TaxTMI 
TaxTMI 
2010 (8) TMI 989
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....ort-term capital gain of Rs. 10,96,197 as business income by the Assessing Officer. 4. Facts of the case, in brief, are that the assessee is engaged in the business of iron and steel and filed his return of income declaring total income of Rs. 31,58,310 which included short-term capital gain of Rs. 10,96,185. From the various details furnished by the assessee, the Assessing Officer noted that out of the short-term capital gain of Rs. 10,96,197 for the whole year an amount of Rs. 26,507 pertains to short-term capital gain earned up to 30-9-2004 and Rs. 10,69,690 relates to short-term capital gain effective from 1-10-2004. Further the assessee has claimed interest payment of Rs. 1,25,687 to M/s. J.M. Lease Consultants Pvt. Ltd. and Rs. 53,142 has been claimed as portfolio management fee paid to M/s. Alchemy Capital Management. The Assessing Officer asked the assessee to explain the reasons as to why the income earned from transaction in shares could not be treated as trading income since the interest bearing funds have been utilised for investment and the services of portfolio management consultants have been availed of. 5. It was explained by the assessee that the ....
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....rts gave some guidelines. They are only guidelines and the circular does not help in any way the appellant's position. Just because the appellant maintains a separate A/c for shares and just because they are not shown in trading A/c of appellant will not automatically mean that the transactions are investment in character. A perusal of detail will show that the transactions started after July 2004 and there was a high frequency of transaction. The transactions were done in a systematic manner with the help of professional consultant. The manner in which huge loan was taken to subscribe to IPOs of some companies shows that the loan was never taken for investment in shares but to sell off the shares immediately after the allotment. This was the trend. The transaction was clearly in the nature of trading. The manner of transaction in shares also shows that there was no element of pride in possession of shares. The loans taken, payment of service fee and frequency of transaction taken together substantiate the Assessing Officer's view that the transactions have acquired the character of trading. I, therefore, concur with the view of the Assessing Officer. The treatment of Rs. 10,96,197....
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.... business income during the assessment year 2005-06. Referring to page 13 of the Paper Book, he submitted that the assessee in its Balance Sheet as on 31-3-2005 has shown such investment in shares at Rs. 60,49,809. Referring to pages 15 and 16 of the Paper Book, he drew the attention of the Bench to the schedule of investment in shares giving details of purchase date, No. of shares and their value. Referring to page 17 of the Paper Book, he drew the attention of the Bench to the statement of short-term capital gain/loss up to 30-9-2004. Referring to pages 18 and 19 of the Paper Book, he drew the attention of the Bench to the short term capital gain/loss from 1-10-2004 to 31-3-2005. 9. He submitted that the assessee has made about 50 transactions in the whole year which cannot be treated as high volume. Any prudent businessman in a volatile market would have done this. He submitted that the assessee has dealt in 14 scrips where the period of holding is less than one month. He has transacted in 16 scrips where the holding period is between one month to three months and in 13 scrips where the holding period is more than three months. As regards the allegation of the revenue t....
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....shares and sold the same within a very few days of holding the same, the intention can never be termed as investment and can be termed as for business only. As regards the submission of the learned counsel for the assessee that rule of consistency should be applied, he submitted it is not conclusive and each year is separate. If the fact during the year is different from the earlier year, the rule of consistency need not be applicable. He submitted that entries in the books of account may be an indicator but not conclusive. Referring to the chart filed by the assessee showing the details of shares transacted during the year, he submitted that the assessee is indulging in frequent buying and selling of shares which shows the motive of the assessee as a trader in shares and not as an investor. He submitted that the frequent buying and selling of shares should be considered as trading activity rather than investment activity since a trader wants a quick profit in a short span. He also relied on a couple of decisions of the Tribunal. 11. The learned counsel for the assessee, in his rejoinder, submitted that the shares of NTPC were sold after allotment. However, the shares of P....
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....452 7. Essar Steel 2,150 2-3-2005 101,308 24-3-2005 117,949 16,641 8. Codiam International 246 6-12-2004 24,908 9-12-2004 26,925 2,017 9. Gujarat Alkali 925 13-12-2004 97,366 24-12-2004 116,300 18,935 10. MTNL 500 29-12-2004 78,615 20-12-2004 80,250 1,636 11. NTPC 12,569 27-10-2004 779,278 5-11-2004 918,034 138,756 12. Nagarun Construction 500 9-12-2004 185,437 10-12-2004 191,520 6,083 13. Reliance Industry 300 27-12-2004 157,143 28-12-2004 156,537 (606) 14. Subex System 675 2-2-2005 243,608 21-2-2005 272,068 28,461 A 2,698,226 3,070,533 372,307 1 Month to 3 Months Sr. No. Name of the company No. of shares Date of purchase Purchase cost Rs. Date of sale Sale proceeds Rs. Short-term capital gain/loss Rs. 1. Amtex Auto New 375 27-9-2004 49,778 12-11-2004 67,838 18,060 2. Amtex Auto 1,000 16-12-2004 175,690 17-2-2005 170,598 (5,092) 3. Amtex Auto 450 31-12-200....
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....00 27-9-2004 62,954 27-1-2005 69,837 6,882 11. Matrix Laboratories 400 27-9-2004 62,954 15-2-2005 73,416 10,462 12. Praj Industry 350 29-11-2004 94,983 14-3-2005 144,886 49,903 13. Siemens 100 21-9-2004 114,984 15-2-2005 159,600 44,616 C 1,380,289 1,983,553 603,264 Total profit (A)+(B)+(C) Rs. 1,281,447 13. We find from the assessment order that the Assessing Officer in the instant case considered the income from purchase and sale of shares as business income. The CIT(A) upheld the action of the Assessing Officer by relying on the CBDT circular No. 4 of 2007 dated 15-6-2007. We find the CBDT vide Circular No. 4/2007 dated 15-6-2007 has accepted the principles laid down by the Hon'ble Supreme Court in the cases of CIT v. Associated Development (P.) Ltd. [1971] 82 ITR 586 as well as in CIT v. Holck Larsen [1986] 160 ITR 67 1 (SC). In the above referred circular, the Board has issued certain guidelines to the Assessing Officer. The Board has accepted that the assessee can have two portfolios simultaneously - (1) an Investment Portfolio compri....
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....between purchases and sales and the holding would furnish a good guide to determine the nature of transactions; (iii)ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc., then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt. 10. CBDT also wishes to emphasise that it is possible for a taxpayer to have two portfolios, i.e., 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 i.e., capital gains as well as business income. 11. Assessing Officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains)....
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....tions in the instant case give an impression that the assessee did not intend to acquire the shares with business motive. In the case of an investment a person usually watches the market over a longer period of time before selling of the shares. The earning of dividend and the appreciation of the shares is the primary consideration. It is only a trader who would look for short-term gains from purchase and sale of shares. Therefore, the treatment given by the assessee to the said transactions in the books of account, in our opinion, is not the only determinative factor about the nature of the transactions. The submission of the learned counsel for the assessee that the shares were disclosed as investment in the Balance Sheet, in our opinion, is certainly a factor to be reckoned with but when there are other factors or circumstances which throw some doubt on the motive of the assessee in acquiring the shares, as in the instant case, the entries in the books of account or Balance Sheet cannot override them and be taken as decisive of the assessee's intention. The submission of the learned counsel for the assessee that in the preceding year the Assessing Officer has accepted the long-t....