TaxTMI 
TaxTMI 
2014 (4) TMI 1088
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....ns of Rs. 1,13,21,766/-. Thus, out of total capital gains earned, 40% of the capital gains was attributable to shares held for long term ie. More than 12 months. During the course of scrutiny assessment, the AO accepted assessee's claim for long term capital gains and assessed the same as such, however, he declined to accept short term capital gains and treated the same as business income by stating that assessee was having systematic and regular share transacting activity, continuity of share transactions was huge and period of holding of shares was short. In reply to AO's query to treat the capital gains as business profit, the reply of the assessee was as under :- "The assessee is a doctor and is fully occupied in practicing her profession. The assessee does not have any employee and the entire profession is mainly handled by the assessee. As a result of her full time occupation with her profession, the assessee is hardly left with any time to monitor the movement in the share market. The deployment of funds in the shares is, therefore, only with the objective of investments and not trading in shares. The investment in shares is not the main activity and the assessee does not d....
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....ctions of purchase and sale of shares were to nurse investment and to avoid erosion of capital, surplus arising from sale of shares is to be treated as capital receipt. Further, the assessee has only transacted on about 150 odd days out of approximate 250 odd days on which trading actually takes place. Whereas, a trader would be normally be dealing in all trading days. Magnitude of investment in shares should not decide the nature of the transaction. It is the intention which is to be seen to determine the nature of transaction. Mumbai Tribunal in the case of Janak S Rangwalla v ACIT [11 SOT 627J has held that- "Investment in shares although being on a large magnitude; it shall not decide the nature of transaction. There is no basis for treating the assessee as a trader in shares. when his intention was to hold the shares in Indian companies as an investment and not as stock- In-trade. " In the case of CIT vs. Gopal Purohit (Bombay High Court), it was held that "shares activity treated as investment in earlier years cannot be treated as business in subsequent years if facts are the same" All securities invested by the assessee are listed on the recognized stock exchange. ....
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....pal Vs Govt .of Hyderabad [25 ITR 449 (SC)] - "Business connotes activities in which a person is engaged with a set purpose and the frequency of the repetition of the activity. In trade as well as business there is a continuity of operations." (2) CIT Vs Motilal Hirabhai Spinning & Weaving Co. Ltd. [113 ITR 173 (Guj)] - "Whether a person is carrying on business in a particular commodity will depend upon the volume, frequency, continuity and regularity of the transactions and on whether ordinarily speaking a profit motive pervades the whole of the transactions and on whether the assessee's activity could be said to be a sort of organized activity." (3) Bharat Development Pvt. Ltd. Vs CIT [4 Taxman 58 (Del)] - "To regard an activity as business, there must be a course of dealings continued or contemplated to be continued with a profit motive." ; From the perusal of all the above judicial pronouncements, a business activity may be fairly distinguished from an investment activity as follows: "A business activity is separate from an investment activity in the sense that business is a systematic and regular course of activity with a purpose and characterized by the freque....
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....ch are held by way of investment. These observations by the Hon'ble Supreme Court in the case of CIT Vs Associated Industrial Development Co. (P) Ltd. 82 ITR 586 squarely apply on the facts of the present case. It is not in dispute that all the transactions under reference entered into by the assessee have been settled by actual delivery of shares and the money is actually paid and received in each and every case; whereas in case of a trader, ordinarily, the transactions are settled without actual delivery. The purchase and sale transactions are settled only by way of receipt/payment of net difference. This is not the case of the assessee as no such findings have been given by the AO. 8.1. The assessee has shown Long Term Capital gains during the year at Rs. 38,88,313/- which has been accepted by the AO. If the AO was of the firm belief that the assessee is engaged in trading activities in the shares then it should not make any difference if the shares are held more than 12 months and less than 12 months. But here is a case where the AO has accepted that the assessee is an investor so far as Long term capital gains are concerned. The allegation that the assessee has done repetiti....
