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TMI Blog2012 (10) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The above factors clearly establish that the intention of the assessee that she was a trader in shares. In view of above, the order of ld CIT(A) accepting the claim of the assessee in respect of STCG cannot be sustained. However, on the basis of the facts and principles, as discussed herein-above, LTCG on sale of shares is accepted - Decided partly in favor of assessee - ITA No.112/Mum/2010 - - - Dated:- 13-7-2012 - G E Veerabhadrappa, B R Mittal, JJ. For Appellant: Shri P K B Menon For Respondent: Shri Paras S Savla ORDER Per: B R Mittal: The department has field this appeal for assessment year 2006-07 against order of ld CIT(A) dated 27.10.2009. 2. The only dispute raised in this appeal is regarding nature of income earned by the assessee from sale and purchase of shares as to whether it should be assessed as business income or capital gains. 3. The relevant facts are that assessee is a doctor and partner in a firm M/s. S.K. Finance. The assessee filed the return of income showing income from speculation profit, short term capital Gains (STCG) and long term capital gains (LTCG) and income from other sources. The STCG shown by the assessee is of Rs.70, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend income earned by the assessee is Rs.4,59,699 whereas income shown out of purchase and sale of shares is Rs.70,18,217. He has further stated that assessee is also indulged in speculative transactions and has shown speculation profit of Rs.10,00,059. f) The fact that shares have been sold in huge numbers during the year dispels the notion that the assessee is looking at these shares from an investor s angle. That the shares purchased in huge amounts shows that same were not to hold them as investment but to sell them at a later date. g) That several shares were held by the assessee for a very little time period and frequency of transaction is quite high. Therefore, shares were purchased and sold for earning profits and not earning dividend. h) That on examination of details filed, the assessee tried her hand in every segment of share transaction. The alleged gain shown under the head long term and short term makes it quite clear that the assessee has taken the activity of share transactions as business. The claim of the assessee that time devoted in this field is minimal is not factually correct, that combined list of gain and loss out of share transactions reveals t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so been stated by ld CIT(A) at page 3 of the impugned order. It was contended that assessee had no motive of profit while managing the investment portfolio. That the valuation of the shares is also done by the assessee at cost which is appropriate as per Accounting Standard -2 issued by ICAI. Ld CIT(A) after considering the submissions of assessee and cases cited before him, details of which given at page 6 of the impugned order, has stated that mere fact that volume of transaction is somewhat large is not decisive of the fact that assessee is a trader in shares. He has stated that no assessee would hold on to the shares to incur loss when the volatility in the stock exchange warrants, that the assessee will minimize his capital loss by selling at an opportune and appropriate time and merely because this leads to a higher frequency, that by itself, will not negate the claim of the assessee as being an investor. He placed reliance on the decision of ITAT Mumbai in the case of Gopal Purohit vs JCIT, 20 DTR 99 (Mum) . Ld CIT(A) further stated that assessee is dealing in shares and has been considered as an investor for the past so many years and, therefore, merely because of the swin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities below and contended that assessee divided the share transactions into two categories, firstly, the shares where delivery had been taken and income arising out of it is considered as income from capital gain and secondly, where no delivery was taken and the income arising out of those transactions has been treated as business income. Ld A.R. submitted that there is no borrowing by the assessee to make purchase and sale of shares. He submitted that the AO has gone only on the basis of turnover. He submitted that the total number of transactions were only 460 transactions comprised of 197 purchases and 263 sales. He submitted that scrips of 164 companies are not a huge transaction which can lead to the conclusion that assessee was a trader in shares and not an investor. Ld A.R. also placed reliance on the decision of Hon ble Bombay High Court in the case of CIT vs. Gopal Purohit, 336 ITR 287(Bom) and submitted that if there is delivery based transaction and which has been treated by the assessee as an investment, there is no justification not to consider it as investment in shares. Ld A.R. submitted that the SLP filed by the department against the decision of Hon ble Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing is by way of investment or form part of stock-intrade is a matter within the knowledge of the assessee and it is for the assessee to produce evidence from the records as to whether he maintained any distinction between shares which are held as investment and those held as stock-in-trade. Therefore, the important factor is the intention of the assessee at the time of purchase, which has to be gathered from the actual conduct of the assessee while dealing with the shares subsequently and not only on the basis of entry in the books of account. In this view, we are supported by the decision of Hon ble Supreme Court in the case of CIT vs. Madangopal Radhey Lal, 73 ITR 652(SC) . Therefore, to decide the nature of transaction as to whether it is in the nature of trade or an investment, no single fact has any decisive significance and the question has to be answered depending on the collective effect of all relevant materials brought on record as held by Hon ble Apex Court in the case of Janki Ram Bahadur Ram vs CIT, 57 ITR 21(SC) . 12. We are also conscious of the fact that an investor makes purchases with long term goal of earning income from the investment and he is not tempted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not an investor as the frequency and volume are not only quite high, but the period of holding also varies from a few days to a few months. The above factors clearly establish that the intention of the assessee that she was a trader in shares. The Hon ble Apex Court in the case of H.Holck Larsen (supra) has held that the issue as to whether a person is an investor or a dealer is a mixed question of law and facts. Considering the facts of the case before us in totality, we are of the considered view that the purchase and sale of shares by the assessee is in the nature of trading in shares and not as an investor. The Hon ble AP High Court in the case of PVS Raju (supra) has also held that the character of a transaction cannot be determined solely on the application of any abstract rule, principle or test but depends on the facts and circumstances of the case. It is stated that it is a matter of first impression with the court whether a particular transaction is in the nature of trade or not. 14. During the course of hearing, ld A.R. gave stress on the entries made in the books of account showing as an investment. The Hon ble Apex Court has held in the case of Tuticorin Alkali Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal in the case of Gopal Purohit (supra) on the ground that there was no substantial question of law involved. Therefore, even before the Hon ble High Court, no question was raised that all delivery based transactions have always to be treated as investment activity. Hence, the decision of the Tribunal as well as Hon ble High Court in the case of Gopal Purohit (supra) cannot be considered as a precedent to the facts of the case of the assessee and particularly for the proposition that all delivery based shares have to be treated as investment. It is also relevant to state that the assessee placed reliance on the decision of the Tribunal in the case of Mahendra C Shah vs ACIT, (ITA No.6289/M/08) dated 18.5.2011 and another decision of the Tribunal in the case of Hitesh Satischandra Joshi vs. JCIT (ITA No.6497/M/2009 order dated 15.7.2011). We observe that these cases are distinguishable as in those cases assessee had sold many shares after holding more than one year and long term capital gain had also been declared. However, in the case before us, as mentioned hereinabove, STCG declared by the assessee, the period of holding varied from one day to a few months and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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