TaxTMI 
TaxTMI 
2013 (5) TMI 445
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.... as they appear in the appeal in ITA no. 3063/Mum./2011, for assessment year 2006-07. 2. The sole common dispute which we need to adjudicate in these appeals is with regard to the direction of the learned Commissioner (Appeals) in treating the short term capital gain on shares and mutual funds aggregating to Rs. 1,83,55,523 for assessment year 2006-07 and Rs. 58,57,807 for assessment year 2007-08 as business income. 3. Facts in brief:- The assessee is a private limited company and the nature of business is stated to be consultancy relating to tours and travels and allied service. The Assessing Officer noted that the assessee had shown income of Rs. 39.75 lacs under the head "Income From Interest" and Rs. 3.93 lacs under the head "Income From Other Sources". On a perusal of the details of "Income From Other Sources", he observed that it mainly consist of gain on sale of shares at Rs. 3.29 crores, dividend income on shares of mutual fund at Rs. 30.59 lacs and commission received at Rs. 15.31 lacs. Against these receipts, the assessee had claimed expenses of Rs. 86.40 lacs consisting of tour and travel expenses and administrative expenses. It was further observed by the Assessin....
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.... return of Rs. 30.59 lakhs i.e., a yield of 1.8% when it could have cooly 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; (viii) 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; (ix) In this case, though the Assessee has treated the shares as investment 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 sole intention to earn dividend and selling it only when it intends to bring a change in its port folio; (x) It can be seen from the MoU and Articles of Association that the Assessee company is an investment company authorised for dealing in shares and that it itself does not lend much prudence to the Assessee's arguments that its activit....
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....) rejected the assessee's contention on the ground that principle of estoppel does not apply in the income tax proceedings and even though in the earlier years such a nature of transactions have been accepted to be assessable under the head "Capital Gains" will not preclude in taking different stand in this year. CBDT circular no.4 of 2007 dated 15th June 2007, was also relied upon by him. Based on this CBDT instruction and various case laws cited by him, he held that profit motive was paramount aspect in the transactions undertaken by the assessee and, therefore, the Assessing Officer was right in treating the income from transaction of shares under the head "Income From Business". While coming to this conclusion, the Commissioner (Appeals) has made following observations:- "3.3.3 The appellant has shown the shares held by it as investment in the books of account and in the balance sheet. The Supreme Court has held that the manner of entry in the books of account is not decisive (82 ITR 363 (SC). Therefore, the share shown as investment does not mean that they are investment; one has to see the substance of the conduct of the appellant. 3.3.4 The appellant's average of inves....
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....s decided the issue against the assessee i.e., the "notes on accounts" given in the audit report was not confronted to the assessee at the time of hearing. The Tribunal, after hearing both the parties, has recalled the entire order for hearing it afresh. It is now after recalling of the order, we have heard the matter afresh. 8. Before us, the learned Counsel, Mr. Vijay Mehta, representing the assessee, after referring to the relevant facts of the case, first of all, drew our attention to the summary of transactions and details of shares shown under the head "Short Term Capital Gains" which are appearing in the paper book from Pages-82 to 88. From these details, he pointed out the name of scrips, date of purchase, quantity of shares, date of purchase and sale, quantity sold, amount received and the period of holding. From these details, he pointed out that there are three categories of transaction under the head "Short Term Capital Gain" - (i) there is one purchase and one sale of scrip and most of them fall in this category; (ii) one or more instance of sale but no repetitive transactions and (iii) there is a repetitive transactions, however, such transactions are very few. The....
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....the main basis for the Tribunal to decide the issue against the assessee in the first round, he submitted that such a remark will have no bearing looking to the actual nature of transaction, past history of the earlier years and the nature of entries in the books of account. He clarified that even in the earlier years, wherein the assessment was completed under section 143(3), similar note was given by the auditor and still the Assessing Officer has accepted the fact that the assessee is not dealing in trading of shares. Such kind of note is in fact as per the ICAI guidelines wherein there is a standard remark which has been incorporated by the auditor. This does not mean that the assessee is actually trading in shares. To clarify this that this remark does not describe the activity of the business carried on by the assessee, he has filed a certificate from the auditors namely Mr. Rajesh Rajeev & Associates, C.A., wherein they have certified that clause xiv given in the financial statement does not describe the activity of the business carried on by the assessee but is a format extracted from the report prescribed under the ICAI guidelines. Lastly, he relied upon various case laws,....
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....resent case, similar issue is involved i.e., the treatment of short term capital gains on sale of shares and mutual fund aggregating Rs. 1,83,55,523, is whether assessable under the head "Income From Business" or under the head "Short Term Capital Gain". The Revenue's case is that looking to the volume and frequency of the transactions which are quite high and the period of holding is also short, therefore, gain from such transactions has to be treated under the head "Income from Business". On a perusal of the transaction, it is seen that the assessee has shown gain on sale of equity shares at Rs. 91,32,471, and gain on sale of mutual fund of Rs. 92,23,053. For short term capital gains, the number of scrip entered into are 74, however, in most of the cases, the average holding period is far more than 100 days. The over all average of period of holding is around 184 days. Insofar as the allegation of the Revenue is concerned that the number of transactions have been undertaken in the sale of 74 scrips, the same cannot be taken as primary parameter to hold that it should be treated as business activity because it is a known phenomenon in Stock Exchange that a single transaction is sp....