TaxTMI 
TaxTMI 
2017 (10) TMI 1468
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....om other sources. From the perusal of details filed in respect of capital gains, it was found that the assessees is dealing in large number of securities. Thus, prima facie it was evident that the assessee is not an investor in securities but a trader in securities. The case was taken in full scrutiny with the approval of JCIT, Range-36 vide following noting "In this case assessee has claimed STGC of Rs. 71,81,117/- (as per revised computation filed by the assessee during the assessment proceedings it was shown as Rs. 65,55,066/-) and in the balance sheet he has mentioned an investment of Rs. 2,62,89,244/- in shares. In the liability side of the balance sheet assessee has shown an amount of Rs. 2,36,00,000/- as advances which seems to be loan taken for investing in shares. This issue needs to be examined in detail." 2.1 It was observed by the Assessing Officer that vide order sheet entry dated 15.10.2008, assessee was asked to "show cause as to why share transactions on which STGC has been claimed should not be considered as business income." The Authorised Representative of the assessee has submitted his submission dated 31.10.2008, which has been reproduced in the assessment o....
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....e Authority for Advance Rulings Fidelity Northstar Fund, In re. [2007] 158 Taxman 372/288 ITR 641, referring to the decisions of the Supreme Court in several cases, has culled out the following principles : (i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power of purchase and sell shares in the memorandum of association is not decisive of the nature of transaction. (ii) The substantial nature of transactions, the manner of maintaining books of account, the magnitude of purchases and sales and the ratio between purchase and sales and the holding would furnish a good guide to determine the nature of transactions. (iii) Ordinary the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but the object of the investment in shares of a derive income by way of dividend etc., then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not reverse receipt. I. Dealing with the above three principles, the AAR has observed in the ca....
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....rofits). 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. Furthermore in P.M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735 (SC), Hon'ble Supreme Court reiterated that it was not possible to evolve any single legal or formula which could be applied in determining whether a transaction was an adventure in the nature of trade or not. The answer to the question must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction. However, in G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594, Hon'ble Supreme Court has laid down following principles to these questions may furnish relevant data for determining the characteristic of any transaction: (1) Was the purchase a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it? Affirmative answers to these que....
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....gularly during the assessment year. V. Whether purchase are made out of own funds or out of borrowings. VI. Average holdings period for securities bought and sold. VII. Time devoted to the activity and extent to which it is the means of livelihood. VIII. The characterization of securities in the books of the account and in balance sheet as stock in trade or as an investment. IX. Total numbers of stocks dealt in. X. Whether answering each question in respect of the assessee: Now answering each question in respect of the assessee : I. As per submission of at dated 30.08.2007, during the year under consideration assessee was working as a financial consultant with M/s Gujarat Heavy Chemical Ltd. in the same company assessee has worked as a Chief Manager (Finance) before his retirement. Net income earned from his business was merely Rs. 83,142/-. On the other hand, assessee has shown short capita gain from shares of Rs. 65,55,066/- with a transaction turnover of Rs. 17,79,98,405/- (as specified in Form No. 10DB submitted during assessment proceedings). Furthermore, assessee earned speculation pr....
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....In respect of fourth question, it is evident from the contract notes (assessee was asked to bring, which were test checked) that the transactions were entered into continuously and regularly during the assessment year. It is also worthwhile to mention that assessee was asked to furnish dates of sales/purchase of the securities traded during the year, but he took sufficient time to furnish the same in the required format for all the shares. It was prima facie evident from the bulkiness of contract notes that it was difficult to furnish accurate dates of sales/purchase along with quantity and value, as the transactions were huge and were entered into on regular basis. Only few copies of Contract Notes are taken and placed on records. The assessee has entered into around 62 different securities resulting into around 331 transactions (Including purchase and sale transactions). Moreover, the assessee has done speculative transactions resulting into net profit of Rs. 1,29,025/-, Huge turnover of transactions (Rs. 17,79,98,405) clearly reveals that the transactions are entered into continuously and regularly during the assessment year and there were repetitions in the transactions. For in....
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....nt businessman and sold these units as and when he got the best opportunity. VII. Now answering the seventh question, it is again clear from the magnitude of transactions that the assessee has devoted substantial time for dealing in shares. From his consultancy business assessee has earned a profit of Rs. 83,142/- which is abysmally low when compared to the profit earned from STCG. Presence of intra-day transactions show that the assessee was engaged in share trading activity on a daily basis. Thus, dealing in securities is the chief source of livelihood of the assessee, especially in light of the fact that the income from consultancy business is very low. VIII. In respect of eighth question, it would be desirable to mention that even though, in the balance sheet the assessee has shown stock of Rs. 2,62,89,244/- under the head investment but still it does not change the nature of transactions, as it is the substance that matters rather than form. Here, it is relevant to quote the following judgment. In Karam Chand Thapar and Brothers (P.) Ltd. v. CIT (Central) [1971] 82 ITR 899, Hon'ble Supreme Court has held that the circumstances that the asse....
