9911796707
TMI Blog2012 (2) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is directed against the order dated 16.6.2010 passed by the ld. CIT(A) for the assessment year 2006-07. 2. Briefly stated facts of the case are that the assessee is an Insurance Agent. The return of income was filed showing an income of Rs. 49,56,545/-consisting income from insurance commissions, house property, capital gains and income from other sources. During the course of assessment proceedings the AO noted that the assessee has purchased shares amounting to Rs. 39,88,567/- and the same were sold at Rs.50,40,704/- declaring short term capital gain of Rs. 10,52,137/-. Considering the frequency of transactions of purchase and sales of shares, the short interval between purchases and sale of shares, the profit motive, which is clearly latent in these transactions and intention, the assessee was asked to show cause as to why short term capital gain shown at Rs. 10,52,137/- should not be treated as business income in stead of capital gains. In reply, the assessee vide letter dated 24.12.2008 while giving a note on style of operation, time devotion and number of transactions submitted as under : "(a) From the working on record it can be clearly seen that the average length of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Act, 1961 (in short the Act). 3. On appeal, the ld. CIT(A) observed that once the volume of transactions are found to be large and frequency of transactions are found to be recurring such transactions are bound to be considered as trading in nature, the appellant has not denied that the borrowings from the family members having not invested for purchase of shares, in the capital account an amount of Rs. 18,114/- has been debited under the head share trading expense and huge amount was shown as liability payable in the name of L.K.P Merchant Financing Ltd. and Jamnadas Virji who are stated to be share brokers, therefore, the appellant has been purchasing the shares on credit basis as well. The ld. CIT(A) while applying the ratio of the decisions of the Tribunal in the case of ACIT v. Mr. V. Nagesh and Vice-versa in ITA No. 5410/Mum/2008 and C.O. No. 151/Mum/2009 (AY:2005-06) dated 24.9.2009 and in the case of Sadhana Nabera v. ACIT in ITA No. 2586/Mum/2009 dated 26.3.2010 held that the AO was justified in treating the short term capital gain of Rs. 10,52,137/- as business income. 4. Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee at the beginning of the year is Rs. 27,76,950/- and the same at the end of the year is Rs. 56,39,333/- which is evident from the copy of the Profit & Loss Account, Capital account and Balance Sheet filed in the assessee's paper book. He further submits that investments in shares was made mainly out of own capital of the assessee. The unsecured loan from family members are Rs. 7,54,334.84 (Bhavi Karvat Rs. 90,000/- and Ashok Karvat 6,64,334.84). However, against this total, Rs. 27,29,497.33 are advanced to various family members and group concerns as can be seen from Loans & Advances on the asset side of the Balance Sheet. Further, the loans from family members are also not bearing any interest. He further submits that the stock markets in the country has experienced substantial boom during the financial year 2005-2006. Due to the bull-run in the stock market the capital appreciation was fast. The amount of capital gains for all the assessees in general was very high during this period as compared to other years. In other words, at the end of March, 2005 it was 6492.84 and it moved to 11279.96 at the end of March 2006. Thus the sensex had gained 4787.14 points and in per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so placed on the decision of the Tribunal in the case of Gopal Purohit v. JCIT [2009] 29 SOT 117 (Mum) upheld by the Hon'ble Jurisdictional High Court. 5.3 On the issue of no dividend has been earned, the ld. Counsel for the assessee submits that earning of dividend is no more relevant criteria and most of the times the investment decisions are based on the expected growth in the market valuation of companies rather than dividends. Return from investments can be either in the form of dividends or appreciation of capital invested. Once an investor is in a position to get his desired return in either of these forms, he is not bothered about the form of return. However, he submits that in the subsequent assessment year, the assessee has received substantial amount of dividend i.e. Rs. 3,96,900/- for assessment year 2007-08 and Rs. 8,01,503/- for assessment year 2008-09. 5.4 On the issue of investment out of borrowed funds, he submits that in the balance sheet as on 31.3.2005, there was a loan from family member Shri Manisha Dodia Rs. 6,64,300/- which has been paid in the year under consideration and a new loan of Rs. 90,000/- from family member Shri Bhavi Karvat was taken that was w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Luck.) 6 Janak S. Rangwala v. Asst. CIT 11 SOT 627 (Mum.) 7 CIT v. Girish Mohan Ganeriwala 260 ITR 417 (P & H) He, therefore, submits that the profit on sale of shares and mutual funds shown by the assessee at Rs. 10,52,137/- be treated as short term capital gain and not as business income. 6. On the other hand, the ld. DR supports the order of the AO and ld. CIT(A). 7. We have carefully considered the submissions of the rival parties and perused the material available on record. 8. Section 2(14) of the Act defines "capital asset" to mean property of any kind held by an assessee, whether or not connected with his business or profession. The definition of "capital asset" does not, however, include "stock-in-trade" held for the purpose of business. Section 2(22) of the Act defines "dividend" to include any distribution by a company of accumulated profits, whether capitalized or not. Section 2(42-A) defines "short-term capital asset" to mean a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer. Section 2(42-B) defines "short term capital gain" to mean capital gain arising from the transfer of a short term cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ACIT [2010] 124 ITD 71 (Luck) which are enumerated below : "(1) What is the intention of the assessee at the time of purchase of the shares (or any other item). This can be found out from the treatment it gives to such purchase in its books of account. Whether it is treated as stock-in-trade or investment. Whether shown in opening/closing stock or shown separately as investment or non-trading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purposes of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchases and disposal in that particular item? If purchase and sale are frequent, or there are substantial transactions in that item, it would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e alone will be sufficient to come to a definite conclusion but the cumulative effect of several factors has to be seen." 12. Keeping in view the above principal/guidelines to the facts of the present case, we find that even according to the AO, the nature of the assessee's business is Insurance Agent inasmuch as the AO in column No. 10 of the facts sheet appearing at page 1 of the assessment order has treated the nature of the business of the assessee as 'Insurance Agent'. We further find that the assessee in assessment years 2004-05 and 2005-06 has shown long term capital gains and short term capital gains on sale of shares and even in the year under consideration i.e. in assessment year 2006-07 the AO has treated the investment in shares and mutual funds as long term capital gain amounting to Rs. 4,55,172/-. We further find that the assessee has maintained regular books of account, wherein he has treated investment in shares and mutual funds as investment and has shown gain arising therefrom as long term capital gain and short term capital gains. The AO neither treated the said entries recorded in the books of accounts as non genuine entries nor has rejected the books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
