TaxTMI 
TaxTMI 
2010 (7) TMI 1043
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....he income under the head Long Tern Capital Gains (LTCG in short) or Short Term Capital Gains (STCG in short) as shown by the assessee instead of assessing by the Assessing Officer under the head "income from business or profession". In all the seven assessment years, the common ground raised by Revenue, taken from ITA No.2866/Ahd/2008 assessment year 2000-01 reads as under:- "1. The learned CIT(A) has erred in law and on facts in directing to tax the income earned from trading in shares under the head 'LTCG / STCG' as shown by the assessee instead of taxing it under the head 'Income from Business & Profession'. 3. At the outset, Ld. Counsel for the assessee, Shri S.N.Soparkar filed copy of Tribunal's order in Group cases of assessees in ITA No.2875 Ahd/2008, 2878- 2881/Ahd/2008, 2883-2884/Ahd/2008, 2887-2891/Ahd/2008 dated 17-09-2009 and stated that exactly on similar facts, this issue has been decided by the Tribunal confirming the order of CIT(A), assessing the income under the head of LTCG/STCG. When the order was confronted, Ld. SR-DR, Shri K. Madhusudhan relied on the assessment orders and he could not make any distinction in the order of Tribunal in the other assessees ....
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....e has earned LTCG during the period conclusively proves that the assessee's share held by the assessee as investment shown and not as stock-intrade and merely because the assessee choose the sale the share at an appropriate time with a view to augmenting her wealth, it cannot be said that assessee was trading in shares. The CIT(A) also noted that the assessee has disclosed capital gains and earned regular dividend income from investment and disclosed the same in the regular return originally filed and also returns filed u/s.153C of the Act. The details of three relevant assessment years are as under:- Asst. Year Date of filing original return Sholrt Term Capital Gain (Rs) Long Term Capital Gain (Rs) Dividend Amount (Rs.) 1996-1997 31.03.1998 55,202 0 4390 1997-1998 30.03.1999 1,26,925 - 39,042 3511 2000-2001 28.03.2002 - 661024 849343 18765 2001-2002 31.03.2003 81905 1143000 2850 2002-2003 31.03.2003 0 - 992 16489 2003-2004 30.09.2003 - 307 0 6097 2004-2005 10.09.2004 0 1181054 125507 2005-2006 u/s15A 17.05.2007 35085943 2163121 610565 5. We find....
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.... 2850 2002-2003 31.03.2003 0 - 992 16489 2003-2004 30.09.2003 - 307 0 6097 2004-2005 10.09.2004 0 1181054 125507 2005-2006 u/s15A 17.05.2007 35085943 2163121 610565 Reference was made to the case of CIT vs. Reva Shanker A. Kothari 283 ITR 338 (Gujarat HC). In this decision, the Gujarat High Court had observed as under:- 'In order to determine whether profits arising on sale is business income, the following tests can be applied: (a) the first test is whether the initial acquisition of the subject matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline; (b) the second test is why and how and for what purpose the sale was effected subsequently; (c) the third test is as to how the assessee dealt with the subject matter of transaction during the time the asset was with the assessee, whether it has been treated as stock-in-trade, or been shown in the books of account and ....
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....tible upswing in the market value of shares. Accordingly the assessee has to exercise his discretion as to whether at the right time and o getting a proper opportunity the existing investment should be encashed. By itself it does not establish or prove in any way that the assessee is a trader in shares. Further, in the case of the assessee the shares have been held for sufficiently long time and intention of the assessee was only to make investment which is proved from the fact that in the books of account and in the balance sheet, the shares were shown only by way of investment." Aggrieved, Revenue came in appeal before us. 7. We find that the Tribunal has dealt with the facts in para-3 of the order in other assessees of group cases (supra) as under:- "3. The facts of the case are that action u/s.153C was taken against these assessees on the basis of communication received by the AO from Director General of Investigation, Ahmedabad on the basis of which cases of the group were centralized with the AO, Central Circle 2(3), Ahmedabad. In response to notice u/s.153C returns of income were filed by these assessees. While examining their accounts, the AO noticed that Shr....
