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TMI Blog2013 (7) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... g activity. However, he has not properly examined the facts whether the assessee has used his own funds and not borrowed funds in the investment in shares, the department has been accepting the income from shares as capital gain upto assessment year 2005-06, there is no intra-day transactions. These facts definitely will have a bearing in coming to a conclusion as to whether the income from shares should be assessed as income from business or capital gain. Since neither the AO nor the CIT(A) have examined all these aspects, the entire issue of activity in shares is in the nature of investment or trading requires to be considered again considering ratio laid down in PVS Raju V/s. CIT ( 2011 (7) TMI 818 - Andhra Pradesh High Court) and M/s Spectra Shares and Scrips (supra) - appeal of assessee is allowed for statistical purposes. - ITA Nos. 481/Hyd/10 & 1311/Hyd/11, ITA Nos. 482/Hyd/10 &1310/Hyd/11 - - - Dated:- 31-5-2013 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellants : Sri S. Rama Rao For the Respondent : Shri M. H. Naik ORDER Per Saktijit Dey, Judicial Member:- These four appeals filed by two different assessees are directed against separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly taking delivery of shares. 5. The Assessing Officer on the basis of the above facts was of the view that the nature of transaction is covered within the definition of speculation transaction as defined u/s 43(5) of the Act. When the Assessing Officer asked the assessee to explain as to why the entire income of long and short term capital gain should not be treated as speculative business, the assessee stated that demat account was not mandatory during the relevant period. It was further stated that the company should be treated as an agent of the assessee and all the purchases and sales effected on behalf of the assessee in the name of the company should be treated as purchases or sales in the name of the assessee. The Assessing Officer however did not accept the contentions of the assessee. He was of the view that in the absence of demat account or contract note, it is not possible to know whether shares are actually purchased or sold in the name of the assessee. He further held that sale of shares without taking delivery of the same, is clearly covered under the definition of speculative transaction. Accordingly, the Assessing Officer treated the income derived from sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiate the claim of the assessee. The CIT (A) further noted the fact that during the appeal proceedings even though the Assessing Officer was asked to verify the claim of the assessee with regard to actual delivery of shares, the Assessing Officer was not presented with any evidence to prove that the delivery had indeed been taken either by the assessee or his agent. The CIT (A) further noted that the contract notes submitted by the assessee during the appeal hearing are not certified and signed by anyone from M/s HSE Securities Ltd. He further noted that the contract note even do not mention that the delivery of shares had either been taken by the assessee or by any agent on behalf of the assessee. He observed that neither HSE Securities Ltd., nor Movva Securities have certified that delivery has been taken for any share on behalf of the assessee. The CIT (A) observed that only evidence which could have indicated the actual delivery of shares is demat account of either HSE securities Ltd., or Movva Securities Ltd., however none of these demat accounts have been produced as evidence nor any of these agents have certified that they have taken delivery of shares on behalf of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the HSE itself. It was further submitted the assessee has furnished all the details of shares held both under short term and long term capital gains which would show that the shares were held for a substantial period on many occasions. None of the shares were sold prior to their purchase. All the shares were purchased, taken possession of and at the time of sale of shares possession was handed over. It was submitted that the physical delivery of shares was effected both at the time of purchase and at the time of sale through demat account. The learned AR referring to the confirmation memo issued by M/s Movva Securities and the certificate issued by HSE which was submitted along with paper book , submitted that these certificates clearly proves the fact that the assessee has taken delivery of shares at the time of purchase and handed over the possession of the shares at the time of sale. With regard to the allegation by the CIT (A) that the confirmation letters are not certified and not signed, the learned AR submitted that there is no need for certifying as they are computer generated. He further submitted that the if the CIT (A) had any doubt he should have made enquiry befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as transaction in the nature of speculative business u/s 43(5) of the Act on the ground that the assessee has filed to produce any evidence to show that the shares were taken delivery by the assessee in absence of demat account or contract note. Though the assessee has produced contract note from M/s Movva Securities and M/s HSE Securities Ltd., in support of his claim that the assessee has in fact has taken the delivery of shares at the time of purchase and has handed over possession when they were sold. The evidences produced were disbelieved by the CIT (A) on the ground that the contract notes are unsigned and not certified and they do now or mention that the delivery of shares had either been taken by the assessee or any agent on behalf of him. However, it is the specific contention of the learned AR that the purchase and sale of shares are proved demats accounts only and the assessee actually taken delivery of shares at the time of purchase. In this context, the learned AR has referred to the copies of demat transaction statement, contract note issued by the HSE and Movva Securities which are pages 18 to 42 of the paper book. However, the assessee is required to establish the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 in case of M/s Spectra Shares and Scrips V/s. CIT while deciding the issue as to whether the income derived from sale of shares is to be treated as capital gain or income from business. The Assessing Officer shall afford a reasonable opportunity of being heard to the assessee. ITA No.1311/Hyd/11 M.V. Subba Rao:- 13. The assessee has raised the following grounds:- "1. The order of the CIT (A) is erroneous both on facts and in law. 2. The CIT (A) erred in holding that the activity of the appellant in purchase and sale of shares is a business activity without considering the fact that the appellant is carrying on the activity as an investment. 