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TMI Blog2010 (11) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... ee - company and the quantum of turnover i.e., Rs. 1,36,28,674, the Assessing Officer opined that profit on sale of shares could not be said to be in the nature of short term capital gains but the same was business income. He, accordingly, required the assessee - company to explain the same. The assessee's reply has been reproduced at Pages-2 to 4 of the assessment order in which the assessee, inter-alia, pointed out that the trading in mutual funds and listed shares was not within the domain of the main object clause and its memorandum and article of association though the assessee - company was authorized to invest in shares. It was also pointed out that the main intention is to earn dividend income. The Assessing Officer did not agree with the assessee's submissions for the reasons:- (i) taking into consideration the frequency of transactions and purchase and sale of shares as also the total turnover made, it could not be said that the assessee's intention was of investment to earn dividend and not trading for earning profit; (ii) some of the transactions of purchase and sale of shares had taken place within the period of couple of days, which shows that the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part similar to those of this company or carrying on any business capable of being conducted so as directly or indirectly benefit this company." 5. Learned Counsel for the assessee further pointed out that the assessee - company used its own funds and did not utilise borrowed funds. He referred to Pages-20 to 22 of the paper book, wherein, the details of gains in shares is contained giving the period of holding also and pointed out that, in all, there were 82 transactions in 26 scrips/units only, as given in the statement at Page-22. He pointed out that the observations of the Assessing Officer that the shares were sold in a couple of days of purchase is correct with reference to only few cases as would be evident from Pages-20 to 21 and in many cases the period of holding is in double digit inasmuch as it is more than 100 days in some cases. He pointed out that other shares have been carried forward to subsequent years also. As regards the investments in mutual funds, learned Counsel for the assessee pointed out that the assessee has no control on investments made in mutual funds and the assessee has kept the unit in mutual funds like fixed deposit in banks. He pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts complied with this parameter. Therefore, this clause is of no assistance to assessee in its plea that its primary motive of buying shares was to keep them as investments in various companies particularly because the assessee had considerable investment in mutual funds also. On the contrary, this goes against the assessee as the investment pattern had been prescribed in the memorandum of association itself. Therefore, now we have to decide the issue keeping in view the actual state-of-affair as prevailing in the relevant assessment year. Before analysing this aspect, we may state certain principles governing this issue. Entries in books of account are not determining factor to decide the true nature of transaction - (1978) Sutlej Cotton Mills Ltd. vs CIT(A), 116 ITR 1 (SC). Whether a particular activity is a business activity, depends on peculiar facts of the case - G. Venkataswami Naidu and Co. vs CIT, (1958) 35 ITR 594 (SC). Frequency and regularity of share transactions in organised manner indicate business activity [Raja Bahadur Visheshwara Singh vs CIT, 41 ITR 685 (SC)]. CBDT in its Circular no.4 of 2007 dated 15th June 2007, has primarily laid down three criterias for deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding each case on the basis of which a rational conclusion is to be drawn. In the present case, we are constrained to hold that keeping in view the trend of transactions the inescapable conclusion is that assessee's primary intention was to earn profits from share dealing rather than keeping the shares as investment for the purpose of earning dividend particularly because as per the assessee's own calculation, the return from share holding in the form of dividend is 3.97%. Had the intention was to earn dividend, the assessee would have waited for dividend declaration and book closure date rather than liquidating the shares before that date. Thus, for the following reasons, we hold that assessee's primary intention was to trade in shares and mutual funds and not to keep the portfolio of shares as investment. Firstly, in view of ancillary object clause 3, assessee could make the investment in shares only in those companies which had their objects together or in part similar to those of assessee - company or carried on any business capable of being conducted so as directly or indirectly benefit the assessee - company. The assessee's alleged plea of investment does not meet this criter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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