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....stocks dealt in is around 62 (on the basis of detailed date wise submission on securities made by the assessee)/ Thus, it forms a huge chunk specially looking into the fact that all these stock were purchased and sold repetitively on different dates within a short duration. X. As a final point, it was observed that in the balance sheet assessee shown advances of Rs. 30,59,007/- due to Kotak Securities Limited as on 31.03.2006. Therefore, this it may conclude that some of the transactions are made through book entry or journal entry. Finally, it is advisable to furnish the judgment of Hon'ble Supreme Court in the case of Dalhousie Investment Trust Co. Ltd. v. CIT [1968] 68 ITR 486. In this case the Hon'ble Supreme Court held that "the decision of the Department in the earlier years that the transactions were in the nature of change of investment was not binding in the proceedings for assessment during the subsequent years. Thus, even though the transactions were treated as investment in earlier years. It does not make the transaction as investment in every year. It has to be verified based on the facts and circumstances as arises in that year. ....
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.... '7. Determination: I have considered the facts of the case as well as the submissions made by the appellant. The assessee prior to his retirement from M/s. Gujarat Heavy Electrical Ltd. was having a income of Rs. 83,142/- only per annum as pointed out by the Assessing Officer. The Assessing Officer further stated as under: "On the other hand, assessee has shown short capital gain from shares of Rs. 65,55,066/- with a transaction turnover of Rs. 17,79,98,405/- (as specified in Form No. 10DB submitted during assessment proceedings). Furthermore, assessee earned speculation profit amounting to Rs. 1,29,025/- as disclosed by the Authorised Representative during the assessment proceedings which was not declared in the return, from intraday trading. Thus, from the quantum of turnover and presence of the component of intraday trading, it is prima facie evident that the purchase and sale of securities was his usual trade or business. In fact, it seems to be the main business of the assessee" 7.1. It is clear from the various transactions undertaken by the assessee that the purchase of shares was with intent to make quick profits on escalation....
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.... authorities below and submitted that assessee was involved in huge transactions of purchase and sales and complete details have not been furnished before A.O. The assessee was also involved in inter-day transactions i.e., speculative transactions which shows that assessee is involved in business activities only. The assessee also used to borrow funds for business purposes only. Therefore, no interference is called for in the matter. 6. We have considered the rival contentions and perused the material on record. The A.O. has examined the issue in the light of Board's Circular referred to above providing guidelines as to whether the transaction of sale and purchase of shares is investment or business activity disclosing income on account of capital gain or business income and referred to certain decisions. The A.O. found that assessee has earned business income merely of Rs. 83,142. However, on sale and purchase of shares assessee has earned Rs. 65,55,066 with a transaction turnover of Rs. 17.79 crores. The assessee has also earned speculative profit amounting to Rs. 1,29,025 on account of intraday transactions/speculative transactions, which was not disclosed in return, is e....
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.... It is, therefore, clear from the large number of transactions conducted by the assessee that purchase of shares was with an intention to make substantive profit on sales rather than to hold for long term to earn of dividend, interest or appreciation. The fact of assessee's intention in undertaking speculative transactions resulting in profit were also noticed on many such occasions. The assessee apart from using his own funds for investment in shares has also resorted to huge borrowings, thereby, confirming it to be the business activity of the assessee. The assessee's alleged investments were mostly short term and driven by market force and the business of sale and purchase was carried on by the assessee with an intention to make substantive profit rather than hold position by making long term investments. The sale and purchase of securities in this case is continuous and regular business activity of the assessee with an intention to earn profit on regular basis. The intention of the assessee in the facts and circumstances is very clear that assessee purchased and sold the shares to earn business profits only. In preceding assessment year, admittedly, no assessment have b....
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....ies as stock-in-trade, that they were in fact purchased even initially not as investments but for the purpose of sale at a profit and therefore the transactions amounted to an adventure in the nature of trade. The profit derived by the appellant from the sale of shares was therefore a revenue receipt and as such liable to income-tax. Held also, that the decision of the department in the earlier years that the transactions were in the nature of change of investments was not binding in the proceedings for assessment during the subsequent years." 7. The Hon'ble Madras High Court in the case of Matheson Bosanquet Enterprises Ltd. [2009] 316 ITR 375 held as under: "Held, dismissing the appeal, that in respect of the assessment year 1992- 93, the issue had become final to the effect that the income earned by the assessee-company on the sale of shares had been regarded as a business income. In the absence of any material to show that the assessee had changed its business, and that it was not dealing with shares, and that the shares were kept exclusively for the investment purpose, the Tribunal was correct in concluding that the gains were assessable as business in....