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TMI Blog2012 (10) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... t appears that the share are held as stock in trade. Thus it is very clear that the objective of the assessee company in purchasing the shares was to trade in these shares and not for holding the same as investments. Therefore losses on sale of shares treat as business loss. Appeal decides in favour of assessee Transaction in F&O treat as business income or capital gain – Assessee’s ground that loss on sale of shares is assessable under the head capital gains, then profit and gains from the purchase/sales of the derivatives (F&O) of the shares must also be assessed under the head "capital gains" – Held that:- The intention of the assessee for procuring the asset has to be examined to determine whether the asset is to be treated as investment or stock- in- trade. It is very essential to understand the nature of transactions in dealing with derivative. Derivative itself is merely a contract between two or more parties for purchase/sale of securities by taking delivery or by settlement on certain pre-determined terms. Therefore, derivative by itself cannot be termed as an investment or stock in trade. The entire transactions of purchase/sale of securities/shares through derivatives an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not trading loss. Similarly, the assessee had claimed a trading loss of purchase and sale of shares of Mohit Industries, however, the same was held by the learned AO to be investment and on re-working arrived at a long term capital gain of Rs. 6,21,524/- against 501014 shares and short term capital loss of Rs. 6,21,524/- against 556775 shares. 4. The learned AO had considered both (a) forfeiture of shares (b) purchase and sale of shares, to be in the field of investment and held it to be taxable under the head capital gains; short term or long term, because these shares were disclosed in the balance sheet under the head investment. 5. Ground No.1: forfeiture on account of purchase and sale of shares of M/s. Kapees Filament Pvt. Ltd. amounting to Rs. 7,00,000/-. The learned AR submitted before us that the partial payment made for allotment of shares of M/s. Kapees Filament Pvt. Ltd. for Rs. 7,00,000/- was disclosed under the head investment held in stock in trade and, therefore, being part of stock in trade, the same ought to be treated as trading loss and not as capital loss. The learned DR on the other hand, firmly asserted that the disclosure of the assessee of the above sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age rate of Rs.15.04 amounting to Rs. 76,69,363 and thus arrived at long term capital gain at Rs. 6,21,524/-. Similarly, for the rest of Rs. 5,56,775/- as shown in Chart A of the assessment order, the learned AO worked out the purchase cost of each share at average rate of Rs. 22.11 amounting to Rs. 1,23,12,867.57 and the sale of these shares at an average rate of Rs. 15.06 amounting to Rs. 83,83,005.34 and thus worked out short term capital loss at Rs. 6,21,524/-. 8. The learned AR vehemently argued stating that these shares were held by the assessee as stock in trade and not as investment and, therefore, the loss on account of purchase and sale of the same has to be treated as trading loss while the learned DR argued stating that these purchases and sales of shares fall in the field of investment and therefore has to be dealt under the head income/loss from capital gains. 9. We have heard the rival submissions and carefully perused the materials on record and the case laws relied upon both the parties. On our examining the balance sheet of the assessee we find that the investments of shares in Mohit Apparels Pvt. Ltd., were disclosed by the assessee under the head investment. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the asset has to be examined to determine whether the asset is to be treated as investment or stock- in- trade. If the intention of the assessee was for making investments then the profit or loss arising out of the transaction will be taxed under the head "capital gains" and at the same time if the intention of the assessee was to trade by holding the asset as stock in trade, the income or loss arising out of the transactions will be taxed under the head "income from business or profession" (trading profit or loss). At this juncture, it is very essential to understand the nature of transactions in dealing with derivative. The Security Laws (Second Amendment Act, 1999) has included derivatives in the definition of "securities". Derivative includes:- (a) A security derived from a debts instruments, share, loan, whether secured or unsecured, risk instruments or contract for differences or any other form of security. (b) A contract which derives its value from the prices, or index of prices of underlying securities. Thus, derivative means a forward, future, option or any other hybrid contract of pre-determined fixed duration, linked for the purpose of contract fulfilment to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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