AI Drafter 
TaxTMI 
TaxTMI 
2014 (12) TMI 138
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....w and on facts in holding that the decision of Hon'ble Mumbai High Court in the case of CIT vs. Gopal Purohit is not applicable to the case of the appellant. 5. The learned CIT (Appeals), Pune has erred in law and on facts in not appreciating the following important factors: a. Appellant has treated the transaction in the shares as investment and duly disclosed the same in the books of accounts. b. Appellant has used his own funds for purchasing shares. c. Appellant has consistently treated the shares as investment. d. Appellant has been regularly earning dividend income. e. Period of holding of the shares is from 30 days to 245 days. 6. The appellant may kindly be permitted to add to or alter any of grounds of appeal, if deemed necessary. 3. The assessee is an individual who derives his income from house property, partnership firm, transactions in shares, income from other sources etc. During the year, the assessee filed his return on 30.3.2009 declaring a total income of 45,94,660/- which comprised of income from rent from property, capital gain on shares, interest and remuneration from firm etc. Some of the income earned by the assessee was exempt and....
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.... Chhatarmal Gokulchand Chhajer in ITA No.699/PN/2012, wherein, the Tribunal has held as under: "8. Considering the totality and peculiarity of the facts, CIT(A) taking all facts and circumstances into consideration, held that sale of shares held for more than one month would be charged capital gain and surplus of shares held for less than one month will be treated as profit from business. CIT(A) was not justified to make above classification. This classification is not reasonable. Taking all facts and circumstances as discussed above, we hold that all the share transactions undertaken by assessee will be charged to capital gain irrespective of their holding period. Assessing Officer is directed to compute capital gain accordingly. This take care of issue raised in cross objection by assessee as well." ii. Mr Bothara Pemraj Manakchand vs. DCIT in ITA No.1172/PN/09, wherein, the Tribunal has held as under: "9. We have carefully considered the rival submissions. The dispute in the present appeal arises from the treatment accorded to the gain earned by the assessee on sale of shares. The assessee had shown long-term capital gain of Rs. 1,25,336/- after claiming exemption under....
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....n which is required to be examined. In the present case, the assessee is not having singular activity of investment in shares. In fact, the assessee has been holding shares as investment from year to year. It is also an emerging factor that investments have been made out of surplus/own funds and the assessee is otherwise engaged in other business activities. Before the lower authorities the assessee also canvassed with reference to his Balance sheet that he had substantial funds and it is only to realize better return, the investments in shares have been made. It is pointed out that primarily the assessee has held the shares for more than one year so as to earn long-term capital gains; that merely because certain shares were sold for a period less than one year, the same would be indicative of a business transaction is not correct. Having considered the manner in which the assessee has transacted in shares and having invested only the surplus funds in the transaction of shares, in our view, the same has been rightly declared by the assessee as falling under the head as capital gain and not as business income. Under these circumstances, we therefore reverse the order of the Commissi....
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....rom the shares sold within 37 to 236 days of purchases, statement showing the working of profit and loss giving period of holding was also filed before authorities below, which shows that the intention of the assessee was to hold the shares for a longer period and to earn income of appreciation of the value of shares and not earn the profit in the short period. d. It is not in dispute that the assessee has regularly earning dividend income. e. The authorities below have not disputed the fact that the assessee has valued the shares at cost and never valued the balance at the beginning as well as end of the year at market price or realizable value. f. the assessee has been consistently treating the shares as investment and disclosed the gain as short term capital gain or long term capital gain, as the case may be. g. As per Sec. 2(14) the term capital asset means property of any kind held by an assessee, whether or not connected with his business or profession, but excludes stock in trade of the business and few other items specified in the said section. Thus the definition is wide and is held to include not only the property, but right to acquire such property. Derivativ....
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....ve to be applied to the activity of share investing in order to determine whether the transaction result in business income or capital gain. There is no express provision in the law to determine when an activity is one of investment and when its constitutes to a business. The definition of section 2(13) of Income Tax Act which says that the business includes any trade, commerce, or manufacture or any other adventure in the nature of trade, commerce or manufacture, does not provide much guidance so far as determining whether said transactions constitute a business or not, sine the definition is an inclusive definition and therefore, merely illustrative. Even in explanation 2 to section 28 is not of much help as explanation does not define the circumstances in which such transaction constitutes the business. 5.2 Test for distinction between shares held as stock in trade and shares held as investment is mentioned by the CBDT in circular No. 4/2007 at 15/6/2007 and clarification as under: a) Income Tax Act 1961 makes a distinction between a capital asset and a trading asset. b) Capital asset is defined in section 2(14) of the Income Tax Act. Long Term capital asset and gains a....
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....the nature of transactions; iii. Ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transactions being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt. j) Dealing with the above three principles, the AAR has observed in case of Fidelity group as under:- "We shall revert to the aforementioned principles. The first principle requires us to ascertain whether the purchase of shares by a FII in exercise of the power of the memorandum of association/ trust deed was as stock-in-trade as the mere existence of the power to purchase and sell shares will not by itself be decisive of the nature of transaction. We have to verify as to how the shares were valued/held in the books of account i.e. whether they were valued as stock-in- trade at the end of the financial year for the purpose of arriving at the business income or held as investment in capital assets. The second principle furnishes a guide for d....
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.... in buying the shares. Whenever he found it profitable he converted his holding that the very nature of investment was such that they had to be constantly charged so that the monies invested may be used to the best advantage of the investor and that the sales were really for the purpose of employing the monies that he had invested to his best advantage. 5.3 It is common for transaction in shares to carry on both as business, as well as, an investment activity. The line that divides trading stock from invested capital is fine and often imperceptible. The question whether it amounts to business or an investment will depend upon the facts of each case. 5.4 The Hon'ble Gujarat High Court in case of CIT v/s Rewa Shankar A. Kothari (2006) 283 ITR 338 (Guj) following tests were laid down for determining whether it is business income or capital gain. a. Whether the initial acquisition was with the intention of dealing in shares or with a view to finding an investment. In assessee case it is definitely an investment. b. Why, How, and for what purpose the sell was affected subsequently. In assessee case the sale was affected subsequently as he realizes that he will get money from....
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....TAT, Pune Bench in the case of Mr Bothara Pemraj Manakchand (supra), wherein, the assessee had shown long term capital gains of 1,25,336/- after making exemptions u/s.10(38) of the Act and short-term capital gain at 24,00,367/- on account of sale of share/securities. The Assessing Officer has treated such gain as assessable under the head income from business and not as capital gains. The Commissioner of Incometax (Appeals) has concurred with the stand of the Assessing Officer and for that reason the assessee approached the Tribunal, wherein, undoubtedly, the question as to whether a particular transaction was in the nature of investment or an adventure in the nature of trade was a mixed question of law and fact. No singular factor was determinative of the question and that the same has to be inferred on the basis of cumulative effect of several factors such as, whether the purchaser was a trader; whether the purchase of the commodity and its resale was allied to his usual trade or business; the nature and the quantity of commodities traded; frequency and similarity of transactions usually associated with trade or business; the repetition of transactions; period of holding and also....