TaxTMI 
TaxTMI 
2017 (4) TMI 518
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompliance thereto notice was served through Income Tax Department to assessee on 09.02.2016. Even thereafter none appeared on behalf of assessee. In these circumstances, we have no option other than to proceed ahead to adjudicate the issues in this appeal with the assistance of learned Departmental Representative and the records available. 2. Common issue raised by Revenue in both the years is against the order of ld. CIT(A) directing the Assessing Officer to treat the major part of its income from transactions in securities under the head of "capital gains" without appreciating the fact that the assessee was engaged in trading of shares and securities. As the issues are common, we will take up ITA No.2338/Ahd/2011 for A.Y.2007-08 as the lead case to adjudicate the issue. 3. Briefly stated facts as culled out from the records are that the assessee is a Limited Company engaged in trading in securities. It filed its return of income on 31.10.2007 declaring income at Rs. 1,05,89,629/- which inter alia includes short term capital gain from sale of equity shares at Rs. 1,13,05,165/-. Case was picked up for scrutiny assessment and notice u/s.143(2) of the Act and 142(1) of the Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....39;s claim that such funds, being interest free, can be treated as quasi-capital does not hold water and can not be accepted. There is no difference between the shares traded and the so called investment shares as far as source of funds are concerned. Same source has been used for all the trading activities. Most of these funds are borrowed as the share capital is merely Rs. 2.42 lakh. v. No separate accounts have been maintained in respect of the investment portfolio. Proceeds from sale and source of funds for purchase are mixed. vi. The assessee has wrongly presumed that the reference to "substantial" refers to maintenance of a large portfolio. The assessee has picked up a share in which it has traded heavily and on it yielding high profits, has attempted to give it a colour of investment so as to benefit from the lower rate of tax. Hence, the assessee's case misearably fails the test laid down in the Board's instructions /circular referred above. In fact, putting the assessee's transactions to the test of the above ratio, it is clear that the assessee's transaction vis-a-vis Suraj Stainless Steel can not be held to be investment and it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as allied to his usual trade or business/ was incidental to it or was an occasional independent activity - It is clear that the transaction in the security was allied to his usual trade and it was not an independent activity. b. whether the scale of activity was substantial - as the printout of a portion of the trading activity in this script would indicate, the scale of activity was substantial. c. Whether the transactions were entered into continuously and regularly during the assessment year - as evident from the trading log, the transactions were carried out regularly and continuously during the year, in fact a number of sale and purchase transactions were being done on a daily basis. d. Whether the purchases were made out of own funds or borrowings - as brought out earlier, the purchases were out of borrowings as the assessee's funds in the business were extremely low. e. Typical holding period for securities bought and sold - In the case of the assessee, the period can hardly be specified since there was a regular buying and selling on a daily basis. f. Time devoted to the activity - the trading log of the assessee reveals that substantial time was spent on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n held for the period of less than 30 days. Regarding frequency of transaction the ld. A.R. submitted that floating stock of (SSSL) is very limited. For few months the appellant kept on buying the script since it was available in very small lots. Like wise for some period the appellant kept on selling the script in small lots, because an offer in bigger lot may bring down the prices or vice versa. He further submitted that "Sir, number of instances of transaction is not fully controllable in the hands of party investing. Suppose an investor wish to invest in 10,000 equity shares of 'X' limited at market rate and he order the broker accordingly. If the script like Reliance industries/ Tisco etc. this transaction can be done infraction of minute and at one instance only. However, in case of script like "SSSL" this is not possible to get the shares at one to five instances and in desired quantity. lt may take 100 to 150 instances because of so many factors like floating stock., total number of shares of the company, willingness of existing shareholders with shares etc. Thus in our view instances of transaction can not decide that the transaction is trading ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e purpose of the assessee to sell the securities etc. was to change his investment and the resulting surplus was of capital nature. 5. In the case of Sarnath Infrastructure Pvt Ltd vs. ACIT reported in 313 ITR (AT) 13 decided by the Hon'ble ITAT Lucknow wherein it was held that if the shares are transferred and registered in the name of the assessee, the presumption is that the assessee has no intention to deal in shares. Only when the transactions are settled without delivery, it can be said to be a business activity of trading in shares. In this case, the Hon'ble Tribunal Lucknow Bench referred to a number of judicial pronouncements as under: - 1. Fidelity Advisor Series VIII, In (2004) 271 ITR 1(AAR) 2. Raja Bahadur Vishesware Singh v. CIT (1961) 41 ITR 685 (SC) 3. Central India Agencies Pvt Ltd vs. CIT( 1970) 77 ITR 959 (All). 4. Mrs. Sarojini Rajah vs. CIT( 1969) 71 ITR 504. 5. Dalhousie Investment Trust Co. Ltd vs. CIT( 1968) 68 ITR 486 (SC) 6. CIT vs. Associated Industrial Development Co. Pvt Ltd (1971) 82 586(SC) 7. CIT Vs. H. Hoick Larsen ( 1986 160 ITR 67(SC) 8. CIT vs. Sulatej Cotton Mills Supply Agency Ltd (1975) 100 ITR 706 (SC). 6....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... held in the aforesaid case that: "Considering the totality and peculiarity of the facts of this case, we find that assessee is neither fully acting as a trader nor as fully investor. Demarcation is quite hazy; though in the books he is showing all the purchases as investment but frequency of transaction in several cases is so large and holding period in many cases is so small -form 0 to a week or so that assessee is de facto selling and purchasing shares as trader. He is also holding shares for long period indicating that they are held as investment. Therefore, a criteria has to be fixed for determining as to when he is acting as trader and when as investor. Accordingly, we decide following criteria to hold when gains are to be taxed as profit to be earned under business or to be treated as short term capital gain, we held that if shares are not held even say for a month, then the intention is clearly to reap profit by acting as trader and he did not intend to hold them in investment portfolio. We believe that if a person intends to hold his purchases of shares as investment, he would watch the fluctuation of rates in the market for which a minimum time is necessary, which we esti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and sale of single scrip and it seems that assessee entered into these transactions as business dealings only but when the profit reached to a figure of Rs. 1,13,05,165/-, in order to save tax, it was decided to show the gain as short term capital gain. Learned Departmental Representative also submitted that assessee took unsecured loans for the purpose of investment which is proved by the fact that the equity share capital of the company was Rs. 2,45,000/- whereas unsecured loan taken were at Rs. 45lacs. 6. We have heard the contention of learned Departmental Representative and gone through the orders of both the lower authorities. Revenue is aggrieved by ld. CIT(A)'s order directing the Assessing Officer to bifurcate the transactions in securities in the category of holding period of the scrips sold in the category of less than 30days and more than 30 days without appreciating the fact that assessee was engaged in trading of shares and securities regularly. 7. On perusal of the assessment order, we notice that assessee company is engaged in the business of trading in securities. During the year assessee has shown the sale of securities as business receipts at Rs. 73,91,026....