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TMI Blog2013 (1) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... ese share transactions as investment in the assessee's books of accounts was not conclusive need to be looked. Thus on perusal of the statements incorporated by the AO in the assessment order it is found that the assessees have made several transactions of purchase of shares during the relevant year under consideration, and if there high volume, frequency and regularity of the activity carried on by the assessees in a systematic manner, it would partake the character of business activities carried on by the assessee in shares, and it cannot be said that the assessees have merely made investments in shares. The findings of the CIT(A) cannot be sustained in the eyes of law, as he has not considered relevant facts to decide the issue. Thus reverse the order of the CIT(A) and restore the order of the AO - in favour of revenue. - IT Appeal Nos. 163 & 164 (Hyd) of 2011 - - - Dated:- 28-9-2012 - CHANDRA POOJARI AND SAKTIJIT DEY, JJ. Smt. Nivedita Biswas for the Appellant. A.V. Raghuram for the Respondent. ORDER Chandra Poojari, Accountant Member - These two appeals filed by the Revenue are directed against similar but separate orders of the CIT(A)-VI, Hyderab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abad in ITA No748/Hyd/2011 for the assessment year 2006-07 dated 5th August, 2011 wherein it has been held as under- "Assessee company, having carried on the activity of buying and selling of shares in a systematic and regular manner with high frequency and volumes, repetitive purchases and sales of the same scrips throughout the year, it has to be held that it was engaged in trading in shares to earn profits and not buying shares for the purpose of investments and, therefore, income earned by the assessee falls under the head 'profit and gains of business or profession' and not 'capital gains'." 7. On the other hand, the learned Authorised Representative for the assessees, reiterating the contentions urged before the lower authorities, strongly supported the order of the CIT(A). He submitted that the assessing officer was not justified in treating the short term capital gains derived by the assessee on sale of shares as business profits. He submitted that frequency in transactions and high volume does not alter the nature of income from short term capital gains into income from business. In this behalf, reliance is placed on the decision of the Mumbai Bench of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the same may be confirmed. Further, the learned Authorised Representative relied on the order and judgment of the Gujarat High Court dated 27.6.2012, in the case of CIT v. Vaibhav J. Shah (HUF) (Tax Appeal No.77 of 2010 with Tax Appeal No.78 of 2010), duly filing a copy thereof before us, wherein the Hon'ble Gujarat High Court has held as follows "9. In view of the aforesaid decisions of the Apex Court as well as this Court, it is clear that where number of transactions of sale and purchase of shares takes place, the most important test is the volume, frequency, continuity and regularity of transactions of purchase and sale of shares. However, where there is repetition and continuity, coupled with magnitude of the transactions, bearing reasonable proportion to the strength of holding, then an inference can be drawn that activity is in the nature of business. Learned counsel for the revenue from the records could not demonstrate that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases afford adequate guidance to the assessing officers. 8. The Authority for Advance Rulings (AAR) (288 ITR 641), referring to the decisions of the Supreme Court in several cases, has culled out the following principles :- (i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction; (ii) the substantial nature of transactions, the manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions; (iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade. 12. These instructions shall supplement the earlier Instruction no. 1827 dated August 31, 1989. (F.No.149/287/2005-TPL)" 8. We heard both the parties and perused materials on record. The contention of the assessees is that it always treated the shares as investment, and there is no business activity whatsoever carried on by the assessees with reference to shares. 9. Now the question before us is not whether the assessees have carried on the investment activity or business activity. On the other hand, the question is when the assessees classified the shares in the books as investments, whether really they are 'investment' or 'stock in trade'. One of the relevant tests for determining whether it is in the nature of fixed asset or constitutes stock in trade of the assessee's business. Fixed asset is what the owner turns to profit keeping the asset in his own possession, stock in trade is what he makes profit of by parting with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the sale of shares is income from business or income from capital gain, one has to go by the following criteria, as held by the jurisdictional High Court in the case of PVS Raju v. Addl. CIT [2012] 340 ITR 75 (a) The frequency of buying and selling of shares by the appellants were high; (b) The period of holding was less; (c) The quantum of turnover was on account of frequency of transactions, and not because of huge investment; (d) The intention of the assessee to make quick profits on a huge turnover; (e) No. of scrips shares held for fewer days; (f) Whether engaged in dealing in the same scrips frequently; (g) Intention of the assessee in buying shares is not to derive income by way of dividend on such shares, but to earn profits on the sale of the shares; (h) Whether the assessees had indulged in multiple transactions of large quantities with high periodicity. These periodic transactions selecting the time of entry and exit in each scrip, called for regular direction and management which would indicate that it was in the nature of trade; (i) Repeated transactions, coupled with the subsequent conduct of the assessee to re-enter the same scrip or ..... 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