TaxTMI 
TaxTMI 
TaxTMI 
2010 (8) TMI 989
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....siness 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 newly inserted proviso of section 111A requires ....
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....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 as trading income is, therefore, confirmed. The ground fai....
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....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 that borrowed funds have been used, he submitted that for applying....
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...., 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 PNB are not sold and are continuing. He submitted that payment of high....
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.... 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 31-12-2004 79,306 17-2-2005 76,771 (2,535) 4. Tata Coffee Ltd. 400 3-12-2004 101,766 11-1-2005 126,084 24,318 5. Tata Coffee Ltd. 600 3-12-2004 152,650 21.02.2005 188,526 35,876 6. Everyday Industry 2,750 31-1-2005 177,815 10-3-2005 241,420 63,605 7. Exide Industry 215 27-9-2004 33,512 29-10-2004 31,534 (1,978) 8. Gujarat Alkali 1,575 13-12-2004 165,785....
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....ed 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 comprising of securities which are to be treated as a capital asset and (2) Trading portfolio comprising of stock and trade which are to be treated as trading asset. 14. We find the operative part of the Circular No. 4/2007 dated 15-6-2007 reads as under : "4. The Central Board of Direct Taxes (CBDT) through Instruction No. 1827 dated August 31, 1989 had brought to the notice of the Assessing Officers that there is a distinction between shares held as investment (capital asset) and shares held as stock-in-trade (trading asset). In the light of a number of judicial decisions pronounced after the issue of the above instructions, it is proposed to update the above instructions for the information of assessees as well as for guidance of the Assessing Officers. 5. In the case of CIT v. Associated Industrial Development Co. (P.) Ltd. ( 82 ITR 586), the Supreme....
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.... 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) or as stock-in-trade (and therefore giving rise to business profits). The Assessing Officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade." 15. We find, the legal principles as laid down by courts on account of treatment of an income as 'business income' or 'capital gain' can be summarised as under : (a) It is possible for an assessee to be both an investor as well as dealer in shares. (b) Whether a transaction of sale and purchase of shares is a trading or investment transaction is a mixed question of law and fact. (c) Whether a particular holding is by way of investment or of stock-in-trade is a matter within the knowledge of the assessee and it is for the assessee to produce evidence from the records as to whether he maintained any dis....
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....hem 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-term capital loss on sale of shares and, therefore, the same should be followed this year is also without much force since principle of res judicata does not apply to income-tax proceedings and every assessment is independent. When there are changes in the facts and circumstances, the rule of consistency need not be applied. In this view of the matter, we are of the considered opinion that the activity of frequent buying and selling of shares over a short span of period during the impugned year has to be treated as business being adventure in the nature of trade and the income has to be treated as business income and not as capital gain as claimed by the learned counsel for the assessee. Accordingly, we uphold the order of the CIT(A) and the ground raised by the assessee is dismissed. 17. In the result, the appeal filed by the assessee is dismissed. 18. Grounds of appeal No. 1 by the assessee reads as under : "1. The learned CIT(A) has grossly erred in law as well as on fac....