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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 ..... al. 3. Being aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us. 4. Ground No. 1 reads as under:- "The learned Commissioner of Income Tax (Appeals) erred in law and in fact treating the Capital Gain of Rs. 4,44,984/- (Short Term Gain of Rs. 4,28,039/- and Long Term Gain of Rs. 16,945/-) as Business income." 5. Brief facts of the above issue are that the A.O. observed that the assessee is a sub-broker and has also carried out purchase and sale of shares on own account. Considering the volume of transactions, the assessee was asked to justify the claim that income is from capital gains. In response, the assessee stated that such transactions are of two kinds viz. business transactions and investment transactions. The assessee further stated that the business transactions are those transactions which are recorded in the books of account under the head 'Jignesh Patel (Margin a/c)' and wherein the assessee had also utilised margin funding. The shares purchased with an intention to invest have been recorded in the books of account under the head 'Jignesh Patel'. The assessee further stated that the unsold shares are shown separately as "Investments" in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 261532 1469416 1372220 206957 Dividend 30220 41198 30955 47889 17727 15005 STCG 428039 -27208 45573 68976 8514 2243 LTCG 16945 58290 -138622 -33140 Business -307717 -243775 7832 -1333 -176624 -20276 Brokerage 1004900 754692 321156 540858 874749 446323 Client Cr 2615449 1995993 1659790 2067560 1932090 1795563 Stock in Trade 236658 140490 7505 100327 131087 808952 He further submits that in the past the A.O. has accepted the above transactions of shares even in the scrutiny assessments for the assessment years 2002-03 and 2004-05 appearing at page 115 and 90 of the assessee's paper book respectively and no addition was made on this account. He further submits that the aim of the assessee is to earn maximum profit by investment in shares and trading in shares for which he is maintaining two separate accounts. He further submits that the assessee has not taken any loan for investment in shares and in any case the investment in shares was made out of interest free funds i.e. in other words no interest was paid by the assessee on such investment in shares. He further submits that since the assessee is a sub-broker o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to include any distribution by a company of accumulated profits, whether capitalized or not. Section 2(42-A) defines "short-term capital asset" to mean a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer. Section 2(42-B) defines "short term capital gain" to mean capital gain arising from the transfer of a short term capital asset. Under Section 28(i) of the Act, the profits and gains of any business carried on by the assessee, at any time during the previous year, is chargeable to income tax under the head "profits and gains of business or profession". Under Section 45(1) of the Act any profits or gains, arising from the transfer of a capital asset effected in the previous year, is deemed to be income of the previous year in which the transfer took place. Section 111-A, inserted by Finance Act, 2004, relates to tax on short term capital gains in certain cases and, under sub-section (1) thereof, where the total income of an assessee includes any income chargeable under the head "capital gains", arising from the transfer of a short term capital asset being an equity share in a company and such transaction is chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586 (SC) it has observed as under :- "Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are stock-in-trade and those which are held by way of investment." 12. The Hon'ble Apex Court in another decision in CIT v. H. Holck Larsen [1986] 160 ITR 67, has held as under (head note page 69) :- "In order to determine whether one was a dealer in shares or an investor, the real question was not whether the transaction of buying and selling the shares lacks the element of trading, but whether the later stages of the whole operation show that the first step-the purchase of the shares-was not taken as, or in the course of, a trading transaction. The totality of all the facts will have to be borne in mind and the correct legal principles applied to these. If all the relevant factors have been taken into consideration and there has been no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is in the nature of business." 14. In CIT v. Vinay Mittal Hon'ble Delhi High Court after considering the test laid down by the Hon'ble Gujarat High Court (supra) has held in para 9 & 10 as under:- "9. In the present case, the assessee is an employee and is in service of a company. He has salaried income. The assessee had also made purchases and had sold securities. He is maintaining two separate portfolios i.e. investment portfolio and trading portfolio. The Assessing Officer has admitted the said position in the assessment order. It is pointed out that the shares in question which are subject matter of short term capital gains form part of the investment portfolio and were not part of the trading portfolio. We are not concerned with the trading portfolio in the present case as profits and gains from the trading portfolio have to be treated as business income/loss. As far as seven shares/transactions subject matter of short term capital gains are concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys be in favour of sales. 