TaxTMI 
TaxTMI 
TaxTMI 
2019 (1) TMI 279
X X X X Extracts X X X X
X X X X Extracts X X X X
.... erred in law and facts in not appreciating the facts of the case in proper perspective in treating the income shown under the head Short term capital gain and Long term capital gain as the business income of the appellant. 3. The Learned CIT(A) equally erred in not appreciating the written submissions filed by the appellant before him during the proceeding as well as not properly applying the Judgment of Hon'ble Gujarat High Court in CIT vs. Rewashankar A. Kothari vide 383 ITR 338. 4. In the alternative and without prejudice to above, The Learned CIT(A) as well as the Leaned A.O have also erred in not following the provisions of the Act regarding the calculating of the cost of opening stock of the shares involved in Long term Capital gains as on 01.04.2005 as required under the Act, if the shares are to be converted from investments to stock in trade. 5. Your appellant craves leave to add, alter or amend the Ground of Appeal." 3. The only effective issue raised by the assessee is that Learned CIT(A) erred in confirming the addition made by the AO treating the Short Term Capital Gain of Rs. 9,61,606/- and long-term capital gain 25,471/- respectively as business income ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion made by the assessee in its books of accounts between the shares held as stock in trade and by way of investment. In view of above, the AO held that the motive of the assessee was to earn a profit by way of trading in the shares. Therefore the same should be treated under the head business and profession. Accordingly, the AO treated the sum of Rs. 9,87,077/- as business income. 5. Aggrieved, assessee preferred an appeal to Learned CIT(A). The assessee before the Learned CIT(A) submitted that the investment was made to earn dividend income and not to earn by way of sale and purchase of shares. 5.1 The shares were sold in the year under consideration intending to change the investment after considering the market downfall. 5.2 The assessee also submitted that the activity for investment was accepted under the head capital gain in the earlier years in the assessment framed u/s 143(3) of the Act. However, the Learned CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under: "4.1.3. Decision: The rival submissions have been considered. Hon'ble Gujarat High Court in Commissioner of Income-tax v. Rewashanker A. Kothari (2006) 283 IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gularity of transactions of purchase and sale of the shares. However, where there is repetition and continuity, coupled with magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can be drawn that activity is in the nature of business. Learned counsel for the revenue from the records could not demonstrate that there were large number of transactions which had frequency, volume, continuity and regularity and fell within the tests laid down by the Division Bench of this Court. For the aforesaid reasons, we are of the considered opinion that the income earned by the assessee from trading in the shares under the 'head long term capital gain / short term capital gain was correctly shown". In the present case, as per the appellant the intention at the time of acquisition of shares was investment Further, as per the appellant, the shares have been shown as investment in the balance sheet. Further, the appellant has shown income from sale of shares as Capital Gains for the last several proceeding years and the Department has accepted the contention of the appellant. Therefore, as per the appellant, income from sale and purchase of s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re us filed a paper book running from pages 1-45 and reiterated the submissions as made before the Learned CIT(A). 6.1 The Learned AR also submitted that in the assessment year 2005- 06 the activity of the assessee was accepted as under the head capital gain in the assessment order framed u/s 143(3) of the Act pertaining to the A.Y. 2005-06 vide order dated 16.10.2007. 6.2 The assessee has made all the investment in the IPO, and as such there was no investment by way of acquiring shares from the secondary market. 7. On the other hand, Learned DR vehemently supported the order of Authorities below. 8. We have heard the rival contentions and perused the materials available on record. At this juncture, we are inclined to refer to the Circular issued by the CBDT vide No.6/2016 dated 29.02.2016. The relevant extract reads as under: "In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the information of assessees as well as for guidance of the Assessing Officers. 5. In the case of Commissioner of Income-tax (Central), Calcutta v. Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586, the Supreme Court observed that : "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 it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-intrade and those which are held by way of investment." 6. In the case of Commissioner of Income-tax, Bombay v. H. Holck Larsen [1986] 160 ITR 67, the Supreme Court observed : "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 was 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." 8.2 On perusal of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs to the assessees have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provision and mitigated the rigour of the law. But that is not the same thing as saying that such circulars would either have a binding effect in the interpretation of the provision itself or that the Tribunal and the High Court are supposed to interpret the law in the light of the circular. There is, however, support of certain judicial observations for the view that such circulars constitute external aids to construction. 8.4 We also note that the Revenue has accepted the activity of investment in the shares in earlier years as well as subsequent years which was also not disturbed by the Revenue. Therefore, the principles of consistency need to be followed without any deviation when there is no change in the facts and circumstances of the case from the earlier years. Reliance in this regard is placed on the judgment of the Hon'ble Supreme Court in the case of Radhasaomi Satsang vs CIT reported in (1992) 193 ITR 321 (SC) . 8.5 We also note that the ITAT, Ahmedabad in the case of ACIT vs. Bhanuprasad T. Trivedi HUF in IT(SS)A No.460/Ahd/2010 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nguish the shares held as investments from the shares held as stock- in-trade. The Central Board of Direct Taxes ('CBDT') has also, through Instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations. 3. Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into ....