TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 182
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.... the process of securing approval from IRDA. For the impugned assessment year the assessee filed its return of income on 23-11-2006 declaring total income of Rs.59,07,331/-. Though initially assessee's return was processed u/s 143(1), but subsequently the return was selected for scrutiny. During the scrutiny assessment proceeding the Assessing Officer on examining the books of accounts and other documents noted that in the computation of total income the assessee has shown net profit as per P & L account for the year at Rs.65,37,510 and after claiming expenditure has shown net loss. That besides, the assessee has also shown short term capital gain covered by security transaction tax (STT) of Rs.60,79,903/-. 4. The Assessing Officer asked the assessee to furnish the details of investment made in shares. In response to the query made by the Assessing Officer the assessee furnished the list of investment made in shares and also shares sold during the financial year 2005-06. On verification of the details submitted, the Assessing Officer noted that the assessee has made the purchases and sales of shares very frequently in every month. The Assessing Officer observed that the assessee p....
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.....5,14,357/-. It was submitted that the Assessing Officer ignoring the basic nature of gains accruing to the assessee denied the benefit of special rate of tax on short term capital gains from sale of listed shares/securities as provided u/s 111A of the Act. The learned AR submitted, the Assessing Officer however accepted the exemption claimed in respect of long term capital gain u/s 10(38) from sale of shares. The assessee submitted that the investment in shares is only the ancillary activity of the assessee and is on capital account as its prime business activity is to carry on insurance broking services. It was submitted that investment on capital account would only lead to capital gains and not business profit in view of the decision of Hon'ble Supreme Court in case of CIT V/s. Shutlej Cotton Mills Supply (100 ITR 706) and Janaki Ram Bahadur Ram V/s. CIT (57 ITR 21). The assessee submitted that the Assessing Officer should have seen the circumstances, the intention and nature of investment, apart from the object of the assessee. He submitted that only because the shares were sold at a higher value would not result in the transaction in shares as a trading activity. In this conte....
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....s that whatever shares were so purchased was sold after achieving expected appreciation. He further noted that, even though there were multiple transactions for such purchases, but many independent transactions were there for one share, which, according to the CIT (A), cannot be regarded as an independent purchase transaction, like the purchase of one share of Aurobindo Pharma for Rs.28.7.72 on 26-4-2009, because even the online trading platforms do not permit any transaction below the value of Rs.1000 generally. The CIT (A) therefore held that such transactions are part of a single transaction which was executed by the exchanges through its matching software in several deals. He further noted that in assessee's case no frequent entry and exit is made in the same scrip. He found that assessee had entered in one stretch and also exited mostly in one stretch, be it in days, months or years. From all these facts the CIT(A) inferred that the transactions carried out by the assessee were in the nature of investments unlike trading wherein the traders generally make multiple entries and exits in the same scrip with great frequency and even lesser volume. The CIT (A), concluded that the i....
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....preme Court in case of Rajabahadur Vishweswar Singh vs. CIT (41 ITR 685) wherein it is held that since the assessee is not dealer in shares, realisation of enhanced price does not render a transaction in the nature of trade. In case of Rajabahadur Kamakhya Narayan Singh vs. CIT (77 ITR 253) it is held that the conduct of the assessee will determine the nature of income and if the shares are held as investment, surplus realised on sale of such shares would be capital gain and not trading profit. The CIT (A) felt that in such type of cases what is important is the intention of the party. The fact that the assessee had been consistently showing its share transactions as investments and declaring the profit on sale of such investments as short term capital gains/long term capital gains in its returns, which were also accepted by the department proves the intention of the assessee to treat the share transactions as investments only. The CIT (A) also relied upon the decision of the Hon'ble Bombay High Court in case of CIT vs. Gopal Purohit (228 CTR 582) wherein it is held that delivery based transactions should be treated as in the nature of investments and profit received there from sho....
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....lied upon the decision of the Hon'ble A.P. High Court in case of PVS Raju vs. CIT (340 ITR 75). 13. The learned AR strongly supporting the reasoning on which the CIT (A) has allowed the appeal, submitted that there is little scope for interfering with the finding of the CIT (A) as he has considered all the aspects of the matter and such finding is in terms with the ratio laid down by the Hon'ble A,P. Court in case of Spectra Shares & Scrips Pvt. Ltd. Vs. CIT (354 ITR 35). The learned AR submitted that if tests laid down in case of Spectra Shares (supra) is applied to the facts of the assessee's case, then following similarities will be noticed:- i. The assessee there had not borrowed any funds for investments. Here also the assessee has not borrowed any moneys for investments. The High Court observed that usually borrowals would be made where trading is intended or practiced. ii The closing stock was valued in the books of account consistently at cost and not at cost or market price whichever is lower. In this case also the assessee has consistently valued the closing stock of shares at cost and not at cost or market price whichever is lower. iii. The assessee had never dealt i....
