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TMI Blog2012 (12) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... – Assessee claims that he has not charged security transaction tax and has maintained separate accounts in his books of accounts - Held that:- In the absence of the evidence issue required to reexamined. Remand to AO - IT APPEAL NO. 3455 (MUM.) OF 2009 - - - Dated:- 31-8-2012 - DINESH KUMAR AGARWAL AND N.K. BILLAIYA, JJ. Vishwas V. Mehendale for the Appellant. K.G. Kutty for the Respondent. ORDER Dinesh Kumar Agarwal, Judicial Member - This appeal preferred by the assessee is directed against the order dtd. 19-3-2009 passed by the ld. CIT(A) - IV, Mumbai for A.Y. 2005-06. 2. Briefly stated facts of the case are that the assessee an individual derives income from brokerage, shares and interest. He filed return declaring total income of Rs. 6,84,320/-. However, the assessment was completed at an income of Rs. 13,50,360/- including the addition by treating the short term capital gain and long term capital gain as business income, disallowance of securities transaction tax Rs. 1,15,213/- and disallowance of provision of loss on derivatives Rs. 2,589/- vide order dtd. 28-12-2007 passed u/s 143(3) of the Income Tax Act, 1961 (the Act). On appeal, the ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not dividend (c) Insufficient own capital and use of funds of creditors (d) Specialised knowledge and skill (e) own share transaction incidental/ancillary to main business of share broking (f) motive of reducing tax liability And accordingly treated short term capital gain of Rs. 4,19,323/- and long term capital gain of Rs. 16,945/- aggregating to Rs. 4,44,984/- as business profits and added the same to the total income of the assessee. 6. On appeal, the ld. CIT(A) vide his brief order has held as under:- "I have gone through the order of the A.O. and submissions of the appellant. The appellant is a share broker and he deals regularly in the shares. The A.O. has discussed this issue in great length which clearly indicates that the activity undertaken by the appellant has all the ingredients of business and the action of the A.O. is, therefore, found to be correct and is confirmed." 7. At the time of hearing the ld. Counsel for the assessee submits that the assessee in his books of accounts has maintained two separate accounts i.e. investment account of shares and stock of trading shares account and in support, he also placed on record a chart of factual mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital gain showing the name of the scrips, opening stock/purchases, D-mat statement, period of holding in No. of days and working of short term and long term capital gains. In the light of the above, he reiterates that since the assessee is maintaining two separate accounts of shares i.e. investment account and stock of trading in shares account and the said system of accounting has been accepted by the Department in the past also, therefore, the short term and long term capital gains shown by the assessee be accepted as short term and long term capital gains and not as business income. The reliance was also placed on the decision in Narendra Gehlaut v. Jt. CIT [2012] 52 SOT 255, Nagindas P. Sheth (HUF) v. Asstt. CIT and vice versa in ITA No. 961 and 1836/Mum/2010 for A.Y. 2006-07 order dtd. 5-4-2011 and CIT v. Gopal Purohit [2011] 336 ITR 287. 8. On the other hand, the ld. D.R. supports the order of the A.O. and the ld. CIT(A). 9. We have carefully considered the submissions of the rival parties and perused the material available on record. The question before us as to whether the income earned from the activity of purchase and sale of shares could be treated as income from bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efines a capital asset as not including stock-in-trade. If the assessee had held the shares as "stock-in-trade", and not as investment, then such shares would stand excluded from the definition of "short term capital asset", and the proof it earned on the sale of such shares would not be exigible to tax as "short term capital gain", but as "profits and gains from business". 10. In order to ascertain as to whether the shares were purchased by the assessee as investment or stock-in-trade, the most relevant aspect which is to be seen is the intention of the assessee behind the purchase of shares and such intention has to be gathered from the facts of the case including the conduct of the assessee." 10. It is desirable to consider various judicial pronouncements in this regard. To begin with it is apt to take note of the decision of the Hon'ble Apex Court in Bengal Assam Investors Ltd. v. CIT [1966] 59 ITR 547 wherein it has been held (Headnote) : Page 547 :- "For a dividend on shares to be assessed under section 10 of the Indian Income-tax Act, 1922, the assessee, be it an individual or a company or any other entity, must carry on business in respect of shares, that is to say, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business. "(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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that these shares which are subject matter of short term capital gains were rightly held by the assessee and treated by the assessee an investment portfolio and not a trading portfolio. We also notice that the Tribunal has mentioned that the assessee has received substantial dividend income 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 not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there were large number of transactions which had frequency, volume, continuity and regularity and fell within the tests laid down by the Division Bench of this Court. 10. For the aforesaid reasons, we are of the considered opinion that the income earned by the assessee from trading in the shares under the head long term capital gain / short term capital gain was correctly shown. We do not find that in the Assessment Year 2005-2006 and 2006-2007, the transaction of sale of shares and volume were substantial. We do not find any error or irregularity in the impugned order passed by the Tribunal. The substantial question of law framed by this Court as mentioned above is answered in the affirmative and against the revenue. Both these Tax Appeals are accordingly dismissed." 17. In Narendra Gehlaut (supra) the Tribunal has held as under :- "5.5. In the case of 2 portfolios, an eventuality may arise, like an assessee deals in the shares of Telco, some are credited to trading activity and some may be accounted for on capital investment. The law and CBDT circular permits that in such cases accounting entry will determine the nature of assessee's income. When the CBDT Circular and v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly following the above judgments, that the ld. CIT(A) was justified in upholding the assessee's stand." 21. In Hitesh Satishchandra Doshi v. Jt. CIT [2011] 46 SOT 336, the Tribunal while observing that there is no indication of holding period of 30 days finds place either in the statute or in the circular/instructions as well as judicial pronouncements held that the ld. CIT(A) was not justified in treating the share transaction as business transactions in the case where the holding period is less than 30 days and further held that the income arisen from purchase and sale of shares held by the assessee is investment, cannot be treated as business income. 22. In Dev Ashok Karvat (supra) it has been held as under :- "16. Applying the ratio of the above decisions to the facts of the present case it becomes abundantly clear that the transactions in the shares and mutual funds were made by the assessee as investor and not as a trader, therefore, the profit earned from the said transactions is short term capital gain, not business income and accordingly, we while reversing the orders of the AO and the ld. CIT(A) on this account direct the AO to treat the profit from purchase and sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal gains from the business income and tax the same separately under the head long term/short term capital gains. The ground taken by the assessee is, therefore, allowed. 25. Ground No. 2 reads as under:- "The learned Commissioner of Income Tax (Appeals) erred in law and in fact in disallowing Securities Transaction Tax of Rs. 1,15,213/- being Securities Transaction Tax related to clients and recovered through brokerage." 26. Brief facts of the above issue are that it was inter alia observed by the A.O. that the assessee has debited the securities transaction tax (STT) of Rs. 1,15,213/- to the brokerage account and had credited to P L account by brokerage of Rs. 10,04,900/- which is net of STT and other debts. The assessee was asked to explain the debits to the P L account. In response it was submitted by the assessee that "assessee is doing purchase and sale of shares on behalf of clients through JHP Securities Pvt. Ltd. Broker through his bill charges Securities Transactions Tax which is debited to separate account of your assessee. Your assessee does not recover Securities Transaction Tax from the clients being sub broker. Hence STT element related to clients is debited to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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