TaxTMI 
TaxTMI 
2015 (9) TMI 952
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....f Rs. 23,69,436/- as short term capital gain as claimed by the assessee instead of business income, as assessed by the Assessing Officer. 3. Brief facts of the case are that the assessee filed his return of income showing income from short term and long term capital gains, income from business of trading in shares of F & O market and income from other sources. During the course of assessment and after examining the transactions relating to purchase and sale of shares with reference to short term capital gain shown by the assessee, the AO made a finding that as the assessee is indulging in frequent buying and selling of shares of a very large scale continuously during the year as well as year after year and for the purpose of earning profit. The AO found no other justification for the frequent buying and selling of shares since it could not be for the purpose of investment and since the assessee was also engaged in shares trading in F & O segment he believed that the transactions of shares in purchase and sale falling under the category of short term capital gain and therefore taxed short term capital gain( STCG) as income from business. Aggrieved, assessee went in appeal before CI....
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.... he is treated as dealer in shares or still he is held as investor. As found in the case of Sarnath Infrastructure (P) Ltd. vs. Asstt. CIT(supra) also, assessee adduced evidence to show that his holdings are for investment as recorded in the books of account. The holdings are valued at cost, and such accounting has been accepted by the Revenue in earlier years. There is no material to show that assessee has declared himself as a trader in shares and legal requirements therefor have been complied with. It is also a fact that he has not borrowed any money for investing in shares. Merely because, assessee had some borrowed funds it would not by itself show that they were deployed in investment. Notwithstanding, even borrowing are required to settle payments obligations in respect of investments, like one takes loan for purchasing a house. In any case, high frequency transactions and low period holdings indicate trade, whereas low frequency transactions and high period holdings indicate investment. 17. In this case, the assessee has discharged the onus of showing that it is making investment but Revenue is able to show that there are high frequencies and low holdings in many transacti....
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....stimate at one month. Where shares are held for more than a month, they should be treated as investment 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. 20. The assessee will give the working and computing 'short-term capital gains' on the above basis. The rest of the profit will be treated as assessable under the head "business". Following the decision of jurisdictional Tribunal on this issue on similar facts, it is held that whenever the assessee has held the shares for the period more than 30 days, the same is treated as investment resulting in capital gain and whenever shares are held upto 30 days, the income arising therefrom as business income of the appellant." 5. Aggrieved, the Revenue is now in appeal before us. 6. The ld. AR has submitted detailed Paper Book and various case laws in support of his claim that assessee can have both income from business from shares as well as capital gain income from shares transactions held as investment. The ld. AR mainly emphasized on the CBDT Circular No.4 of 2007 dated 15.6.2007 and also various principles laid down on th....
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....e an intention of trade and latter an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. e. How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that they are investment or where they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. f. How the company (assessee) is authorized in memorandum 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 versa. g. 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, stock in trade) then on....
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....the assessee in shares was Rs. 1,11,84,931/- (opening value Rs. 1,05,11,605/- + closing value Rs. 1,18,58,258/-). A key ratio to judge whether a assessee is a trader or a investor is to see the turnover ratio i.e. the The value of the shares transferred/average holding of shares. While a trader will try to rotate the share holding to maximize profit, a investor will be holding the shares for a longer period. Some of the key features of a trader would be a) turnover ratio in excess of 6 to 7 i.e. the trader would purchase and sell his portfolio at least 6 to 7 times a year to maximize the profit. The stock turnover ratio of the assessee is 1.2 times (Rs.1,34,26,527/ Rs. 1,11,84,931). Considering the stock turnover ratio of the assessee at 1.2 times the fact is that the average holding of the assessee for every share is 304 days. A person engaged in business would not hold the stock for 304 days. b) high amount of security transaction tax and brokerage and commission exp: Since a typical trader carrying on the business of sale and purchase of shares has a high turnover of sales and purchase, the consequential security transaction tax and brokerage and commission exp are consid....
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....tal gains as well as business income."' 8. On the other hand, the ld. DR mainly emphasized on the finding of AO and also referred two case laws namely ACIT vs. Tarun Amarchand Jain (2012) 21 taxmann. Com 319 (Mum) wherein it has observed that shares transactions done regularly should be attributed as trading transactions and also referred the decision of ITAT Rajkot Bench (2013) 32 taxmann. Com 6 (Rajkot-Trib) in the case of DCIT vs. Mukeshbhai Babulal Shah wherein regular share transactions in short intervals to quickly realize profits are in the nature of business. 9. We have heard the rival contentions and gone through the facts and circumstances of the case as well as the Paper Book, case laws submitted by the ld. AR and the ld. DR. From the perusal of the computation of total income it can be seen that assessee has shown income from trading of shares in F & O market, short term capital gain from shares which were held for less than one year and long term capital gain from sale of shares which were held for more than one year. The A O while framing the assessment order under section 143(3) has treated the short term capital gains from sale of shares of Rs. 23,69,436/- as inco....