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....out number of transactions in selling and purchase in shares; that they have harrowed funds secured/unsecured which are interest bearing; looking to the holding period, held the activities of the assessee as not investment in share but trading in shares. He accordingly treated the same declared by the assessee as profit from purchase and sale of shares and treated them under the head "business" and not as long term/short term capital gains." 8. And finally in para-11.1 to 13 of Tribunal's order in other assessees of Group cases (supra) held as under:- "11.1. Now we consider the relevant authorities on the subject. The issue whether transaction in shares should be treated as investment or treated as business and in what circumstances holdings should be treated as investment or as stock in trade, has been discussed in detail by the Tribunal, Lucknow Bench Sarnath Infrastructure (P) Ltd v. ACIT (122 TTJ 216). In that decision Tribunal has referred to the following judgement of the Courts. 1. Fidelity Northstar Fund, In re (2007) 288 ITR 641 (AAR) 2. Raja Bahadur Visheshwar Singh Vs. Commissioner of Income-tax (1961) 41 ITR 685 (SC) 3. Central India Agencies (P.) Ltd. Vs....
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.... 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/articles of association ? Whether for trade or for investment? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice versa. (7) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to Revenue to prove that apparent is not real. (8) The mere fact of credit of sale proceeds of shares (or for that matter any other item in question) in a particular account or not so much frequency of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment....
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....-term and short-term capital gains which meant the assessee had also held shares for the period of more than 12 months. [Para 8] Thus, the nature of activities, modus operandi of the assessee, manner of keeping records and presentation of shares as investment at the year end were same in all the years, and, hence, apparently, there appeared no reason as to why the claims made by the assessee should not be accepted. However, the revenue authorities had taken a different view in the year under consideration by holding that principle of res judicata was not applicable to the assessment proceedings. There could not be any dispute on this aspect, but there is also another judicial thought that there should be uniformity in treatment and consistency under the same facts and circumstances and it was already found that facts and circumstances were identical, even though a different stand had been taken by the revenue authorities. In that view of the matter, the action of the revenue authorities in disallowing the claim of the assessee in the relevant year needed verification. In the process to find the answer, it was noted that there was a change in the scheme of taxation relating to....
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....it was held that the delivery based transaction should be treated as of the nature of investment transactions and profit therefrom should be treated as short-term capital gain or long term capital gain depending upon the period of holding. [Para 8.3] The revenue had also held that presentation in the books of account was not conclusive which may be true to some extent, but it is the most crucial source of gathering intention of the assessee as regards the nature of transaction and, in law, it is also so, i.e., such presentation reflects, prima facie, a view of the assessee on a particular subject and this principle was effectively applicable in a situation like that as compared to a situation where nature of expenditure or income is different in the books of account and in the return of income filed by the assessee wherein the specific provisions of the Act have to be considered over such presentation and if there exist no specific provisions, they are the commercial profits which have to be taxed and even in that situation, the assessee may be found to be justified in giving different treatment in the books of account as compared to return of income because of commercial consid....
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.... the Supreme Court observed that (headnote) : Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and he should, in normal circumstances, be in a position to produce evidence from his records as to whether he has maintained any distinction between those shares which are his stock-in-trade and those which are held by way of investment. 6. In the case of CIT v. H. Holck Larsen [1986] 160 ITR 67, the Supreme Court observed (page 87) : The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the nature of investment was a question of law. This is a mixed question of law and fact. 7. The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the Assessing Officers. 8. The Authority for Advance Rulings (AAR) [2007] 288 ITR 641, referring to the decisions of the Supreme Court in several cases, has culled out the following principles (page 651) : (i) Where a company purchases and sells shares, it mus....
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....re of trade ; where the object of the investment in shares of companies is to derive income by way of dividends etc., the transactions of purchases and sales of shares would yield capital gains and not business profits. 10. The Central Board of Direct Taxes also wishes to emphasise that it is possible for a tax payer 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. The 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 investmen....
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....rge frequency of transactions which would warrant interference that they are traders; (2) In the books of accounts the assessees have never treated the shares as stock in trade and returns of income have been filed prior to the search showing them as investments and profit there from as capital gains; (3) Even though money has been borrowed to invest in shares, neither the interest paid on borrowed money or security transaction tax has been claimed while computing capital gains; (4) The assessees have retained the shares for enjoying appreciation in value and not for the purpose of realization of profit. There is apparently no commercial motive which is an essential ingredient to be a trader. It is clearly shown by them in the returns of income filed that they are enjoying dividend income from holding shares as investment; (5) It is not shown by the Revenue that stock of shares have been valued at cost or market price whichever is low but they have valued at cost while computing the capital gains; (6) The assessees have apparently discharged the primary onus by keeping record of investment showing holdings only as investment and not stock in trade. The primary onus h....