TaxTMI 
TaxTMI 
2015 (7) TMI 914
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....questionnaire u/s. 142(1) on 6th January, 2010. In response to the notice, Shri Chetan Desai, chartered accountant appeared on behalf of the assessee from time to time and submitted the requisite details. On scrutiny of the accounts, it revealed to the ld. Assessing Officer that assessee has declared short term capital gain of Rs. 61,97,756/- and paid taxes on it u/s. 111(a) of the income tax act. The ld. Assessing Officer on an analysis of the details of shares purchased and sold, formed an opinion that some of the shares were sold within a week of their purchases. Thus, according to the Assessing Officer the holding period in respect of few shares was very less. The frequency of transaction during the year was very high and, therefore, he harboured a belief that assessee was indulging in the share trading business. He issued a show cause notice inviting the explanation of assesssee as to why the short term capital gain disclosed by her be not treated as a business income. The ld. Assessing Officer has reproduced the details of shares purchases and their sales on page no. 3 of the assessment order. He further observed that in response to the show cause notice, assessee was require....
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....ng the year showing the intention as investor. Now, as regards the volume and frequency of transactions, it is seen that during the year under consideration, the appellant has dealt in only 15 scripts and transacted on only 56 days through out the year and the average holding period in case of shares sold during the year also works out to 69 days i.e. a period of more than 2 months. Thus, the volume and frequency in the case of the appellant suggests the act as an investor and not as a business-man since a business-man would generally not carry out his business for only 56 days out of 365 days in a year. Moreover, the Board Circular no - 4 dated 15-06-2007, lays down various principles for distinction between shares held as investment and shares held as stock in trade such as whether the shares are held by the assessee as a capital asset or a stock in trade, the object and the motive for acquiring the same, the volume and frequency of transaction, the manner of maintaining the books, the infrastructure employed and the deployment of borrowed funds of owned funds and the said Circular in para 11 clearly advices the AO that no single principle would be decisive in determining whe....
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....ted as short term capital gain income. In result the ground of appeal no. 1 as raised by the appellant stands partly allowed." 5. We have duly considered rival contentions and gone through the record carefully. The issue, whether gain from sale of shares is to be assessed as a business income or short term capital gain/long term capital gain, is a highly debatable issue. It always puzzled the adjudicator even after availability of large numbers of authoritative pronouncements by the Hon'ble Supreme Court/Hon'ble High Court. The reason for the puzzle is, one has to gather the intention of an assessee while he entered into the transaction. The expression "intention" as defined in Meriam Webster Dictionary means, what one intends to accomplish or attain, it implies little more than what one has in mind to do or bring out. It suggests clear formulation or deliberation. Thus, it is always difficult to enter into the recess of the mind of an assessee to find out the operative forces exhibiting the intention for entering into the transaction. This would give rise a debate. Nevertheless, we have to look into the curious features of this case which will goad us on just conclusion. 6. B....
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....morandum of association/articles of association? Whether for trade or for investment? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice verse. 7. It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stockin- trade) then onus would shift to Revenue to prove that apparent is not real. 8. The mere fact of credit of sale proceeds of shares ( or for that matter any other item in question) in a particular account or not so much frequency of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment. 9. One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee is complying with them. Whether it is the argument of the assessee that it is violating those legal requirements,....
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.... is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter of transaction during the time the asset was the assessee. Has it been treated as stockin- trade, or has it been shown in the books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in case of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorizes such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transaction of purchase and sale of the goods....
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....the assessee as investor vide assessment order dated 28-01-2013 passed u/s. 143. According to the assessee, in earlier years also, her status was never changed by the Assessing Officer. On due consideration of these facts, we are of the view that ld. Assessing Officer was simply influenced by magnitude of transactions. To our mind, magnitude of transaction is one of other factor amongst others for deciding the nature of investment, whether it was a trading in shares or simplicitor investment. Therefore, looking to the facts and circumstances and the finding of the Commissioner of Income Tax (Appeals), we do not see any reason to interfere in the order of the Commissioner of Income Tax (Appeals) on this issue. 11. In the next ground of appeal, revenue has pleaded that ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs. 1,51,000/-. 12. Brief facts of the case are that assessee has made fixed deposits with the bank of Baroda and Axis Bank. She has earned the interest income. These fixed deposits are of Rs. 13,21,967/-. The income has been accounted by the assessee as under:- Sr. No. Name of the Bank Amount (Rs.) Amount (Rs.) 1 2. Axis Ban....