TaxTMI 
TaxTMI 
2018 (1) TMI 1419
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....unds of appeal up to the hearing of appeal." 2. The only issue raised by the assessee is that Ld. CIT(A) erred in treating the purchase/ sale of shares completed within 30 days as business income amounting to Rs. 13,57,857/-. 3. Briefly stated facts are that the assessee in the present case is a HUF and engaged in the business of trading in shares and securities under the name and style of M/s. Pratish Enterprises. The assessee during the year has shown following incomes: Sr. No. Particulars Amount Value of Transaction 1. Trading profit from the trading of shares 2,57,828/- 2,91,52,332/- 2. Short Term Capital Gain 16,37,389/- 4,61,54,825/- 3. Dividend Income 94,686/- Nil 4. Long Term Capital Gain 498/- Nil 5. Interest Income 19,669/- Nil 3.1 The AO during the assessment proceedings observed certain facts as detailed under: i. The assessee has been carrying on the investment in shares activity in a systematic manner. ii. The assessee has carried out sale purchase of shares in investment activity in 55 companies. iii. The time gap between the purchase and sale of shares is v....
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....he purchase and sale of shares. Accordingly, the AO held the Short Term and Long Term Capital Gain income as income under the head business and profession. 3.6 Aggrieved, the assessee preferred an appeal to Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that it had been allowed to maintain two portfolios one for share trading activities and another one for investment in shares activity as per the CBDT Circular No.4/2007 dated 15.06.2007. 3.7 As such, the assessee was maintaining two portfolios one for the shares where no delivery was taken, and accordingly, it was classified under the head business and the other one where delivery was taken of the shares, and accordingly it was classified under the Head Capital Gain. The assessee before the Ld. CIT(A) relied on various orders. However, the Ld. CIT(A) disregarded the contention of the assessee and confirmed the order of the AO by observing as under: "6. I have carefully considered the facts mentioned in the assessment order and the above submission of the appellant. Usually an assessee can both the dealer and investor in shares in view of CBDT Circular No.4/2007. But it is also clear that the same circular p....
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....ed by the order of the Ld. CIT(A) assessee is in appeal before us. 4. The Ld. AR before us has filed written submission dated 23.10.2013 and 15.06.2007 which reads as under: "To: The Honorable Members of Income-Tax Appellate Tribunal, Rajkot DB Bench, Rajkot. Dated: 23-10-2013 Hon'ble Sir, Ref: Shri Pratish Manilal Modi(HUF). V/s The AC1T Circle-2, Jamnagar, PAN : AAEHM 2833 H A. Y. 2007-08, ITAT Appeal No. 340/RJT/2011 Date of hearing: 23-10-2013 Sub: Hearing Notes: Please refer to above. Above appeal has been fixed for hearing today on 23-10-2013 and undersigned have appeared before Your Honours. Prior to date lastly hearing of above appeal was fixed for hearing on 11-07-2012. On that day hearing was taken place. The point involved is only whether the transaction of purchase and sale of shares within thirty days is a business income or short term capital gain as claimed by the assessee? The Learned CIT(A) only relying on the judgment of in the matter of ITAT Ahmedabad 'D' Bench judgment in the case of Sugamchand C. Sha....
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....ncome as held by Honorable CIT(A) that transaction of purchase and sale of shares within thirty days are business income and not short term capital gain and confirmed the addition of Rs. 13,57,857/- out of total addition made bv the AO at Rs. 16,37,389/-. At that time as one of the Honorable member of the Bench being also a member in above ITAT Ahmedabad "D" Bench judgment the case was adjourned and also directed to bring copy of Balance sheet and profit and loss account for the year under consideration. Again above appeal fixed for hearing today on 23-10-2013 and as directed in earlier hearing I have submitted a copy of audited balance sheet and profit and loss account, and also submitted a copy of circular No. 4 of 2007. dated 15th June, 2007. Case was argued. During the course of hearing the Honorable members, even though there being no dispute or adverse finding by the assessing officer regarding the separate treatment of shares trading ( i.e. profit earned on purchase and sales of shares without delivery basis) and Short term Capital Gain (i.e. profit earned on purchase and sales of shares on delivery basis) have asked to produce the registers regard....
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.... maintained an distinction between those shares which are its stock-in-trade and those which are held by way c investment." 6. In the case of CIT vs. H. Holck Larsen (1986) 58 CTR (SC) 53 : (1986) 160 ITR 67 (SC), the Supreme Court observed : "The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase c 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. The Authority for Advance Rulings (AAR) in Fidelity Northstar Fund & Ors., In re (2007) 207 CTR (AAR) 297 : (2007) 288 ITR 641 (AAR), referring to the decisions of the Supreme Court in several cases, ha: culled out the following principles :- "(i) Where a company purchases and sells shares, it must be shown that they were held as stock-intrade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction; (ii) the substantial nature of transa....
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.... 10. CBDT also wishes to emphasis that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income. 11. Assessing Officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-intrade (and therefore giving rise to business profits). The Assessing Officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade. 12. These instructions shall supplement the earlier Instruction No. 1827 dated August 31, 1989. [F. No. 149/287/2005-TPL] (2007) 210 CTR (St) 29" 5. On the other hand, the Ld. DR vehemently suppo....
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....term capital assets and gains are dealt with under section 2(29A) and section 2(29B). Short-term capital assets and gains are dealt with under section 2(42A) and section 2(42B). 3. Trading asset is dealt with under section 28 of the Act. 4. The Central Board of Direct Taxes (CBDT) through Instruction No. 1827, dated August 31, 1989 had brought to the 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 ....
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....hould be liable to tax under the head capital gain. 6.3 We also note that the circulars issued by the CBDT which are beneficial to the assessee are binding on the Tribunal as held by the judgment of Hon'ble Supreme Court in the case of Keshavji Ravji & Co. Vs. CIT reported in 183 ITR 1 wherein it was observed as under : The task of interpretation of the laws is the exclusive domain of the courts. However, - this is what Shri Ramachandran really 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 provisi....
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....ered by the CBDT in its Circular No. 4/2007 dt. 15.6.2007, has 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-in- trade and those which are held by way of investment" 11. The CBDT has further thrown light on this controversial issue in its Circular No. 6/2016 dated 29.02.2016 and the same reads as under:- Sub: Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business Income -- Instructions in order to reduce litigation - reg.- Sub-section (14) of Section 2 of the income-tax Act, 1961 ('Act') defines the term "capital asset" to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be hel....
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....ent/contrary stand in this regard in subsequent years; c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT. 4. It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions. 5. It is reiterated that the above principles have been formulated with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. 12. Considering the facts in hand, in the light of the aforementioned circular of the Board, in our considered opinion, the intention of the assessee at the time of the purchase of shares is paramount. If the assessee has clear intention of being a....