TaxTMI 
TaxTMI 
2011 (12) TMI 391
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....in law, the Hon'ble CIT (A)-18 Mumbai erred in confirming the action of the DCIT-8(3) Mumbai ("A.O") in treating the Short Term Capital Gains of Rs. 58,57,807/- as business income. The appellant prays that the addition made by AO and confirmed by the CIT(A) may please be deleted and the amount of Rs. 58,57,807/- be treated as short term capital gains." 2. At the time of hearing it was submitted by Ld. Representatives of both parties that facts and issue involved in both assessment years under consideration are similar save and accept amount under dispute varies. Moreover Ld. CIT(A) has followed his order of A.Y. 2006-07, to decide appeal of A.Y. 2007-08. Hence we heard both appeals together and dispose off the same by this common order. 3. The Ld. Representatives of both parties made their detailed submissions referring to facts of assessment year 2006-07 and submitted that submissions made for assessment year be also considered for assessment year 2007-08. Therefore, we state relevant facts for assessment year 2006- 07. 4. The assessee is stated to be in the business of consultancy related to tours, travels and allied services. For assessment year....
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....ot be the case of the assessee that it had invested Rs. 16.99 crores for earning a return of Rs. 30.59 lakhs i.e. a yield of 1.8% when it could have coolly earned a safe return of around 10% in a nationalized bank without taking any risk and efforts. Accordingly the intention of the assessee fails on this ground to prove that the investments are solely for investment and earning of dividend and not for trading. (h) The assessee has entered into numerous transactions in this year also involving sale of shares of substantial value and number of other transactions as seen from the details filed and these frequency of transactions clearly indicate that there was no intention for keeping it as an investment. (i) In this case, though the assessee has treated the shares as investments in its balance sheet, it cannot form a conclusive evidence to prove that the assessee had actually intended it to be an investment with the sold intention to earn dividend and selling it only when it intends to bring a change in its port folio. (j) It can be seen from the Memorandum of Understanding and Articles of Association that the assessee company is an investment company a....
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....Investor' Rather Than As A trader' in shares. 4. It was further submitted that almost all the transactions undertaken in equity shares were delivery based. The appellant had taken delivery of almost all of its scrips at the time of purchase and has given delivery at the time of sale of the shares. In all cases, deliveries are invariably taken and given, full price is paid and collected. This may not be a conclusive test but at the same time, a fairly good indicator about the activities and also the intention of the appellant of being an investor. 5. In addition to the Capital Gains earned from the Investment in shares, the appellant had declared income from dividend of Rs. 30.59 lacs; received from the said shares being held as investment by the appellant. This factual position of the appellant share transaction activity proves beyond doubt that the appellant is an investor and its share transaction activity has resulted into a gain of Rs. 2,09,20,782/- and of Rs. 1,20,07,344/- as STCG and LTCG respectively. 6. The Hon'ble Supreme Court in the case of (i) CIT vs. H. Holck Larsen [160 ITR 67) (ii) Gopal Purohit vs. JCIT [29 SOT 117]. ....
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....sessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The assessing officers are further advised 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. 12. The A.O. has observed in para 4.1 of the assessment order that the appellant has taken unsecured loan of Rs. 1.55 crores to do share business. This observation of the A.O. is factually incorrect. The appellant has taken interest-free loans from its directors. The appellant company has received interest free monies from Mr.Mahesh Shirodkar - Rs. 1.04 crores and Mrs.Anita Shirodkar Rs. 0.51 crores. Thus it is submitted that the appellant has not paid any interest on its unsecured loans. It is further contended that the appellant company has its own funds amounting to Rs. 18.79 crores consisting of its share capital and internal accruals. 13. Typical holding period for securities brought and sold. With regard to above observation, we submit it was submitted that und....
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....stments as increase in the value of stocks amount being Rs. 1,97,54,891/- is also unlawful and liable to be quashed." 6. Ld. CIT(A) considered order of AO, submissions of assessee mentioned hereinabove, and also considered CBDT Circular No. 4 of 2007 dt. 15.6.2007 and also cases cited before him; and has held that volume and frequency of transaction with respect to transaction shown by assessee as Short Term Capital Gain are very high with short holding period. However, volumes of transactions with respect to Long Term Capital Gains shown by assessee are high but number of transactions are very small with long holding periods. Ld. CIT(A) after considering decision of Hon'ble Apex Court in the case of Karampura Development Co. Ltd. vs CIT 44 ITR 362 has held that with respect to transactions shown by assessee as Short Term Capital gain, profit motive is paramount and accordingly confirmed action of AO to treat transactions of shares and Mutual Fund shown as Short Term Capital Gains as business income. However, Ld. CIT(A) has reversed the finding of AO with respect to Transactions shown by assessee as Long Term Capital Gains and also the gains of Kotak PMS as Short Term....
