TaxTMI 
TaxTMI 
2010 (3) TMI 1129
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....he Finance (No.2) Act, 2004. In support of the claim that the profits were assessable as short term capital gains and not as business profits, the assessee pointed out various aspects before the Assessing Officer. Some of these points were that the shares which were sold were shown as 'investment' in the balance sheet, that they were shown at cost price which would not have been the case if they were held as stock-in-trade, that had they been held as stock-in-trade, they would have been shown at "cost or market price whichever is lower", that the cost price of the shares sold came to Rs. 54.63 lakhs as against the market value of Rs. 50.15 lakhs, that the assessee did not take advantage of the fact that the market price was less than the cost price only because she had held those shares on investment portfolio and that all these facts, cumulatively considered would point to the conclusion that the assessee sold the shares as investor and not as stock-in-trade. In addition, it was also pointed out that the assessee was not a trader in shares as can be seen from the fact that there were not too many transactions of high frequency and that even the sale proceeds of the shares were inv....
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....uity and regularity of transactions in shares make it the business in shares and the sale proceeds of the shares cannot be assessed as capital gains. g) In the assessee's own case for the assessment years 2003- 04 and 2004-05 she has herself shown all the share transactions as business income and it is only in the present year the assessee has "conveniently shown the share transactions as short term capital gains" just to take advantage of the lower rate of taxation prescribed by section 111A of the Act. Relying on the above findings, the Assessing Officer eventually held that the assessee was engaged only in the activity of earning profits through purchase and sale of shares and that the entire profits arising from this activity should be assessed under the head "income from business or profession" and not as short term capital gains as claimed by the assessee. In this view of the matter, he computed the profits at Rs. 25,55,597/- and brought the same to tax as business income. 4. The assessee appealed to the CIT(A) and took up several contentions including the contentions which she took before the Assessing Officer. It was also pointed out that the assessee purchased sh....
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.... watch on the share market which is a trait of a person who is dealing in shares and not as an investor. e) Just because the shares were held for a few days, it cannot be said that they were held as investment, notwithstanding that they were shown in the balance sheet as investment. The entries in the account books are not conclusive of the question. f) The earlier years' assessments were completed under section 143(1) without any scrutiny and therefore, those assessment orders cannot be relied upon to contend that the department has consciously accepted the assessee's claim that she was predominantly an investor in shares. g) There are large volume of transactions in shares. There is also a prior association of business and a systematic course of business operations. The assessee has all the qualities of a trader in shares, which she has acquired over a period of time. These qualities are the ability to assess risk & uncertainties and foresightedness to visualize the trends in the share market. These qualities acquired by the assessee over a period of years have paid rich profits which are attributable only to the business acumen of the assessee and not to any investment made b....
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....f shares on credit, which was much different from saying that the assessee borrowed monies for acquiring the shares. Our attention was also drawn to page 19 of the order of the CIT(A), wherein in paragraph 3.14, the CIT(A) has listed out 12 names from whom the assessee allegedly took loans for interest. In this connection, it is submitted on behalf of the assessee that 9 out of the 12 parties were creditors for purchases and only 3 parties namely Ashok Khandelwal HUF, Ashok Khandelwal and MPS Merchandisers P. Ltd. were loan creditors. Even out of these three, Shri Ashok Khandelwal was the husband of the assessee and no interest was charged on the loan of Rs. 23,34,776/- taken from him. No interest was also charged on the loan of Rs. 5,50,400/- taken from HUF of Ashok Khandelwal. The ledger accounts of these parties are placed at pages 16 & 17 of the paper book and they also show that no credit has been given towards interest. It is thus submitted that one of the basic traits of carrying on business, namely, borrowing monies for interest, is missing and therefore surplus on the sale of shares cannot be considered as profits of the business. 7. In addition to the above arguments, th....
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....ares could be held as stock-in-trade and the bonus shares could be held as investment or capital asset. The other judgement relied upon was that of Madras High Court in CIT Vs. Trishul Investments Ltd., (2008) 305 ITR 434(Mad). In this case, the assessee was carrying on the business of investment in shares and securities without any intention to trade in them. He purchased some shares and later sold them. For acquiring shares, he had borrowed monies on which interest was paid. It was held by the Madras High Court that the shares were purchased as investment and not as business asset and that the interest paid on the monies borrowed for acquiring shares should be capitalized along with the cost of acquisition of the shares. The other decision relied upon was that of the order of the Lucknow Bench of the Tribunal in the case of Saranath Infrastructure(P) Ltd. Vs. ACIT., (2009), 120 TTJ 216. In this case also, according to the learned representative for the assessee, the Tribunal held that the surplus on sale of the shares should be treated as capital gains even though the assessee was carrying on business in share dealings, since it was permissible for an assessee to hold shares bot....
