TaxTMI 
TaxTMI 
TaxTMI 
2013 (9) TMI 151
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....ts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 4. It is therefore prayed that the order of the Ld. CIT(A) may be set aside and that of the order of the Assessing Officer be restored to the above extent. 2. The assessee is an individual. He filed his return of income for the assessment year under appeal on 16-07-2008 returning total income at Rs. 96,75,150/-. Perusal of the Tax Audit Report filed by the assessee for the assessment year under appeal shows that he is engaged in the business of "trading of shares" and in no other business. "Trading of shares" is his full time activity and source of income in respect of which he has maintained, as per Tax Audit Report, various books of accounts, namely, ledger, bank book, cash book, purchase register, ales register and journal. It is also stated in the Tax Audit Report that the tax auditor has examined the aforesaid books of account before giving his Tax Audit Report stating that the assessee is engaged in the business of "trading of shares". During the course of assessment proceedings, the AO noticed that the assessee has shown income from his business at Rs. 10,69,519/-; inc....
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....ares for long period-indicating that they are held as investment. Therefore, a criteria has to be fixed for determining as to when he is acting as trader and when as investor. Accordingly, we decide following criteria to hold when gains are to be taxed as profit to be earned under business or to be treated as short term capital gain, we hold that if shares are not held even say for a month, then the intention is clearly to reap profit by acting as trader and he did not intend to hold them in investment portfolio. We believe that if a person intends to hold his purchases of shares as investment, he would watch the fluctuation of rates in the market for which a minimum time is necessary, which we estimate at one month. Where shares are held for more than a month, they should be treated as investments and on their sale short term capital gain should be charged. When shares are held for less than a month, gain on them should be treated as profit from business". 2.12 Considering the aforesaid discussion in para-2.2 to para-2.7 and specifically following the aforesaid binding decision of the Hon'ble Ahmedabad Tribunal in the case of Sugamchand C. Shah, it is held that where the hold....
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....not an investor in shares but a trader in shares. He submitted that the aforesaid facts fully confirmed the observations of the tax auditor that the assessee was mere a trader of shares and not investor in shares. 5. He also referred to several judgments particularly those referred to by the AO in his assessment order. He, in particular, referred to the decision of this Tribunal in Wallfort Financial Services Ltd. v. Additional Commissioner of Income-tax,41 SOT200 (Mum). 6. In reply, the ld. Authorized Representative for the assessee supported the order passed by the CIT(A). He filed two sets of written submissions till the date of hearing and third set of written submissions was sent by him by post after the closure of hearing on 21-01-2013. His submissions, in brief, are as under:- i. The Books of Accounts shows the purchase and sell as the investment and that shows that the appellant is engaged in the investment activity. ii. Appellant has made investments from his own funds and not from the borrowed funds. iii. The motive of the appellant was capital appreciation and not to make instant profit. iv. The appellant has no infrastructure or administrative set up and that show....
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....ut also profit from any adventure or concern in the nature of trade, commerce or manufacture. The subject matter of charge u/s.45 of the Income-tax Act, on the other hand, is capital gains, i.e., any profit or gain arising from the transfer of capital receipt effected in the previous year. Capital asset is defined in sub-section (14) of section 2 as property of any kind held by assessee, whether or not connected with his business or profession, but does not include, inter-alia, any stock-in-trade. The distinction between income from business assessable u/s 28 and income from capital gain assessable under section 45 of the Income-tax Act has been explained by a Bench of five Judges of the Hon'ble Supreme Court in Sardar Indra Singh & Sons Ltd. v. CIT [1953] 24 ITR 415 as under:- "The principle applicable in all such cases is well settled and the question always is whether the sales which produced the surplus were so connected with the carrying on of the assessee's business that it could fairly be said that the surplus is the profits and gains of such business. It is not necessary that the surplus should have resulted from such a course of dealing in securities as by itself ....
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.... and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable? What were the incidents associated with the purchase and resale? Were they similar to the operations usually associated with trade or business? Are the transactions of purchase and sale repeated? In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture? A person may purchase a piece of art, hold it for some time and if a profitable offer is received may sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a factor against the contention that the transaction is in the nature of trade. These and other considerations are set out and discussed in judicial decisions which deal with the character of transactions alleged to be in the nature of trade. In considering these decisio....
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.... remain an investor because the shares he is buying he may not be selling during the year and the shares sold may be those purchased more than a year ago. Therefore even if the number of transactions is large and volume is high, the assessee may still be an investor. Crucial factor is the period of holding which will be very short in case of a trader and long in case of an investor because a trader buys the commodity not for holding it in contrast to an investor who buys the commodity for holding it so as to earn some income from investment and have decent appreciation. In case of shares, income is in the form of annual dividend and therefore an investor in shares will normally be holding shares for more than a year and any sale before one year has to be explained from the circumstances of the case. The profit motive is also relevant but this is also not conclusive because even an investor may earn profit by way of appreciation." 13. Turning to the facts of the case, the stock-turnover ratio, as rightly pointed out by the ld. Departmental Representative, is as high as 1:16. Such high stock-turnover ratio is found in business segment and not in investment segment. This shows that t....