TaxTMI 
TaxTMI 
2016 (2) TMI 161
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....ifies that, "A finding of fact has been arrived at by Tribunal as regards the existence of two distinct types of transactions namely, those by way of investment on one hand and those for the purposes of business on the other hand." unlike in the present case wherein assessee has not maintained separate books of accounts?" 2. The brief facts of the case are that the assessee is an individual and having income from business, capital gain and income from other sources. During the course of the assessment proceedings , the assessee filed the details of short term capital gains(STCG) of Rs. 1,27,94,968/- earned during the previous year on the sale of shares. The assessee was asked by the learned assessing officer (Hereinafter called "the AO") to submit the explanation that why the STCG be not treated as business income. The assessee submitted the explanation as under :- 1. The assessee is an individual deriving income from partnership firm and also deriving income from L.T.C.G. and S.T.C.G. and income from other sources 2. On perusal of the Balance Sheet of the assessee for the year ended 31st March 2010 your honour will found that the assessee has made investment i....
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.... S. Rangwell and the Apex Court in the case of Radhasoami Satasang v. CIT." 3. The AO rejected the contentions of the assessee holding that the assessee has shown the income from sale of shares falling u/s. 43(5) of the Income Tax Act, 1961 (Hereinafter called "the Act") separately as speculation income which indicates that the assessee is engaged in trading of shares. Hence, the contention of the assessee as investor cannot be accepted. The AO rejected the contentions of the assessee that the income from sale of shares was treated as STCG or Short Term Capital Loss(STCL) for assessment year 2007-08, 2008-09 and 2009-10 by holding that the principal of 'res judicata' does not apply to income tax proceedings and each assessment year is separate and distinct. Hence, the assessee cannot take benefit of the argument that earlier such profit was treated as STCG/ STCL and not business income. The AO observed that on perusal of STCG details submitted by the assessee reflects that the assessee has purchased shares/units worth Rs. 9,72,72,530/- and sold shares worth Rs. 12,88,57,228/- which shows the intensive, integrated and brisk activity of the assessee to acquire and sell the shares.....
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....lier years. The Assessing Officer has also disallowed Rs. 14,750/- u/s.94(7) of the Act and accordingly added Rs. 1,02,43,032/- as business income for the year ended 31st March 2010. 3. The Assessing Officer while treating the short term capital gain as business income gave the following reasons: (a) The Assessee has shown income from sale of shares as speculation income in the year under consideration which shows that the Assessee is not an investor in shares. (b) The principles of res judicata is not applicable to Income-tax proceeding and each assessment year is separate and distinct and therefore, the assessee cannot argue that in the earlier years profit on sale of shares was treated as STCG/STCL and not business income. (c) The Assessee has purchased shares worth Rs. 9,72,72,530/- and sold shares of Rs. 12,88,57,228/- and therefore, the Assessee cannot be termed as an investor. (d) The number of transactions and the quantum of the turnover in respect of shortterm capital gains is quite huge. (e) The Assessee has indulged in trading activity in shares on regular basis with period of holding of these shares as minimum as two....
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....fered by the Assessee has been accepted, even though the Assessee has dealt with large number of scrips and there were voluminous transactions. Fourthly, the Assessee has substantial business income from the diamond business in the form of share of profit and the Assessee is full time occupied for carrying on the said business of dealing in diamonds. Fifthly, the Assessee has his own substantial capital which has increased from Rs. 8.84 Crores in A. Y. 2001-02 to Rs. 21.24 Crores in A. Y. 2010-11. The said capital has been used by the Assessee in making investment in shares for capital appreciation which has been achieved by the Assessee from year to year. Sixthly, the Assessee has not made any borrowings for the purpose of making investment in shares, but he has always utilized his own free capital for appreciation of the capital. Seventhly, as the Assessee has made investment in shares for capital appreciation, he has undertaken delivery based transactions, which are recorded in his Demat Account. If any transactions of purchase and sale of shares were carried out without taking delivery, the profit or loss arising from the said transactions is....
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....upied throughout the day and 365 days. Thirteenthly, on perusal of the chart on page 23 it will be seen that the assessee has substantial investment in shares at the end of each year which an investor in shares would make and not a trader in shares because the investor is interested in appreciation in capital and therefore, he would generally hold on to the investment so that it appreciates. Fourteenthly, the Assessee has not taken advice or consulted or appointed any broker for making investment in shares. The assessee has with his own limited knowledge gathered from newspapers and magazines made investment in shares and shuffled the portfolio from time to time. Fifteenthly, the CBDT vide its Circular bearing No.4/2007 dated 15th June 2007 in para 10 has accepted that a tax payer can have two portfolios, viz., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock in trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads viz. capital gains as well as business income. Sixteenthly, your honou....
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....ains both on Long Term and Short Term basis. The transaction in the year under consideration on account of sale and purchase of shares is same as in the preceding years and the same merits to be accepted as Short Term Capital Gains. 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. The mere magnitude of the transaction does not change the nature of transaction, which are being assessed as Income from Capital Gains in the past several years. " Seventeenthly, your honour's attention is invited to the decision of the Hon. Appellate Tribunal in the case of Gopal Purohit vs. JCIT [20 DTR 99 (Mum)] wherein the assessee was engaged in the activity of sale and purchase of shares for a quite long period. It is also noted that non-delivery based transactions have been treated by the assessee as business activity and delivery based transactions have been treated as an investment activity and, accordingly, the assessee has claimed himself both dealer as well as investor and has offered income for taxation accordingly, which has been claimed to have been accep....
