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TMI Blog2013 (5) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... t, been showing purchase of shares as investment in the books of account and the same has been classified in the balance sheet under the head "Investment" & has been treated to be capital gain in the assessment years 2004-05 and 2005-06 by the AO under scrutiny proceedings wherein the order has been passed u/s 143(3). In the assessment year 2008-09, the Commissioner (Appeals) has accepted the gain from transactions of shares to be assessable under the head "Short term Capital Gain". Thus, if the same facts are permeating through all the assessment years, it cannot be held that on similar nature of transactions, the income from shares has to be assessed as "Income From Business" as also all the transactions undertaken are delivery based and the assessee has not undertaken any speculative or derivative trading of shares showing that intention was never to indulge in trading of shares and as no interest bearing borrowed funds or loans have been diverted for purchase of shares rather they have been purchased from the surplus funds available with the assessee & most of the gain has come from sale of mutual funds, which cannot be traded in Stock Exchange. This also goes to prove that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of tour and travel expenses and administrative expenses. It was further observed by the Assessing Officer that the receipts in the year were mainly on account of transaction in shares and on perusal of the Balance Sheet revealed that the major portion of the funds available at Rs. 20.51 crores have been invested in shares / units at Rs. 16.99 crores. Besides this, unsecured loan taken during the year at Rs. 1.55 crores have also deployed in purchase of shares and units. After verifying the transactions and the activities of the assessee, he came to the conclusion that the short term capital gains and long term capital gains declared by the assessee is nothing but "Income From Business". The Assessing Officer's finding has been summarized by the Commissioner (Appeals) in Para-3.1 in the following manner:- (i) The details of purchase and sale shows that there were regular and numerous transactions; (ii) The major activity of the Assessee is dealing in shares and the activity stated to be the business activity of the Assessee has not contributed any receipts for the year; (iii) The expenses claimed including staff expenses and other administrative expenses have mainly been cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it itself does not lend much prudence to the Assessee's arguments that its activity is in the nature of investment and not as a business activity. Moreover, on this test it is also relevant to cite the decision of the Hon'ble M.P. High Court in CIT v/s Motlay Finance P. Ltd., 290 ITR 719 (M.P); and (xi) In this case the facts clearly indicate that the investment is not to derive income by way of dividend but is for earning profit from sale of the shares. Thus, the entire income from purchase and sale of shares was treated under the head "Income From Business". 4. Being aggrieved by the stand so taken by the Assessing Officer, the assessee went in appeal before the first appellate authority, whrein it was submitted that out of total gains of Rs. 3,29,28,126, Rs. 1,20,07,344, constituted long term capital gains which was exempt under section 10(38) of the Act and Rs. 2,09,20,782, was on account of short term capital gains chargeable @ 10%. The only motive and intention of the assessee was to earn dividend income and to reap the benefits of appreciation in prices of shares occasionally as an investor. Looking to volatility in the share market, the assessee had many times d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstance of the conduct of the appellant. 3.3.4 The appellant's average of investment of 31.03.2005 31.33.2006 is Rs. 9.14 crores and it had its own fun at Rs. 16.49 crores on 31.3.2005 and Rs. 18.79 crores as on 31.3.2006, the borrowed funds at 27.62 lakhs 31.3.2006 Rs. 1.71 crores on 31.3.3006. 3.3.5 The volume and frequency of transaction with respect to the transactions shown by the appellant as short term capital gain are very high with short holding period. 3.3.5 The volume of transaction with respect to long term capital gain shown by the appellant are high but the number of transactions are very small with long holding periods. 3.3.6 the Apex Court in the case of Karanpura Development Co. Ltd. v/s CIT, 44 TR 362 states that substance of transaction would prevail over form. The essential characteristic of the business are (a) continuous and systematic exercise of activity, (b) profit motive. The activity of appellant has been continuous and systematic and frequent sale and purchases have been made with the intention to earn profit with respect to the transactions shown as short term capital gains. The facts of the transactions of the shares units by appellant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a repetitive transactions, however, such transactions are very few. The number of scrips undertaken under the head "Short Term Capital Gain", was 74 and likewise short term capital gains through PMS were 11 and in mutual funds, it was 18. Thus, it cannot be held that the assessee was doing regular trading of shares. He further submitted that all the transactions were delivery based and there was no speculation or derivative transaction. The average period of holding even under head "Short Term Capital Gain" is 107 days and the average period of mutual fund holding was 152 days. He also pointed out that in the assessment year 2004-05 and 2005-06, the assessee's case was selected for scrutiny under section 143(3) and similar nature of transactions have been accepted to be assessable under the head "Capital Gain" and not under the head "Income From Business". He also pointed out the computation of income and relevant balance sheet for the respective assessment years of 2004-05 and 2005-06. At Page-91 of the paper book, he also referred to the history of the assessment and also pointed out that in assessment year 2008-09, the Commissioner (Appeals) has treated the similar nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed under the ICAI guidelines. Lastly, he relied upon various case laws, compilation of which has been filed before us. This compilation also includes the judgment of Hon'ble Jurisdictional High Court in CIT v/s Gopal Purohit, [2011] 336 ITR 287 (Bom.). 10. On the other hand, the learned Departmental Representative strictly relying upon the findings of the Commissioner (Appeals) and the Assessing Officer, submitted that the Commissioner (Appeals) has taken note of a number of scrips, volume and frequency of transaction undertaken by the assessee which shows that the assessee's intention was to earn maximum profit and has to be treated under the head "Income From Business". He further submitted that the acceptance by the Department in the earlier year cannot be held as resjudicata in this year also as the Assessing Officer has examined the issue in detail and has come to the conclusion that the nature of transaction in shares undertaken by the assessee shows that it is in the nature of business income. 11. We have heard the rival contentions, perused the orders of the authorities below and the material available on record. The issue of assessability of income under the head " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is a known phenomenon in Stock Exchange that a single transaction is split into many smaller transactions while trading in the Stock Exchange through computers. Such transactions, at times, give unrealistic figures of number of transactions. In this case, following important facts are relevant while adjudicating the issue as to whether the gains from the transactions of shares is to be assessed under the head "Short Term Capital Gain" or under the head "Income From Business". Firstly, the assessee has, all throughout, been showing purchase of shares as investment in the books of account and the same has been classified in the balance sheet under the head "Investment"; secondly, such a nature of transaction shown under the head "Investment" has been treated to be capital gain in the assessment years 2004-05 and 2005-06 by the Assessing Officer under scrutiny proceedings wherein the order has been passed u/s 143(3). In the assessment year 2008-09, the Commissioner (Appeals) has accepted the gain from transactions of shares to be assessable under the head "Short term Capital Gain". Thus, if the same facts are permeating through all the assessment years, it cannot be held that on sim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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