which we have extracted in the earlier part of this order, we have found that the assessee had been holding shares for a long time as mentioned above and the details furnished before the Assessing Officer as well as before the ld. CIT(A) show that some of the shares were purchased 14-15 years prior to this assessment year and the remaining were purchased before 3-4 years prior. The assessee has converted stock-in-trade into investment....