TaxTMI 
TaxTMI 
2012 (11) TMI 465
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....nt year 2006-07, ITA No.803/Hyd/2011, the grievance of the Revenue is against the direction of the CIT(A) to treat the income arising out of the assessee/s transactions of buying and selling shares as long term capital gains. Similarly, in the assessee's appeals for the assessment years 2007-08 and 2008-09, the common grievance of the assessee is against the direction of the CIT(A) to treat the income arising out of the assessee's activities in buying and selling of shares as income from business, instead of as long term capital gains exempt from income-tax, as claimed by the assessee. 3. Brief facts of the case are that the assessee is engaged in the business of investment and dealing in securities. Assessee treated the income from the share transactions as capital gains and thereby claimed exemption under S.10(38) of the Income-tax Act. Besides, the assessee has shown income from short term capital gains as taxable at special rates. For the assessment year 2006-07, the CIT(A) has given a direction to the assessing officer to treat the income from out of buying and selling of shares as capital gains, and also directed granting of exemption of the same from tax under S.10(38) of t....
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....oduce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. 6. In the case of Commissioner of Income Tax, Bombay Vs H. Holck Larsen (160 ITR 67), the Supreme Court observed : The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the nature of investment was a question of law. This was a mixed question of law and fact. 7. The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the assessing officers. 8. The Authority for Advance Rulings (AAR) (288 ITR 641), referring to the decisions of the Supreme Court in several cases, has culled out the following principles :- (i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction; (ii) the substantial nature of transactions, the manner of maintaining books of accounts, the mag....
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....ortfolios, i.e., an investment portfolio comprising of securities which are 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 assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income. 11. Assessing officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee 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. These instructions shall supplement the earlier Instruction no. 1827 dated August 31, 1989. (F.No.149/287/2005-TPL)" Further, he submitted that the assessee never treated its shares as stock in trade and it always treated the same as investment in the books of accounts and disclosed the income therefrom as incom....
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....31.03.2008 Rs. Sale of investments 244,311,161 Dividend 4,382,774 Interest on loans 806,852 Brokerage and Professional fees 836.400 Rental Income 96,000 250,233,187 Expenditure Cost of Investments sold 134,253,585 Administrative expenditure 1,430,747 Municipal Taxes 23,212 Depreciation 150,451 Securities Transaction Tax 381,088 Loss on Sale of Cars 233,665 Service Tax --- 136,472,747 9. Against the above position of income and expenditure, assessee declared business income of Rs.1.56 lakhs and long term capital gains of Rs.10.80 cores and short term capital gains of Rs.20 lakhs. During the assessment year 2008-09, assessee dealt in the shares of 49 companies on which assessee declared long term capital gains and also dealt in shares of 20 companies and declared short term capital gains and volume of transactions relating to these gains is multiply large. Assessee stated before us that it has sold only out of opening balance of shares and not purchased any shares. Against this statement, we find that the assessee purchased shares of City Union Bank in September/October, 2007 and also purchased shares of First Leasing Company ....
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....investment transaction is a mere realization of the investment or an act done for making profit depends on the question whether excess was an enhancement of the value for realising the shares by a gain in an operation of making profit. If the transaction is in the ordinarily lien of the assessee's business, there would hardly be any difficulty in concluding it to be a trading transaction, but where it is not, the fact must be properly assessed to determine whether it is in the nature of trade. The surplus realized on the sale of share would be capital, if the assessee an ordinary investor realising his holding, but it would be revenue if he deals with them as a trader. if the assessee is an ordinary investor, the income arising out of sale of shares is capital gain. On the other hand, if he trades in shares in regular manner, it is income from business. If an individual invests in shares for the purposes of earning dividend, he is not carrying on a business. If the assessee is holding shares as investment and sold it due to change of circumstances and earns profits, that profit is nothing but capital gain. Whether a purchase is made with an intention of resale and gain to earn prof....