TaxTMI 
TaxTMI 
2017 (3) TMI 808
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....ee is a limited company in which public are not substantially interested. It is engaged in the business of trading in shares and securities. During the year under consideration, it has shown income from business, dividend and short term capital gain on sale of shares. 5. During the course of the scrutiny assessment proceedings and on going through the details relating to the purchase and sale of shares which have resulted into Short Term Capital Gains, the A.O. issued a show cause notice dated 22.08.2008 by which the assessee was requested to show cause as to why the surplus arising out of sale of shares should not be taxed as business income. The relevant portion of the show cause notice is reproduced hereunder:- "2. In connection with the above, various details have been filed by you. On going, through the said details, it is noted that during the year under consideration, shares of PCS, Nandan Exim, YES Bank, IDFC Ltd., 1L & FS, etc. have been shown as purchases and sales. In this regard, vide notice dated 10.10.2007 issued u/s 142(1) of the Act along with questionnaire, you were requested to submit complete details of applications made in various names, amount paid on app....
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....ries raised by the A.O., the assessee filed a detailed submissions dated 26.08.2008. It was brought to the notice of the A.O. that all the transactions entered into by the assessee during the year under consideration were made with an intention of investment. It was strongly contended that an investor can be small investors or large investors. Simply because the assessee is having large port folio, it would not take away the real character of shares that have been bought and held as investment. The assessee further stated that every investor makes investment keeping in mind certain return he expects to earn on his investment. The motive of such investment was wealth maximization and the assessee only disposed the investments on proper advice. Therefore, the said transaction should not be treated as being purchased and sold for trading purpose; rather the transaction should be construed in their true sense as made for investment only. 9. The detailed submissions made by the assessee did not find any favour with the A.O. The A.O. was of the firm belief that the subject matter of realization is shares and considering the volume involved, it cannot be treated as investment. The A.O.....
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....AT Lucknow, wherein it was held that the assessee does not intend to deal in shares. For the sake of convenience, we reproduce paragraph No.ll'from that judgment 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. Vs. 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 Visheshyvar Singh Vs. Commissioner of Income tax (1961) 41 ITR685(SC) 3. Central India Agencies (P) Ltd. Vs. Commissioner of Income Tax (1970) 71ITR 959 (ALL.) 4. Sarojini Rajah (Mrs.) Vs. Commissioner of Income-tax (1969) 71 ITR 504 (MAD). 5. Dalhousie Investment Trust Co. Ltd. Vs. Commissioner of Income-tax (1968) 68 ITR 486 (SC). 6. Commissioner of Income-tax Vs. Associated Industrial Development Co. (P) Ltd. (1971) 82 ITR 586 (SC)....
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....e valued at cost, it would indicate that 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 stockin- 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 these 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 sufficient to say that assessee wa....
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....117, the ld. CIT(A) came to the conclusion that the surplus of Rs. 1,61,68,400/- is nothing but short term capital gains and directed the A.O. to treat the same as such. 15. Both sides are in appeal against the above findings of the ld. CIT(A). The ld. Senior Counsel vehemently stated that the ld. CIT(A) grossly erred in taking diversified views for the same set of transactions. It is the say of the ld. counsel that the assessee was indulged in similar kind of transactions in the earlier assessment year where the surplus arisen out of purchase and sale of shares have been accepted under the head "capital gains. The ld. counsel further pointed out that the lower authorities have heavily relied upon the findings given in the case of Seer Finlease Pvt. Ltd. for A.Y. 2006-07. The ld. counsel pointed that the order passed by the ld. CIT(A) in the case of Seer Finlease Pvt. Ltd. insofar as it was against the assessee has been reversed by the Tribunal in ITA No. 3336 & 3440/Ahd/2009 and IT(SS)A No. 3/Ahd/20012 with C.O. No. 70/Ahd/2012 vide order dated 17.03.2016. The ld. counsel further pointed out that in A.Y. 2005-06, the Tribunal has decided the issues in favour of the assessee in ....
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....5) How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that 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 verse. (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 muc....
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.... books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in case of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorizes such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transaction of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proposition to the strength of holding then an inference can readily be drawn that the activity is in the nature of business. 19. In the light of above g....