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....ere was no share trading activity carried on by assessee. He submitted that AO accepted computation of income and capital gain as disclosed by assessee in scrutiny assessments. Ld. AR referred to pages 83 to 87 of Paper Book which contain details in respect of Short Term Capital gain/loss on shares and also referred to pages 88 and 89 of Paper Book which contain details of Short Term Capital Gain of Mutual Fund shown by assessee. He submitted that average period of holding is 118 days in respect of shares. During the course of hearing, it was pointed out from said chart placed at pages 83 to 87 of Paper Book that there are certain shares for which number of days of holding is exceeding 365 days for example share scrip mentioned at S. No. 24 of Kalpataru Power, share scrip mentioned at S. No. 33 of NTPC, share scrip mentioned at S. No. 36 of ONGC etc. Ld. AR conceded that it was a mistake and therefore Short Term Capital Gain shown by assessee is more rather than it was to be considered as Long Term Capital Gain and as such actual Short Term Capital gain is less. Ld. AR sought permission of the Bench to file subsequently a revised chart and same was filed vide letter dt. 16.11.2011,....
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....ngwalla vs ACIT -11 SOT 627 x) Hitesh Satishchandra Doshi vs JCIT - 46 SOT 336 9. On the other hand, Ld. Departmental Representative supported orders of authorities below. He referred to statement of facts filed by assessee before Ld. CIT(A) and submitted that assessee transferred its travelling business in assessment year 2004-05. He referred to page 45 of paper book which relates to Profit and Loss account for the year ended 31st March, 2004 and submitted that assessee received Rs. 13.34 crores (approx) on sale of its brand and used said amount in shares. Ld. DR submitted that from the chart filed by assessee placed at pages 82 to 89 of Paper book relating to purchase and sale of shares/mutual fund, number of holding varies from 8 days onwards. Ld. DR submitted that commission income shown by assessee is only Rs. 15.31 lakhs and whereas income from purchase and sale of shares is of Rs. 3.29 crores. He further submitted that out of its total fund of Rs. 20.51 crores, assessee invested 16.99 crores in shares and units. Ld. DR submitted that volume of transaction and motive are to be considered and it shows a number of transactions were entered into by assessee. ....
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....as to be treated as Short Term Capital Gain or business income. 13. The thrust of submission of Ld. AR is that shares/mutual funds purchased by assessee have been disclosed in balance sheet under the head "investment" and in the preceding assessment years, Short Term Capital Gain disclosed by assessee on sale of shares/mutual fund had been accepted in the scrutiny assessments of preceding years. Therefore, authorities below are not justified in treating the profit on sale of shares/mutual funds in the assessment year under consideration as business income. However, Ld. DR has supported orders of authorities below submitting that assessee has sold its brand of its main business in assessment year 2004-05 and thereafter is carrying on its main business of purchase and sale of shares/mutual funds. The assessee has also invested capital gain of Rs. 13.34 crores (approx) received in assessment year 2004-05 on sale of its brand. He has also stated that assessee has invested its fund in share transactions in a systematic way and therefore irrespective of the fact that shares being shown under the head "investment" in balance sheet, the profit on sale of such share has to be trea....
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....held as stock-in-trade. d) The treatment in the books of an assessee is not conclusive and if the volume, frequency and regularity at which transactions are carried out indicate systematic and organized activity with profit motive, then it becomes business profit and not capital gain. e) Purchase with intention to resell can constitute capital gain or business profit depending on circumstances like qty. of purchase and nature of activity. f) No single fact has any decisive significance and the question must be answered depending upon selective effect of all relevant materials brought on record." 15. During the course of hearing, Ld. AR submitted that if there is no change of Modus Operandi of assessee, following rule of consistency, claim of assessee that profit shown by assessee from share transaction is to be treated as capital gain and not from business activity particularly when assessee is showing purchase and sale of shares in its balance sheet under the head "investment". We agree with Ld. AR that in the preceding assessment year, assessee had earned income from Long Term Capital Gain and Short Term Capital Gain and department accepted and as....
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....fit of shares and selling them frequently in short period, in our considered view, indicates that assessee has purchased such shares with a motive to profit and not with a motive to make investment. As mentioned hereinabove that in respect of some of the transactions, period of holding is even less than 10 days and in respect of number of scrips, assessee entered into repeated transactions in purchase and sale of shares on same date. Therefore, we are of the considered view that conduct of assessee clearly indicates intention of assessee to do business in shares. We are of the considered view that merely because profit on sale of shares in preceding assessment year was accepted as capital gain, will not entitle assessee to claim it as Short Term Capital Gain during the assessment year under consideration. It is well settled proposition of law that principles of res judicata do not apply to income tax proceedings and each assessment is separate and distinct. Not only this, Authority for Advance Rulings in Fidelity Northstar Fund and Ors, In re (AAR) 288 ITR 641 has held that substantial nature of transactions, manner of maintaining books of account and magnitude of purchases and sal....
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....ered view that authorities below have rightly held that transactions of purchase and sales of shares/units by assessee in assessment year under consideration in respect of which assessee has claimed Short Term Capital Gain are in the nature of dealing in shares instead of treating them as investment in shares by assessee. We may state that the cases relied upon by Ld. AR (supra), if we consider in the light of the facts of the case of assessee, we are of the considered view that said cases had been decided on the facts of their own cases and thus, are not relevance because issue involved is a mixed question of facts and law, and has to be decided on the basis of facts of each case as mentioned herein above. In view of above, we do not find any reason to interfere with the order of Ld. CIT(A) to hold that in respect of those share transaction/mutual fund, shown as Short Term Capital Gain by assessee, the profit motive is paramount and therefore to treat the said transaction as business income as against Short Term Capital Gain shown by assessee is justified. Hence, we confirm order of Ld. CIT(A). 18. Before we part with, it is necessary to state that during the course of h....