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....der :- "1. MS (OPHTHAL.MOLOGY) Gold Medalist at University Examination 2. Recipient of prestigious GRANT OF THE INTERNATIONAL COLLEGE OF OPHTHALMOLOGY for 3 months in Paris, France 3. Recipient of "ASIA ARVO (Association for Research In Vision & Ophthalmology) Travel Grant 4. Recipient of Educational Grant for 1015 (International Ocular Inflammation Society) Conference 2011 5. Amongst the youngest in Indian History to present a paper at AIOS(All India Ophthalmology Society) Conference 6. Amongst the youngest in lridian Historv to present a paper at ESCRS (European Society) Conference 7. Amongst the youngest in Indian History to present a paper at BOA (Bombay Ophthalmology Society) Conference 8. First Indian Ophthalmologist below 30 years to have 2 registered patents 9. Co-author - Youngest Indian to win ORBIS medal at European conference (ESCRS) 10. Winner of several all India Ophthalmoogy Ouizzes at several conferences 11. Double specialization -: FELLOWSHIPS in VITREORETINAL SURGERY as well as OCULAR IMMUNOLOGY 5.1 Our attention was invited to the fact that the AO has accepted assessee's contention of capital gains with respect to shares held for more....
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....her administrative expenses while computing capital gains. Reliance was also placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Associated Industrial Development Company (P) Ltd. 82 ITR 586(SC), wherein the Hon'ble Supreme Court has held as under :- "Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment." 5.4 Our attention was also invited to the fact that all the transactions under reference entered into by the assessee have been settled by actual delivery of shares and the money is actually paid and received in each and every case, whereas in case of a trader, ordinarily , the transactions are settled without actual delivery. Reliance was also placed on the CBDT Circular No.4 of 2007 permitting the assessee to have separate portfolio for investment and also portfolio for stock-intrade. 5.5 Learned....
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....her capital in shares and securities. No borrowed funds were taken. During the year assessee had earned short term capital gains of Rs. 1,67,46,642/- and long term capital gains of Rs. 1,13,21,766/-. However, the AO has accepted assessee's claim of long term capital gains. In respect of very same nature of shares, where holding period was less than one year, the AO had declined assessee's claim of short term capital gain and treated the same as business income. We found that assessee has fulfilled the all the criteria mentioned in CBDT Circular No.4 of 2007 for treatment of profit from shares held as investment as capital gains. Since the assessee was a medical professional and as per provisions under Section44AA read with rule 6F, she was required to maintain books of accounts, entries for investment in shares and sale of shares were also recorded in the very same books of accounts. The fact that the assessee has maintained details of investment in a systematic manner will not change the nature of holding of shares & securities. The AO vide para 4(a) on page 5 of the assessment order has stated that maintenance of bills, etc. alongwith demat account and corresponding bank account ....
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....as shares as accepted by the department in not only during the year under consideration by accepting the long term capital gains earned by assessee but also in the immediately succeeding year wherein scrutiny assessment order was framed u/s.143(3), and assessee's claim of short term capital gains/loss was accepted. 7.1 The frequency and repetition of the purchase and sale transactions play important role, but the same is not conclusive and other factors like main business/profession of assessee, intention while purchasing shares, holding the same as investment etc. are required to be seen for reaching to the conclusion regarding assessee being investor or trader in shares. In the case of Bharat Kuverji Kenia Vs. Add.CIT, 130 TTJ 86 (Mum), the Mumbai Bench of the Tribunal observed that, "There is no justification for treating the activity of purchase and sale of shares as 'business' merely on the reason of the' volume of transactions. As per well settled principles of law, the frequency of transactions cannot be per se decisive.". 7.2 In the case of Mr. Nehal V. Shah vs, ACIT (ITA. No.2733/Mum/2009), the Mumbai Bench of the Tribunal held "that a single transaction woul....
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....ctional High Court upheld the decision of the tribunal that the resultant gain is assessable as Capital gains instead of Business Income, inter alia, in view of the following i) the delivery based transactions have been shown as investments in the books; ii) the shares shown as investments were valued at cost; iii) nature of activities, modus operandi of share transactions, manner of keeping records and presentation of shares as investments is same in all the years and hence apparently there appears no reason as to why the claims made by the appellant should not be accepted; The Hon'ble Court also accepted tribunal's observations that the principle of res judicata is not attracted since each year is separate in itself. However, there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. Special Leave Petition filed by the Department against this order of Hon'ble Bombay High Court has been dismissed by the Supreme Court vide order dated 15th November, 2010. 7.4 In case of DCIT vs. SMK Shares & Stock Broking (ITA No.799/Mum/2009) the Hon'ble Mumbai tribunal held that "the fact ....