TaxTMI 
TaxTMI 
2009 (5) TMI 925
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....ed such income so assessed at the rates applicable to regular income." 2. Briefly stated, the facts are as under : The assessee is an 'individual' who is also partner in many firms. In respect of the issue in controversy before us, the assessee is engaged in purchases and sales of the shares which are claimed by him as an investment. During the asst. yr. 2005-06, the assessee declared short-term capital gain of Rs. 25,94,143 as well as long-term capital gain of Rs. 3,05,757 which were from the sale and purchase of the shares of the different company. The AO had a reservation in treating the profits/gains on sales of the shares for assessing it under the head 'Capital gains' as in the opinion of the AO, the activity of the assessee in purchasing and selling of the shares amounts to business and hence the capital gains declared by the assessee should be assessed as a business income. The AO verified the statements of the share transactions and it was noticed that there were numerous transactions on daily basis in respect of the shares. The assessee supported his stand that he was not indulged in the business of the shares but it was an investment and profit/gain ari....
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.... activity in this case. The appellant was engaged in some real substantial and systematic business activity with the said purpose of earning income. No doubt that the transactions in shares were made of specific target of making profit. The appellant during the year purchased shares of over 100 companies for a cost of Rs. 2.40 crores. These facts indicated that the appellant indulged in large volume of transactions. In his arguments, the appellant has stated that during the financial year 2004-05 relevant to asst. yr. 2005-06 he earned dividend of Rs. 8,33,196 against the dividend earned at Rs. 15,26,674 in the immediately preceding year 2004-05. Whereas, the dividend income declined from Rs. 15,26,674 to Rs. 8,33,196, the capital gains increased from Rs. 70,42,120 to Rs. 1,09,20,577. These figures indicate that the intention or motive for purchase and sale of shares was more for earning income by way of sale of shares or by trading in these shares and less by way of earning of dividend income. The intention or motive for dealing with shares is further corroborated by the ratio of sales to purchase. In this case, the appellant has purchased shares worth Rs. 2,72,94,433 and sold sha....
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....from sale of oils and pulses at Rs. 2,57,163 and earned profit on sale of shares at Rs. 1.09,20,577. It shows that his main source of income is from trading in shares and not from trading in oils and pulses. The fact that he is earning less dividend income and more profit from the trading in shares has been substantiated by the records maintained by the appellant and explained during the assessment and appellate proceedings. Therefore, the shares were purchased and sold for earning profits and not for earning dividend. His shares of profit from partnership firms were disclosed at Rs. 3,10,617. All these factual matrix and the circumstances indicate that the appellant's main source of earning is profit earned by way of share trading and not by way of share of profit from partnership firm or through business income by way of dealing in oils and pulses or by way of dividends. The appellant has also taken active assistance from M/s S.K. Securities & Investments, who acted as his broker and who has been shown as a creditor, with credit balance of Rs. 2,96,851 is in the balance sheet as on 31st March, 2005." For supporting the stand of the AO that the profit on the sale of the share....
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....ated as a business income. He vehemently argued that the volume or the frequency of the transaction cannot be determinative factor for deciding whether the activity of the assessee is as an investor or as business money. The learned counsel relied on the plethora of decisions which are mentioned in the fact sheets. 5. Per contra, the learned Departmental Representative by way of argument, reiterated the reasons given by the learned CIT(A) for confirming the action of the AO. 6. There is no dispute about the fact that assessee has the frequency of transaction in respect of the shares though said fact has been denied by the learned counsel. It is also the admitted fact that assessee is indeed in dealings in investment in shares in past for many years. On the perusal of the balance sheet filed by the assessee, we find that the assessee has shown the investment in shares under the head 'Investment' and not as 'stock-in-trade'. It is true that the principles of res judicata do not apply to income-tax proceedings as each and every assessment year is treated as a separate one. As in strict sense, what is decided in one year may not apply in the following year, but, where....