TaxTMI 
TaxTMI 
2011 (11) TMI 452
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.... Rs. 1,17,41,141/- arising from sale of shares which were claimed to be exempt u/s 10(38). The income earned by the assessee from the dealing in future and option transactions was declared by her as business income and the profit earned from delivery based transaction in shares was declared as capital gains. During the course of assessment proceedings, the assessee was called upon by the AO to explain as to why the profit arising from transactions in shares shown under the head "Capital Gains" should not be treated as her business income. In reply, elaborate submission was made on behalf of the assessee, the gist of which as summarized by the AO on page No. 2 of his order was as under : (i) Investment in shares has been made by the assessee out of her own funds. (ii) The shares purchased from time to time have been shown in the books of account by the assessee as her investment all throughout. (iii) Investment made by the assessee was spread out in different shares to safeguard her interest, (iv) All the transactions of purchase and sale of shares were routed through BSE and NSE and the same were delivery based. (v) Intention of the assessee in making the transaction....
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....e than 200 different scrips and frequently changes his portfolio. From the balance sheet it is noticed that the total fund including capital of Rs. 5.62 crore and loan of Rs. 72.87 lakhs available with assessee is Rs. 6.35 crore out of which Rs. 6.05 crore which is almost 95% of total fund has been invested in shares only. Thus from the volume and nature of share transactions it can be safely concluded that the assessee engaged herself in systematic business of share trading. 2.2.4 Assessee's another contention that the investment has never been out of the borrowed funds is absolutely wrong and misleading. As per balance sheet the amount of loan taken is Rs. 72.87 lakh. This is closing balance as on 31st March, 2006. However, on perusal of annexure 3 to Form 3CD it appears that during the year she accepted loan of Rs.4.03 crore which utilized mostly for the purpose of purchasing shares. Only meager amount was used for Future & Option transactions. For the loans taken a substantial amount of Rs. 9.15 lakh was paid as interest. In profit & loss a/c she has debited entire amount of interest against future and option profit which is only a distortion of fact. The fact is that a majo....
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....stock prices. For example, she purchased and sold the shares of Century Enka 12 times during the year. It is true that some of the shares were held for a longer period but that too motivated by business intention. During the year, she made more than 1700 transactions of purchase and sale of shares. It is also to be highlighted that the assessee has got no other business or source of income except dealing in shares and Future & Options. It has already been pointed out that more than 95% of fund available with her has been invested in shares only. It means that the assessee utilize her entire fund time and infrastructure to earn profit from systematic business of share trading. 2.2.7 In the paragraph above and further discussion as below, all aspects have been considered before considering the transaction in shares as adventure in the nature of trade. It has also been made clear in Departmental Circular No. 4/2007 dated 15.06.2007 that "No single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock in trade. 2.2.8 The assessee's argument th....
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....nal provisions and therefore it is absolutely necessary to classify the correct head to the income declared. In this context, the following appeal needs to be discussed. To support her contention, the appellant has made an elaborate submissions relying on facts of the case and the case laws applicable. I find that majority of the cases relied upon by the appellant is applicable in her case. Notwithstanding the same even if examined independently, it is apparent from the assessment order that the assessing officer decided the case without investigation and without analyzing all the facts of the case It has been held by the Hon'ble Allahabad High Court in Deep Chandra & Co. 107 ITR 716, the burden lies on the revenue to establish that the profit earned on a transaction was revenue realization and not capital gains. This onus cannot be discharged by surmises and by merely rejecting the explanation of appellant assessee. The appellant has filed a return of income declaring both business income and capital gains (both long term and short term) from sale of shares. The appellant has claimed to have earned Rs. 64,29,1821- from business of sale of shares for which borrowed capital has been....
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....partment assessed the case of the appellant u/s 143(3) of the I.T. Act 1961 and accepted the Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG) declared in the return of income filed. For Assessment Year 2005- 06, the case has been processed u/s 143(1) of the I.T Act 1961 and return of income accepted as declared. Therefore, there seems no justification in the action adopted by the Assessing Officer in the year under consideration as the facts of the case remain the same. 4.1 There is no law or practice that a dealer in a particular commodity cannot hold that very commodity as investment. In fact, the Hon'ble CBDT itself vide Circular No. 4 dated 15/6/2007 and Instruction No. 1827 dt 31.8.89 has held that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an appellant assessee has two portfolios, the appellant assessee 'may have income under both heads i.e., capital gains as well as business income. Assessing officers are advised that the above principles should guide them in determining income ....
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....ss declared but to invest in shares shown as investment. The appellant on the other hand has established that loans were not used to buy shares treated as investment. The Assessing Officer has just based his case on the volume of transaction done and the fact that the appellant is also deriving income from business of shares. It is a well-known fact that business enterprise can have two types of assets and there is no bar on business enterprises to invest in immovable assets through surplus generated from the business. It is not necessary that the asset acquired if it is similar to the property used as stock in trade would automatically fail under the category stock in trade. For eg: a person dealing in the business of jewellery can also invest in jewellery. If the assets so acquired are a disputed assets to explain under which category it would fall it is for a person raising the dispute to discharge the onus of establishing the claim. In this case, it was for the Assessing officer to discharge the onus to establish that the sale of shares was actually stock in trade in the hands of the appellant and not a business asset. Simply by denying the contention of the appellant the onus ....
