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TMI Blog2010 (7) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sale of shares by the assessee in the instant case has to be treated as ‘income from business’ as held by the Assessing Officer - In the result, the appeal of the revenue is allowed and the appeal of the assessee is dismissed - I.T. Appeal Nos. 1859 & 2259 (MUM.) of 2009 - - - Dated:- 16-7-2010 - R.S. Padvekar, R.K. Panda, JJ. Pramod Kumar Parida for the Appellant. Somogyan Pal for the Respondent. ORDER R.K. Panda, Accountant Member. These are cross appeals, the first one filed by the assessee and the second one filed by the revenue and are directed against the order dated 19-1-2009 of the CIT(A)-XIX, Mumbai relating to assessment year 2005-06. For the sake of convenience, both the appeals were heard together and are being disposed of by this common order. 2. Facts of the case, in brief, are that the assessee earned salary income from M/s. Twin Earth Securities Private Limited, who were stock brokers and members of the Bombay Stock Exchange. The assessee s husband is a director in the said company. The assessee has shown income from short-term capital gains amounting to Rs. 28,89,668 on account of sale of shares of 35 companies out of which shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee at Rs. 28,89,668 as business income. 3. Before CIT(A) it was submitted that the majority of the tests relied on by the Assessing Officer have not been satisfied for the following reasons: (i) The assessee did not carry out the transactions with any profit motive and as is evident it had also incurred a loss of Rs. 26,000 in respect of scrips held between 4-7 days. (ii) The frequency of transactions was three per month on an average. (iii) The holding period of shares in a few cases was within 15 days whereas in other cases, it was fairly long. (iv) All the transactions were made on her own capital, which as on 31-3-2005 was Rs. 6,98,00,000. (v) That the assessee s investments have regularly been shown in the Balance Sheet under the investment column and, therefore, valued at cost. 4. However, the CIT(A) did not agree fully by the submissions made before him. He referred to CBDT Circular No. 1827 of 1989 which was followed by draft instruction of 2006 enlisting 18 parameters for determining the true nature of income which were never brought into effect. Thereafter, he referred to Circular No. 4 of 2007 and noted that as per the circular, the assessee can ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains. From the details filed by the assessee, the CIT(A) noted that for the transactions which had a period of holding of less than 31 days (one month) should be treated as business income and the balance be allowed as that from investments. According to him, a transaction to qualify as investment, should have at least a one month holding period. He noted that the assessee has both the portfolios but has treated all its transactions as an investment one whereas the Assessing Officer went to the other extreme and treated all the transactions as business. Therefore, according to him a middle path will have to be adopted. Giving weightage to the period of holding and after working out the gain and loss he worked out the business income at Rs. 7,95,900 which related to 70 per cent of the transactions, which was held for less than one month. He directed the balance to be treated as short-term capital gains. 6. Aggrieved with such order of the CIT(A) giving part relief, both the assessee and the revenue are in appeal before us with the following grounds of appeal: Assessee s ground of appeal : 1. On the facts and circumstances of the case, the learned Commissioner of Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in declared by the assessee. Referring to the copies of the Balance Sheet for the year ending 31st March, 2003 and the Balance Sheet as on 31st March, 2005, he submitted that all sales and purchases are reflected as investment in the Balance Sheet of the assessee. He submitted that the assessee has received an amount of Rs. 8,94,438 as dividend and such earning of dividend is incidental accretion. He submitted that a trader would not normally block his/her money for substantial period whereas an investor can do so. If an assessee intermittently sells as per the mood of the market and to safeguard his investment, he could not be labelled as a trader. He submitted that it is not the case where the assessee has earned the difference in prices without taking delivery and nor is the case that all dealings are not delivery based. Referring to the decision of the Hon ble Madras High Court in the case of CIT v. NSS Investments (P.) Ltd. [2005] 277 ITR 1491 he submitted that when the assessee is holding shares for the purpose of earning dividend and not as stock-in-trade, the profit on sale of such shares has to be treated as capital gain and not as business income. He also relied on the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed by the Assessing Officer or partly as short-term capital gain and partly as business income as held by the CIT(A). 10. We find the Assessing Officer in the instant case considered the income from purchase and sale of shares as business income by relying on the CBDT Circular No. 4 of 2007, dated 15th June, 2007. We find the CBDT vide Circular No. 4/2007, dated 15-6-2007 has accepted the principles laid down by the Hon ble Supreme Court in the cases of CIT v. Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586 as well as in CIT v. H. Holck Larsen [1986] 160 ITR 672 (SC). In the above referred circular, the Board has issued certain guidelines to the Assessing Officer. The Board has accepted that the assessee can have two portfolios simultaneously- (1) an Investment Portfolio comprising of securities which are to be treated as a capital asset and (2) Trading portfolio comprising of stock and trade which are to be treated as trading asset. 11. We find the operative part of the Circular No. 4/2007, dated 15-6-2007 reads as under : 4. The Central Board of Direct Taxes (CBDT) through Instruction No. 1827, dated August 31, 1989 had brought to the notice of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y change in such investment (by sale of shares) will yield capital gain and not revenue receipt. ** ** ** 10. CBDT also wishes to emphasise that it is possible for a taxpayer 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-in-trade (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. We find, the legal principles as laid down by courts on account of treatment of an income as business income or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a stock broking company and member of the Bombay Stock Exchange Ltd. Further the husband of the assessee is also a director of the said company. Therefore, keeping all the above in mind it requires very strong evidence to prove that the shares sold were held as investment not merely in the books of account or in the Balance Sheet but also in reality and truth. 16. From the various details filed by the assessee, we find the assessee has made 37 transactions in 35 scrips and the period of holding is as under: No. of transactions Period o f holding (days) % Total t ransactions Purchase cost (Rs.) Sale price (Rs.) Gain/Loss (Rs.) 5 1 to 3 13.51 2835827 3014993 179166 7 4 to 7 18.92 1034144 1046247 12103 4 8 to 10 10.81 12341660 13929833 1588167 5 11 to 15 13.51 3295937 3425043 129108 5 16 to 30 13.51 2122859 2349130 226271 4 31 to 60 10.81 1458600 1732696 274096 3 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the impugned year has to be treated as business being adventure in the nature of trade and the income has to be treated as business income and not as capital gain as claimed by the learned counsel for the assessee. We, therefore, do not find any merit in the findings given by the CIT(A) that the shares which were held for more than 30 days has to treated as long-term capital gain and the shares which were held for less than 30 days has to be treated as business income. The entire profit on sale of shares in the instant case, in our opinion, has to be considered as business income being in the nature of adventure in the nature of trade. 18. As regards the decision of the Tribunal in the case of Gopal Purohit (supra) which has since been upheld by the jurisdictional High Court and as relied on by the learned counsel for the assessee, we find the same is not applicable to the facts of the present case. In that case the Tribunal has given a finding that the assessee was consistently investing in shares and the ratio of sales to investment was very less. The assessee was investing for a long period and offering the long-term capital gain which is more than short-term capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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