TaxTMI 
TaxTMI 
2014 (4) TMI 681
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....s. 2. During the course of assessment proceedings, the assessee had made a claim of STCG for Rs. 3,10,62,544. On the basis of details of the sale and purchase transactions, the AO reached the prima facie opinion that the income was business income, and so, on 18th October, 2010, the assessee was asked to explain reasons for claiming STCG. The assessee supplied reasons on 13th December, 2010, which were rejected by the final assessment order made on 2nd August, 2012. The AO relied on various judgments of the Supreme Court to recount (a) whether the holding of shares is by way of investment or forms part of stock in trade is a matter within the knowledge of the assessee and depends on how it is shown in its accounts; (b) that res judicata does not apply to these proceedings and assessments in previous years as STCG is not conclusive; (c) there is no universal standard to determine whether the income is from business or STCG; this depends on the nature, frequency, volume of the transactions, ratio between sales and purchases, period for which shares are held, and whether dividend was earned before the sale; (d) nothing prevents the assessee from maintaining two portfolios, one for ....
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.... balance sheet can not over ride them and be taken as decisive of the assesse's intentions. The examination of computation of income along with profit and loss account has shown that on massive turnover on which the so called Rs. 2,88, 801/- has been shown which also pertains to investment in shares on which long term capital gain has been shown Even out of nominal dividend income shown substantial divided income pertains to long term capital gain from which it is crystal clear that the shares which have been claimed to have been investments are in fact the stock in trade only when viewed examined and analyzed against the parameter of dividend income alone, though in the instant case this is only one of the factors apart from others which have been discussed in the body of others. Thus in nutshell given the present situation of the assessee, I find that he is dealing in stocks on continuous and aggressive basis. The frequency of trades and the time gap between buying and selling of various scrips does not warrant investment for appreciation but a cautious decision to earn from price movement of stocks on regular basis. Further the account indicates a cautious activity on persist....
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....iness income. Further, it is argued that the dividend earned on the shares, which is important in order to hold that they are an investment, is extremely low compared to the profits earned through the sale of these shares. Learned counsel argues that while even shares held for investment may be sold, the manner in which the shares have been dealt with in this case, and the routine transactions, are not in response to market volatility, but rather, to earn an income through the business of trading in these shares. Thus, learned counsel argues that such an aggressive pattern of sale/purchase transactions cannot go along with their characterization as investment. 6. The short issue that arises in this case is whether the income is business income or STCG. It is important to extract the accounts, as presented before the CIT(A) and the ITAT, on the basis of which the decisions were made. It is important to note here that the assessee is claiming that STCG only in respect of the sale of 13 scrips, and the Court will confine its observations to the accounts relating to these scrips. 7. The legal standards concerning whether income is to be treated as business income or STCG have bee....
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....scrips were held throughout the entire period, with the (limited) change occurring within the shares already held. Even the sale/purchase transactions that have taken place as a ratio of the total shares held for that company is low, thus indicating the volume of shares held has not varied much. Just as aggressive and constant behavior as regards the portfolio suggests business activity, its absence suggests that the shareholding was as an investment. In fact, four of the shareholdings benefited from a subsequent bonus issue of shares, which again supports this characterization. In such circumstances, to hold that the portfolio is to be treated as business would deny the possibility of selling an investment based on a market factors, or dealing in them it at all. Indeed, the category of STCG, as opposed to a long term capital gain at one extreme and business at the other, precisely fits the bill in this case. 10. The fact that the assessee has transacted in shares does not necessarily mean that it is a trading activity; shares held as investment may also be sold and purchased, the crucial factor being the frequency and volume of the trades to determine the true intention for whi....