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TMI Blog2012 (5) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... income from capital gains and an addition of Rs.8,12,84,756/- was made. The said addition was deleted by the first appellate authority and the Tribunal by the impugned order has affirmed the said deletion. 4. The appellant before us has filed a chart giving the details of the sale purchase transactions which are subject matter of the assessment year 2007-08. The chart reads as under : Short Term Capital Gains Sl. No. Name of Company No. of Shares Purchase Price Date of Purchase Date of Sale Months Selling Price Gains/Loss 1. Amtek Auto 15000 4590887 02/09/2005 09/05/2005 8 5350247 759360 2. Unitek 267500 29633058 28/04/2006 24/11/2006 7 81648641 52015583 3. Zee Entertainment 24000 8363126 2.5 5761635 2601491 4. WWTL 12000 4 1342946 1342946 5. Zee News Ltd. 10850 11 402557 402557 6. D.S.Kulkari 15000 2281543 06/09/2005 19/05/2006 8.5 4852211 2570668 7. Ansal Property 47500 43271579 01/12/2006 09/02/2007 2.4 44114547 842968 Total 55332591 Long Term Capital Gains Sl. No. Name of Company No. of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scale of the activity of sale and purchase of securities by the assessee is substantial." 6. Whether a person dealing with shares has made an investment or has treated them as stock-in-trade, has been the subject matter of considerable debate. It is a matter of intention of the assessee, which has to be gathered from his conduct and surrounding circumstances. Various parameter/criteria have been elucidated and explained. A pragmatic and common sense approach has to be adopted, when we determine and decide the question always keeping in mind commercial considerations. 7. The Assessing Officer in this regard referred to the circular issued by the Central Board of Direct Taxes through Instruction No.4/2007 dated 15.6.2007, which reads as under : "Distinction between shares held as stock-in-trade and shares held as investment-Tests for such a distinction. 1. The Income-tax Act, 1961 makes a distinction between a "capital asset" and a "trading asset". 2. Capital asset is defined in section 2(14) of the Act. Long-term capital assets and gains are dealt with under section 2(29A) and section 2(29B). Short-term capital assets and gains are dealt with under section 2(42A) and section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the transaction being in the nature of trade/adventure in the nature of trade ; but where the object of the investment in shares of a company is to 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 revenue receipt". 9. Dealing with the above three principles, the AAR has observed in the case of Fidelity group as under : "We shall revert to the aforementioned principles. The first principle requires us to ascertain whether the purchase of shares by a FII in exercise of the power in the memorandum of association/trust deed was as stock-in-trade as the mere existence of the power to purchase and sell shares will not by itself be decisive of the nature of transaction. We have to verify as to how the shares were valued/held in the books of account i.e., whether they were valued as stock-in-trade at the end of the financial year for the purpose of arriving at business income or held as investment in capital assets. The second principle furnishes a guide for determining the nature of transaction by verifying whether there are substantial transactions, their magnitude, etc., maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "(a) The first test is whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter of transaction during the time the asset was with the assessee. Has it been treated as stock-in-trade, or has it been shown in the books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of transaction and would be a relevant circumstance to be consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of more than Rs.19 lakhs and Rs.27 lakhs in the assessment year 2005-06 and 2006-07. The Assessing Officer as noticed above was influenced to a large extent of the fact that the assessee had earned huge profits during the year in question from the sale of the said shares. This can happen even in case of investment portfolio because when investment is liquidated to earn gains and change their portfolio. Element of uncertainty and risk is always there when a person deals in securities but this factor cannot be determinative factor whether the assessee is trading in shares or is an investor. Some investors do take risk. The Assessing Officer has recorded that during the financial year 2006-07, the assessee had indulged in frequent and regular trade in securities. The Assessing Officer did not refer to and specifically dealt with the transactions in question though the chart and the figures noted above in this order were available and on record at the time of original assessment. He has not mentioned whether the assessee had indulged in frequent transactions in the previous period or subsequently. Merely because the assessee had sold the said shares in the relevant year and made substa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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