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.... no dispute before us that assessee has claimed exemption under Section 10(38) and/or has paid tax under Section 111A at concessional rate on the transactions, where securities transaction tax has not been. It is also noted that the assessee has paid tax on short-term capital gains at normal rates on share transactions executed in the period prior to imposition of securities transactions tax. In our view, the legislative change of this nature, whereby no change has been made in respect of nature end modus operandi of such share transactions, resulting into any advantage cannot be taken away by the Revenue Authorities in this manner and in these circumstances, we are of the view that, principle of consistency, though it is an exception to the principle of res judicata must be applied here. It is further so because the payment of securities transaction tax is mandatory i.e., whether an assessee earns the profit or not or suffers a loss and by imposition of such tax, the Legislature has not given any benefit to a class of transactions as a whole though it may result into an apparent benefit to individual(s) entering into those transactions. Thus, in our view, in the facts and circumst....
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....tion. Question (b), therefore, does not also raise any substantial question of law." Eighteenth, your honour's attention is invited to the decision of the Bombay High Court in the case of CIT vs. Darius Pandole (330 ITR 485) wherein their Lordships while deciding the issue whether the Assessee incurred loss on sale of shares as business loss or capital loss held as under: It is in this factual background that the Tribunal, while deciding the appeal for the assessment year 2003-04 has observed that there was no change in the set of facts and circumstances as they obtained for the assessment years 1997-98 and 2002-03. The Tribunal was correct in holding that there was due application of mind by the Assessing Officer to the very same issue during the course of the earlier two assessment years and that the assessments were finalized after considering the reply filed by the assessee specifically to the query raised by the Assessing Officer. In the circumstances, the Tribunal was, in our view, justified in following the decision of the Supreme Court in Radhasoami Satsang v. CIT [1992]193 ITR 321. While the principle of res judicata could not as an abstract principle....
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....ng stock or shown separately as investment or non-trading asset? (2) Whether assessee has borrowed money to purchase and paid interest thereon. Normally, money is borrowed to purchase goods for the purpose of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchases and disposal in that particular item? If purchase and sale are frequent, or there are substantial transactions in that item, it would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment): (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value. Former will indicate 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. (5) How the value of the items has been taken in the balance s....
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....an investor and not as a trader and the profit earned from the said transaction was chargeable to tax in its hands under the head "Capital Gains". It is observed in this regard that the shares were consistently treated by the assessee as investment in his books of account in the year under consideration as well as in the in the earlier years and the treatment so given was accepted by the Department in the earlier years. There were no borrowed funds utilized by the assessee for making investment in shares and the entire investment in shares was made by the assessee out of his own funds. The total investment of the assessee in shares during the year under consideration was to the extent of Rs. 4.23 crores while the total sale of shares was only to the extent of Rs. 1.63 crores showing a very low turnover which could happen only in the case of an investor and not in the case of trader in shares. The average period of holding of shares giving rise to long term capital gain was 1214 days while the same was 129 days in the case of shares giving rise of short term capital gain which again goes to show that the shares were held by the assessee for a considerably long period before the sale....
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....me . The details of such shares where the holding period is less than ten days is as under:- The CIT(A) held that the case of the assessee is squarely covered by the CBDT instruction No. 4/2007 dated 15.06.2007 on the subject. In this case, the ratio of Hon'ble High Court in the case of Gopal Purohit (Supra) is squarely applicable that the assessee has both the long term capital gains(LTCG) and STCG, held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical. So the CIT(A) held that Rs. 8,03,880/- as per above chart where the holding is for a very short duration has to be treated as business income and balance amount should be treated as short term capital gain. 7. Aggrieved by the orders of the CIT(A), the Revenue is in appeal before the Tribunal, the Ld. DR submitted that the assessee is trading in shares and the AO has rightly brought the income to tax as business income and CIT(A) erred in treating the same as Short Term Capital Gain. The ld. DR relied upon the orders of the AO while on the other hand, the ld. counsel of assessee relied upon the orders of the CIT(A) and submitted that in earlier six years from assess....
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.... time of the assessee as the assessee has also contended that he is working partner of the said firm M/s Dia Export Corporation . We have also observed that the assessee has not borrowed any funds for buying and holding the shares which also indicates that the assessee is an investor. In our considered view keeping in view facts and circumstances of the case , the CIT(A) has rightly classified and distinguished whereby the shares transacted repeatedly within short period of time within few days was held to be business income of Rs. 8,03,879.90 as per chart above in preceding para's while the rest of income/gain from sale of shares is classified as STCG or LTCG and we do not find any infirmity in the well reasoned orders of the CIT(A) which we uphold. We order accordingly. 9.In the result, the Revenue's appeal is dismissed. Order pronounced in the open court on 1st January, 2016 ============= Document 1 Sr. Name of the No. of Rate No. Company Shares Date of Purchase Amount Date of No. Rate No. of Amount P/L. Sale of shares days held ABAN 465 434.10 7.5.09 201856.50 11.5.09 3-4 464.20 1465 ....