10. The Tribunal in the facts of the present case has examined and correctly applied test/criteria, which has to be applied. We may note that in the earlier assessment years, transactions in the investment portfolio by the assessee were accepted by the Assessing Officer." 15. In Gopal Purohit (supra) it has been held as under (Headnote) : "Held, dismissing the appeal, (i) that it was open to the assessee to maintain two separate portfolios, one relating to investment and another relating to business of dealing in shares, that a finding of fact had been arrived at by the Tribunal as regards the two distinct types of transactions, namely, those by way of investment and those for the purposes of business, and this warranted no interference. (ii) That there should be uniformity in treatment and consistency when facts and circumstances for different years were identical particularly in the case of the same assessee. (iii) That entries in the books of account alone are not conclusive in determining the nature of income." 16. Recently the Hon'ble Gujarat High Court in CIT v. Vaibhav J. Shah (HUF) in Tax Appeal No. 77 of 2010 with Tax Appeal No. 78 of 2010 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in respect of delivery based share transactions, investment and capital loss in respect of commodity transactions on delivery basis both are to be held on account of short term capital gain income and short term capital loss respectively. Thus, the grounds of the assessee are allowed." 18. In Nagindas P. Sheth (HUF) (supra) it has been held as under:- "...........On a conspectus of the matter, we are of the view that the transactions of purchase and sale of shares, in the instant case, deserves to be considered as investment and profit thereon has to be assessed to tax under the head 'capital gains'. We direct the Assessing Officer accordingly." 19. In Felspar Credit & Investment (P.) Ltd. v. CIT [2012] 346 ITR 121 (Mad.) it has been held as under (Page 122 head note) :- "(ii) That the extent of income earned from the sale of shares could not be the criteria to hold that the assessee was dealing in shares as a business venture. When the Revenue had no grievance on the same pattern of transaction in the preceding years and in the subsequent years, the mere fact that the assessee had a profit in the assessment years 1992-93 and 1993-94 by itself could not change the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt being the purchase of shares as an investment or stock-in-trade. If the purchase is a mere investment, then the result on the sale must necessarily be taken to the logical end to treat it as an asset yielding to capital gains. However, when investment itself is for the purpose of making it as a business then the income earned on dealing with such shares is to be treated as business income only. 24. In the backgrounds of the above decisions, when we analyse the facts of this case we find that there is no dispute that the assessee is maintaining two separate portfolios i.e. investment portfolio and trading portfolio. The A.O. has admitted the said position consistently in the past. It is pointed out that the shares in question which are subject matter of short term capital gain and long term capital gain are part of the investment port folios and were not part of the trading portfolio. Since the assessee has long term and short term capital gain out of the investment portfolio and it is not the case of the Revenue that any point of time the assessee has mixed up the above two portfolio and merely because the assessee had sold the shares in the relevant year and made substantial g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greeing with the views of the A.O. confirmed the disallowance made by the A.O. 27. At the time of hearing the ld. counsel for the assessee while reiterating the same submissions as submitted before the A.O. and the ld. CIT(A) further submits that the A.O. was not justified in disallowing the claim of the assessee and the same be allowed to the assessee. 28. On the other hand the ld. D.R. supports the order of the A.O. and the ld. CIT(A). 29. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the claim of the assessee is that the assessee has not charged security transaction tax and has maintained separate accounts in his books of accounts. However, in the absence of any supporting material and keeping in view that this issue requires fresh investigation at the end of the A.O., we consider it fair and reasonable that the matter should go back to the file of the A.O. and accordingly we set aside the order passed by the Revenue Authorities on this account and send back the matter to the file of the A.O. to decide the same afresh in the light of our observation hereinabove and according to law after providing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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