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TMI Blog2011 (5) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... se - 36 AND 328 (MUM.) OF 2010 - - - Dated:- 20-5-2011 - D. MANMOHAN, B.RAMAKOTAIAH, JJ. Rajan R. Bahl for the Appellant. Smt. Vandana Sagar for the Respondent. ORDER B. Ramakotaiah, Accountant Member. These are cross appeals by assessee and the Revenue against the order of the CIT(A)-XXXI, Mumbai, dated 15-10-2009. 2. The issue in the cross appeals is whether the income derived by the assessee from the transactions in the share market is to be treated as capital gains or business income. The Assessing Officer treated the entire short term capital gains as business income whereas the CIT(A), after analysing the transactions, treated partly as business income and partly as capital gains. Therefore both assessee and the Revenue are aggrieved on the order of the CIT(A). The grounds are raised accordingly by respective parties. 3. Briefly stated, assessee, an individual, has declared income of ₹ 6,53,13,220. In addition to the income earned in F O trading offered as business income at ₹ 5,48,26,933, assessee also offered short term capital gains of ₹ 1,17,82,521 in the return of income. The Assessing Officer noticed that assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the issue of treatment of income of ₹ 76,94,812 as business income which, according to the assessee has no basis or legal authority for treating repetitive share transactions as business income. The Revenue in its appeal has relied on various case laws in ground Nos. 2 and 3 mainly supporting ground No. 1 on deletion of the balance amount and direction to be treat as short term capital gains. The grounds in cross appeals are interrelated. 4. The learned counsel for the assessee while contesting the CIT(A)'s order submitted the details of share transactions under taken by the assessee and how the CIT(A) erred in treating the repetitive transactions as in the nature of trading. Referring to the statement of the short term profit or loss it was submitted that in the case of GLEENMARK most of the shares sold are bonus shares on which there was a profit of about ₹ 30,00,000 whereas there was a loss on some transactions. It was submitted that sale of bonus shares cannot be considered as trading transaction. He also referred to the transactions in Birla Cash Plus, which accordingly to him is a mutual fund investment and not share transactions on which only a profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om share transactions carried out in F O (in which no delivery was taken place) as his business income and gains on purchase and sale of shares (in which delivery is taken) as his capital gains. In other words assessee has shown business income in respect of his non-delivery based shares or derivative transactions whereas he has shown capital gains on the delivery based share transactions. It is also a fact that assessee has maintained separate ledger accounts of the respective share transactions in his books of account. It is also on record that assessee has maintained separate portfolios of shares held as investment which are valued at cost price whereas shares held in stock-in-trade are valued as at cost or market price, whichever is lower. The following are the details as available in para 2.3 of the CIT(A)'s order regarding transactions/investment undertaken by the assessee in the earlier years- A.Y. STCG LTCG Speculative income/loss Business income/loss 01-02 (-)1,68,98,734 (-)17,65,675 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions in Birla Cash Plus units. These transactions are mutual fund transactions, not generally undertaken in Stock Exchanges. Eventhough there are repetitive transactions with much frequency mutual fund transactions by very nature are not traded in the Stock Exchanges and cannot be considered as business transactions. Whether the assessee is indulging in cash market transactions or only purchasing units and redeem them for short term capital gains with the surplus money has not been examined as both the Assessing Officer and the CIT(A) treated these transactions on par with share transactions. It is also noticed that the assessee had other transactions like Bajaj Hindustan where number of shares were purchased over a period of time and sold on similar way. Another set of transaction in the case of Morpen Hotels Ltd., undertaken by the assessee do indicate that assessee purchased number of shares on 2nd August and 3rd August and sold them immediately between 19th August and 11th November with a holding period of 17 days to 33 days. Why these transactions are considered as investment transactions by the CIT(A) cannot be understood as he has gone by the repetitive nature of transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch he is associated as Director/partner in various concerns and only in this year share market transactions are more compared to earlier years. Since these facts are not examined by the Assessing Officer in its correct perspective, we are of the opinion that the Assessing Officer should analyse the transactions afresh vis- -vis the income earned in F O section. Not only that, as seen from the statement of income in earlier years there were also speculation transactions. If assessee is having speculation transactions in share market (other than F O) that can be an indication of indulging in business transactions. The Assessing Officer is directed to keep in mind the facts of the case, analyse the issue, examine the source of income vis- -vis the record of the assessee in earlier and later years and also the transactions undertaken in speculation and F O trading so as to come to a conclusion whether assessee is an investor or a trader. In case assessee is both an investor and a trader, the extent of transactions can be analysed depending on the facts. With these directions the orders of the CIT(A) and are set aside and the issue of treatment of gains on share transactions as business ..... X X X X Extracts X X X X X X X X Extracts X X X X
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