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2019 (1) TMI 279
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....lant. 2. The Learned CIT(A) and the A.O. have also 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 Ga....
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....e submissions of the assessee by observing that the assessee has carried out numerous transactions in a systematic manner. 4.2 There was no distinction 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: ....
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.... in Tax Appeal No. 77&78 of 2010 has held as follows:- "It is clear that where number of transactions of sale and purchase, of shares takes place, the most important test is the volume, frequency, continuity and regularity 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 appe....
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....usiness Income. The AO has rightly treated profit from sale of shares as Business Income. Accordingly, this ground of appeal is dismissed." Being aggrieved by the order of Learned CIT(A) assessee is in appeal before us. 6. The Learned AR before 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 ....
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....he notice of the Assessing Officers that there is a distinction between shares held as investment (capital asset) and shares held as stock-in-trade (trading asset). In the light of a number of judicial decisions pronounced after the issue of the above instructions, it is proposed to update the above instructions 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 observin....
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....has in mind - circulars beneficial to the assessees and which tone down the rigour of the law issued in exercise of the statutory power under section 119 of the Act or under corresponding provisions of the predecessor Act are binding on the authorities in the administration of the Act. The Tribunal, much less the High Court, is an authority under the Act. The circulars do not bind them. But the benefits of such circulars 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 princip....
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....ds shares and other securities, the same can be held either as capita! assets or stock-in-trade/ trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in- trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past. 2. Over the years, the courts have laid down different parameters to distinguish 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....