TaxTMI 
TaxTMI 
2017 (10) TMI 1242
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....6/- and short term capital gain of Rs. 13,99,030/-. The ld.AO after making an analysis of the accounts of the assessee treated the assessee as trader in the shares and assessed the alleged long term capital gain and short term capital gain as business income. On appeal, the ld.CIT(A) has accepted stand of the assessee with regard to long term capital. The ld.CIT(A) has treated the assessee as investor qua long term investment made by it. However, with regard to the short term capital gain shown by the assessee, the ld.CIT(A) was not convinced with the pleading of the assessee and treated it as a trader. Relevant finding recorded by the ld.CIT(A) reads as under: "3.7. On going through the facts and submissions, it is noticed that the AO has treated the entire income derived by the appellant on shares as business income including the long term capital gain shown by the appellant. On going through the facts it is found that the appellant had the long term capital gain of Rs. 29,00,586/- on the turnover of Rs.51,30,549/-. It is apparent that at least the partnership firm has not borrowed the money for the investment in shares which was even for more than a year and the entire partner....
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....ies at Rs. 1,77,68,963/-. The volume of sale proceeds and also the purchases value are very high. Moreover the frequency of transactions are also very high. The appellant had even derived the profits by rotating the shares and bifurcation of its holding period for short term capital gain is as under: Rs. Short Term Capital gain on sales after holding shares for over 6 months but less 12 months 352,382 Short Term Capital gain on sales sold after holding shares for over 3 months but less than 6 months 401,078 Short Term Capital Gain on sales sold after holding shares for over 1 month but less than 3 months' 458,920 Short Term Capital gain on sales sold after holding shares for less than 1 month 186,650 1,399,030 3.11. So it is apparent from the above that the appellant has made the maximum rotation of the shares/scrips even within a period of one month. The motive behind this rotation was nothing but to maximize its profits which can only be termed as business income and not the capital gain. So AO's finding and the reasons given by him are fully applied on the transactions pertaining to the short term capital gain and he has rightly hold the inco....
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....for the purpose of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchase and disposal in that particular item? If purchase and sale are frequent, or there are substantial transaction in that item, if would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation its value? Former will indicate intention of trades and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (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 les....
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....decisions of the apex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business. (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 a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter of transaction during the time the asset was the assessee. Has it been treated as stock-in-trade, or has it been shown in the 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, t....