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.... shares are held for more than one year, then it is investment and if the period of holding is less than one year it is trading activity. Thus, the Assessing Officer is inferring the intention of the assessee not at the time of purchases but on the basis of the period for which shares were held. The learned AR submitted that one most significant aspect which cannot be lost sight of is that the assessee was incorporated only for the purpose of insurance broking business and because the funds were lying idle, they were invested in shares both quoted and unquoted and mutual funds. Therefore, the intention of the assessee is to engage in broking business and not in trading in shares. He further submitted that the judgment of the Hon'ble A.P. High Court in case of PVS Raju (supra) is distinguishable on facts as in that case the assessee himself was showing it as business income and suddenly changed to investments for claiming benefit u/s 111-A. That besides in case of PVS Raju all the shares were held for less than two months and some shares was sold even before the purchase thereby indicating the intention of the assessee in that case. The learned AR submitted that there being no such ....
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....es by the appellants were high; (b) The period of holding was less; (c) The quantum of turnover was on account of frequency of transactions, and not because of huge investment; (d) The intention of the assessee to make quick profits on a huge turnover; (e) No. of scrips shares held for fewer days; (f) Whether engaged in dealing in the same scrips frequently; (g) Intention of the assessee in buying shares is not to derive income by way of dividend on such shares, but to earn profits on the sale of the shares; (h) Whether the assessees had indulged in multiple transactions of large quantities with high periodicity. These periodic transactions selecting the time of entry and exit in each scrip, called for regular direction and management which would indicate that it was in the nature of trade; (i) Repeated transactions, coupled with the subsequent conduct of the assessee to re-enter the same scrip or some other scrip, in order to take advantage of market fluctuations lent the flavour of trade to such transactions; j) The assessees were purchasing and selling the same scrips repeatedly, and were switching from one scrip to another; k) Mere classification of these share transa....
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.... an investor would not buy or sell blindly and take the risk of suffering losses. (l) The fact that the assessee has a administrative set up and incurs considerable administrative costs is not a factor to hold that the assessee is a trader. (m) The fact that the assessee is making repetitive purchases and sales of same shares is a factor in favour of holding that the assessee is an investor in view of the amendments to section 10(38) and section 115JB of the Act. (n) The revenue had accepted that the assessee was an investor whose income is chargeable under the head capital gains for a number of years. 17. We may add here that, though in case of Spectra Share (supra) the issue arose in the context of CIT's jurisdiction in exercising powers u/s 263 of the Act, but still, the parameters laid down by the Hon'ble High Court as aforesaid are very important indicators to decide the broader issue whether holding of shares were for the purpose of investments or trading. Therefore in our view, to that extent the decision of the Hon'ble High Court in case of Spectra Shares (supra) is a binding precedent to be followed in other cases involving similar issue. Therefore, if we test the asse....
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....Court in case of PVS Raju vs. Addl. CIT (supra) is concerned, none of the factors considered by the Hon'ble High Court for treating the share transactions as trading activity therein are present in assessee's case, as would be very much clear from the order of the CIT (A). Furthermore, in case of PVS Raju (supra) the assessee himself was treating the share transactions as a trading activity in earlier years. Only after introduction of section 111A, the assessee for availing concession in rate of tax claimed it as investments. Therefore, the Hon'ble High Court rejected assessee's claim as he did not satisfy the tests laid down in the said judgment. Therefore, considering the totality of facts and circumstances, we are inclined to uphold the conclusion of the CIT (A) in treating the share transactions as investments and directing the Assessing Officer to treat the income there from as short term capital gain. The grounds raised are dismissed. 20. In the result, the appeal filed by the department is dismissed. ITA No. 977/HYD/12 ASST. YEAR 2008-09:- 21. Facts being identical to ITA No.555/Hyd/2010, dealt with by us in the earlier part of the order, it is not necessary to discuss th....
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....ps by making continuous purchases till the time it accumulated the targeted number of shares within an identified price range. Similarly, once the assessee started selling a particular scrip, it completely exited from them as and when it got the appropriate price, even if the holding period is less than 12 months. This is only aimed at realising the appreciation or varying investments and not at rotating the capital as the assessee was not found to be frequently jumping in and out of the same scrip. The CIT (A) after examining the share transactions made by the assessee noted that, even if purchases were made on a number of occasions but they were made within a limited price range. Likewise, even if sales were made on a number of days but they were sold off when the assessee was getting appropriate price. The CIT (A) specifically enumerating the purchase and sale of certain shares by the assessee observed that, it cannot be said that they were timed with market trend. He further noted that, it is not the case that the assessee was frequently purchasing and selling the shares. Rather, the assessee was buying them consistently within a price range and selling them in a like manner. T....