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....ulation profit 1,01,635 Stock in hand 54,63,139 The learned DR, besides the above details, also strongly relied on the findings of the CIT(A) in paragraph 3.12 of his order. Besides these factual submissions, he strongly relied on the judgements of the Supreme Court in the following cases:- 1. G.Venkataswami Naidu & Co. Vs. CIT., 35 ITR 594 2. CIT Vs. Associated Industrial Development Co. Ltd., 82 ITR 586 3. CIT Vs. Sutlej Cotton Mills Supply Agency Ltd., 100 ITR Besides, he pointed out that both in the cases of Gopal Purohit (supra) and Sarnath Infrastructure (P) Ltd.(supra), relied upon by the assessee, the shares were held for two or three years before being sold which would probably indicate the intention to hold the shares rather than turn them into profit, which feature was missing in the present case, where the shares were held only for a few months. He thus pleaded that the orders of the departmental authorities should be upheld. 12. On a careful consideration of the rival contentions, we are of the view that no strong grounds have been made out by the assessee to disturb the conclusion of the departmental authorities. There is no dispute that the a....
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....e of acquiring the shares. Even in the case of shares of banks, the assessee did not acquire huge volumes so that it can be said that she intended to hold them as investment looking for consistent returns by way of dividend and more for capital appreciation which a normal investor would do. For example, in the case of Bank of Baroda, she merely acquired 10 shares at Rs. 100/- each at a total cost of Rs. 1,000/- on 19.9.2003 and sold them on 28.12.2004 for Rs. 2,289/-, thus reaping a profit of Rs. 1,289/-. In the case of shares of Bank of India, she invested only Rs. 1500/- on 29.3.2003 to buy 30 shares @ Rs. 50/- each and sold them on 28.12.2004 for Rs. 92.27 per share, enjoying the profit of Rs. 1,268/-. Similar features are exhibited with regard to the shares of other banks and also shares of ONGC, SKF Bearings and Tata Vashisti. This is the case in respect of shares which the assessee held for more than one year. In respect of the other shares the frequency of the transactions and their volume judged in the background of the assessee's business gives us an impression that the assessee did not intend to acquire the shares as investment. We may clarify that the assessee may not ha....
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....re from the earlier assessments merely because the assessee was claiming concessional rate of tax on short term capital gains which was available to him under statute. The Tribunal had also found that the departmental authorities were not able to establish any nexus between the interest bearing funds and the investment in shares. In the present case, it may be recalled, the assessee has not disputed the position that borrowed funds, though not bearing any interest, were used to acquire shares and we have dealt with this aspect earlier. The findings of the Tribunal are contained in paragraph 8 onwards of the said order, but we were unable to locate the finding that frequency of transactions, unless they are in the same scrip or share, is not indicative of a business motive. Each case has to basically turn on its own facts and circumstances, especially in cases of those type where it is a question of gathering the intention of the assessee. We should resist the temptation to match the colour of one with the other. From paragraph 5.3 of the order cited above, we find that it was no doubt contended before the Tribunal that frequency of the transactions should be seen scrip-wise and not....
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....d hold that the bonus shares, by the very fact that they were received by the assessee in respect of shares held as stock-in-trade and as accretion thereto, did not become part of stock-in-trade and that they were received only as capital which could be converted by the assessee into stock-in-trade. In the same decision, the Supreme Court has held that the Tribunal had found that the sale proceeds of the bonus shares were received in the course of and as part of assessee's business in shares and therefore, they were taxable as revenue receipt. What is relevant however in this case is that the Supreme Court held that there is no presumption that every acquisition by a dealer in a particular commodity is an acquisition for the purpose of his business and it is possible that he may acquire the commodity in which he is dealing for his own purposes and hold it apart from stock-in-trade. However, in each case the question is one of intention to be gathered from the evidence or conduct by the acquirer and his dealings with the commodity. If this test is applied to the present case, as we have already seen, the facts and surrounding circumstances clearly point to the conclusion that the as....