TaxTMI 
TaxTMI 
TaxTMI 
2016 (2) TMI 161
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....bunal 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 in shares and the like as on 31.03.2009 which increases to Rs. 107619247....
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.... 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. Hence , the assessee cannot terms himself as an investor. Thus , the AO observed that the assessee has derived the income from trading in shares and offer....
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....arch 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 days. 4. However the Assessing Officer held that while completing the assessment for A. Y. 2009-10 u/s.143(3) of the Act, the shares held as on 31.3.2009 were treated as investment and therefore, the sale....
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....he 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 treated as business income from share trading and it is offered for taxation accordingly. This fact is also apparent from the aforesaid chart which is enclosed at page 23 of the Paper Book. Eighthly. the Assessee has valued his shares always at cost as....
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....rested 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 honour's attention is invited to the decision of the Appellate Tribunal in the case of Janak Rangwalla vs. ACIT (11 SOT 627) wherein the Hon. Tribunal in paragraph 6 has held as under: "6. We have heard the rival submissions and perused the records. The facts of the present case are that the assessee ....
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.... 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 accepted by the Revenue authorities in earlier years. The assessee has also submitted details of shares purchased and taken delivery from asst. yr. 2001-02 till asst. Yr. 2005-06 to show the period of holding as well as to substantiate the claim that in respect of delivery transactions, the assessee always showed the profit there f....
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....he 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 circumstances of the case, on the basis of principle of consistency alone, the action of the Revenue Authorities is liable to be quashed. We order accordingly and direct the Assessing Officer to accept the claims of assessee in regard to short-term capital gain and long-term capital gain." The aforesaid decision of the Tribunal is affirm....
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....r 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 apply to assessment proceedings since each year of assessment has to be considered separately, yet when a fundamental aspect was duly considered after a query was raised by the Assessing Officer and was answered by the assessee on the same facts, a change in view, was evidently not warranted for the assessment year in question. So construed, we do not find that....
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....ent, 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 sheet? If the items in question are valued at cost, it would indicate that they are investments 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. (6) How the company (assessee) is authorized in memorandum of association/article of association? Whether for trade ....
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....d 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 showing low frequency. The investment portfolio of the assessee was comprising of mutual funds, shares of unlisted companies etc. and this pattern of investment further shows that the assessee was investor in shares and securities and not a trader. All the investments made by the assessee in shares and securities were consistently valued at cost which further shows that the shar....
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....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 assessment year 2004-05 to 2009-10 the case was scrutinized u/s. 143(3) of the Act , whereby, the Revenue has accepted the assessee as an investor. He also relied upon the orders in the case of ACIT v. Sanjay M. Jhaveri, ITAT, Mumbai 'A' Bench ITA No. 4039/Mum/2011(Mum. Trib.) and also relied upon the orders of ITO v. Janardhan Prahaladrao Gupta in ITA No. 1030/PN/2011(Pune-Trib) to contend that ....