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....e shares have been held for a considerably longer period and in some transactions loss has resulted. If this, activity was business activity, the appellant like any prudent business person would have ensured that sale of shares do not result in losses and their turnover was quick. There is nothing on record to prove or to come to the conclusion that the appellant had converted the capital asset into stock in trade. Merely because there has been profit in a transaction, it cannot be said that business has been done and the transaction covered is one of business. The income from such transaction unless proved otherwise can only be taxed under the head capital gains. This more so ever as the appellant has been showing these shares as a personal investment in her books of accounts separately from business stock and as there is nothing to show that these shares were acquired in the course of appellant's business, the profit from the sale of these shares can only be taxed under the head capital gains. From the details filed, it is clear that the appellant has year after year been indulging in business in shares from shares held as stock in trade and also earning profit as capital gains f....
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....distinguished between the shares held as stock in trade and that held as investment and the Assessing Officer has not brought on record to state that the investment in shares have been converted into stock in trade. The appellant has all the liberty to earn income from both the heads of income i.e. business and capital gains and one cannot be merged with the other on presumption and assumptions. The number of transactions and the volume of transactions cannot alter the nature of transaction unless the surrounding circumstances support the same as propounded by the Hon'ble rabad Bench 'A', in the case of Shah-la Investments and Financial Consultant (P.) Ltd. v. DOIT [2005] 2 SOT 371, (Hyd.). In the case of the appellant the Assessing Officer has brought nothing on record to justify the alteration in the nature of transaction. On the other hand, the appellant has argued her case stating that.- (1) The appellant maintains a separate investment portfolio from that of business (2) there has been no change in the holding pattern since the beginning and no conversion of investment into stock in trade has been done. (3) The Assessing. Officer has made a departure for the Assessmen....
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.... of holding them for a long period i.e. more than 12 months and this is a clear indication that the transaction was intended as an investment. Regarding Short Term Capital Gain declared at Rs. 2,28,16,373/-, the facts and circumstances of the case as discussed above clearly indicate that the income has been correctly classified by the appellant and should be accepted as such. This is more so ever, as the appellant has declared income under F& 0 consisting of speculation separately and rightly as business income in which no physical delivery of shares were taken. In view of the above, seeing to the history of the case and the finding that the case is covered under the pronouncement of the Hon'ble Courts including the Jurisdictional Courts, I have no hesitation in saying that sale of shares by the appellant would classify as an capital asset and surplus arising from its sale would squarely fall under the head capital gains as declared because the appellant has declared the surplus realized on sale of investment in shares as capital gains in the previous Assessment Years and have been assessed by the Assessing Officers accordingly and no fresh fact or evidence have been brought on rec....
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....Appeal Nos. 3991 and 3992 (Mum.) of 2008 dated 13-7-2010]. (ii) Asstt. CIT v. V. Nagesh [IT Appeal No. 5410 (Mum.) of 2008 dated 24-9-2009]. (iii) Smt. Sadhana Nabera v. Asstt. CIT [IT Appeal No. 2586 (Mum.) of 2009 dated 26-3-2010]. (iv) Sarnath Infrastructure (P.) Ltd. v. Asstt. CIT [2010] 124 ITD 71 (Luck.). 7. The learned counsel for the assessee, on the other hand, submitted that the profit arising from sale of shares was declared by the assessee as short term capital gain and long term capital gain depending on the period of holding. He submitted that the short term capital gains as well as long term capital gains declared by the assessee was treated by the AO as her business income and the learned CIT(Appeals) while disposing of the appeal of the assessee vide his impugned order has directed the AO to accept the treatment given by the assessee to the profits arising from sale of shares as short term capital gains and long term capital gains. He contended that the Department in the present appeal has challenged the action of the learned CIT(Appeals) only in respect of direction given to the AO to treat the business income as short term capital gains and the decisi....
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.... case has been dismissed by the Hon'ble Supreme Court. He cited various decisions of the Tribunal stating that a similar issue has been decided therein in favour of the assessee following the rule of consistency. 8. We have considered the rival submissions and also perused the relevant material on record. The issue involved in the present appeal is whether the shares sold by the assessee during the year under consideration giving rise to short term capital gains were purchased and held by her as investment or stock in trade. If they were purchased and held by the assessee as investment, the profit arising from sale thereof would be chargeable to tax in the hands of the assessee under the head "Capital Gains" whereas if the same were held by her as stock in trade, the profit arising from sale thereof would be chargeable to tax in the hands of the assessee under the head "Profits & Gains of business or profession". It is, therefore, necessary to ascertain whether the shares were purchased and held by the assessee as investment or stock in trade and this will depend upon the intention of the assessee at the time of purchase of relevant shares. It is well settled that such intention....