AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (11) TMI 403
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....hy the short term capital gain declared by the assesses should not be treated as "business income", the assessee submitted its reply, the gist of which is reproduced by the AO in the body of the assessment order and which reads as under :- "... All the investments in the shares made by the company in the name of the company are held as investments and not as a stock in trade. All the investments have been valued at cost. Whereas the stock in trade has to be valued at cost or market price whichever is lower which is not so in the case of company. Most of investments are long term. The company has been consistently following the practice of treating all the investment in shares as Investments and not as Stock in Trade. They have not converted any of the investments into stock in trade any time so far. In view of CBDT Circular no. 4/2007 dated 15.06.2007, the shares transactions made and short term gain derived from such transaction, is required to be treated as STCG only and not as a business income." 4. However, the AO was not convinced with the explanation given by the assessee. He noted that whether an individual is a trader or an investor is a mixed question of law and facts a....
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....ies of these resolutions which are as under :- "1. Resolution dated March 22, 2004 which reads as under : "Resolved that the company do hereby open an account with the depository participant viz. Mafatlal Securities Ltd. for trading in shares of various companies under Demat segment." 2. Resolution dated June 20, 2004 which reads as under : "Resolved that the company do approve and authorise any of the following Directors viz. Shri Vishad P Mafatlal, Shri Bipin K Ghiya or Mr. Niraj B. Mankad, to deal in purchase/sale of shares/securities through DSP Merrill Lynch Ltd. not exceeding the value of Rs. 100.00 Lacs." 3. Resolution dated December 16, 2004 which reads as under : "Resolved that the company appoint HDC Asset Management Company Ltd., Mumbai as its portfolio manager to provide portfolio management and other services of the funds/value of the funds to be deployed by the company." 9. On the basis of various arguments advanced before him and after considering the resolutions made by the assessee company, the Ld. CIT(A) observed that the first resolution made by the company makes it very clear that the intention of the Board of Directors of the company is one of trad....
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....m purchase and sale has been held as short term/long term capital gain, he submitted that the appeal filed by the department has been dismissed by the Hon'ble Supreme Court in 334 ITR 308 (St.). Referring to page no. 84 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the financial position of the assessee company, according to which the entire investment is out of own funds and not out of any borrowed funds. Referring to the various pages of the paper book and the details of purchase and sale of shares, he submitted that there are no intra-day transactions, all the transactions are delivery based and none of the transaction has been undertaken in futures and options segments. He submitted that the primary objective of the assessee company is to invest its surplus funds for preserving the intrinsic value of funds available with the company. The trading objective so perceived by the AO has not been established. 11.1 Referring to the following decisions he submitted that the Tribunal in some what similar facts and circumstances has allowed the claim of the respective assesses in treating the profit from purchase and sale of shares as "short t....
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....by both the sides, perused the orders of the AO and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only question that has to be answered in these grounds of appeal filed by the assessee is as to whether the profit on sales of shares has to be treated as "short term capital gain" or "business income". It is the submission of the Ld. Counsel for the assessee that the shares purchased by the assessee having been disclosed in the balance sheet under the head "investment" and short term capital gain on sale of shares having been accepted in the scrutiny assessment in the preceding year, therefore, the revenue authorities are not justified in treating the profit on sale of shares as "business income". It is the submission of the Ld. DR that since the assessee being a private limited company has passed a resolution for trading in shares in various companies, therefore, irrespective of shares being shown under the head "investment" in the balance sheet, the profit on sale of such shares has to be treated as "business income". 13.1 In our opinion, whether the profit on purchase and sale of shares is "bus....
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....tention of the assessee has to be considered before deciding the issue as to whether the profit from purchase and sale of shares has to be treated as "capital gain" or "business income". The conduct of the assessee in the instant case by passing the board resolution to do trading in shares of various companies indicates clearly the intention of the assessee to do business in shares. Further, merely because the profit on sale of shares was accepted as "capital gain" in the preceding year will not entitle the assessee to claim it as "short term capital gain" during the impugned assessment year. It is the settled proposition of law that principles of res judicata do not apply to Income Tax proceedings and each assessment year is separate and distinct. Further, the AO in the Assessment Year 2005-06 has not gone through the Board Resolution of the company authorising it to trade in shares. It was only during the appeal proceedings for the Assessment Year 2006-07 that the Ld. CIT(A) called for the copy of the minutes of the meeting of the Board of Directors and the resolutions came to light. Therefore, the order of the Assessment Year 2005-06 cannot apply to the Assessment Year 2006-07. ....