3. The CIT (A) erred in confirming the order of the Assessing Officer in treating the long term capital gain derived by the appellant of Rs.32,64,233/- as income from business. 4. The CIT (A) ought to have seen that the investment in shares has to be considered purely as an investment made by him and it cannot be considered as an investment made for the purpose of carrying on business. 5. The CIT(A) erred in holding that the short term capital gain derived on sale of shares of Rs.28,29,652/- as the income from business." 14. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as change in investment but has to be treated as dealing in shares. The Assessing Officer relying upon the decisions of Hon'ble Supreme Court in case of Rajputana Textiles (Agencies) Limited V/s. CIT (42 ITR 743) and Raja Bahadur Visheshwara Singh V/s. CIT (41 ITR 685) held that the shares held by the assessee is trading asset and not capital asset and dealing in shares is in the nature of trade. Accordingly, he rejected the income shown under the head long and short term capital gain and treated the same as profits and gains of business or profession u/s 28 of the Act. Against the assessment order so passed, the assessee preferred an appeal before the CIT (A). 16. In course of hearing before the first appellate authority, the assessee reiterating his contentions made before the Assessing Officer submitted that he maintained a demat account during the year under consideration and all the shares were actually received in his demat account and the sale of shares were also through demat account. The shares were possessed by the assessee and was given delivery through demat account. It was further submitted that the assessee used his own funds for the purpose of investment in shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment in terms of dividend. The CIT (A) also referred to certain other specific instances of purchase and sale of shares within a short duration. So far as long term capital gain is concerned, the CIT (A) on examination of facts on record noted that the assessee began purchasing stock of Nagarjun Construction at Rs.319.96 and as the stock price fell to Rs. 217.80 per share, the assessee kept picking up more shares to reduce the average price of the purchases. Therefore, the average price at which the assessee purchased the shares of Nagarjuna Construction came to Rs.275.49 per share. From these facts, the CIT (A) was of the opinion that the strategy adopted by the assessee is not the strategy of a genuine investor but of a person who does business of sale and purchase of shares. The CIT(A) further noted that from 29-11-2006 to 24-7-2007 , the assessee waited for seven months to see whether share price was rising or falling. Thereafter on 24th and 25th July, 2007, the assessee sold 100 shares of Nagarjuna Construction at an average price of Rs.206 per share thereby booking a small loss. The amount received along with available amount was utilised by the assessee to purchase the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to rule of consistency. The Tribunal further held that the shares were held for more than 12 months in certain cases and the income is determined as short term or long term capital gain on the basis of the fact whether the delivery has been taken or given and security transaction tax has been paid. It was submitted that when the aforesaid order of the Tribunal was challenged before the Hon'ble High Court of Mumbai, the High Court held that rule of consistency has to be maintained and approved the order passed by the Tribunal. The assessee also relied upon various other decisions of the Tribunal in support of his claim that the income from sale of shares should be assessed as capital gain. The learned AR relying upon the judgment dated 21-2-2013 of the Hon'ble AP High Court in case of Spectra Shares and Scrips Pvt. Ltd. V/s. CIT and specifically referred to para- 47 of the judgment. 20. The learned AR submitted that if the reasonings as laid down in the said paragraph-47 of the judgment of jurisdictional High Court are considered in case of the assessee then the assessee's contention that he is an investor or not a trader is found to be correct. The learned AR submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case is examined in the context of the criteria laid down by the Board's Circular then it can be seen that the assessee did not maintain any books of account so far as shares are concerned. No profit and loss a/c was drawn. None of the expenditure claimed by the assessee including security transactions tax and so far as magnitude in purchase and sale of share is concerned, that is, not a factor to be considered as per the decision of the jurisdictional High Court. He further submitted that in so far as assessee is concerned, it is a change in the investment from one share to another share. It was submitted that it can be seen from pattern of investment that there is gain but in the process of change in investment and not in the process of business. The assessee relying upon a decision of the Income-tax Appellate Tribunal Mumbai Bench in case of ACIT V/s.,. Jahangir T. Nagri (23 SOT 512) submitted that it is the intention of the assessee which is more relevant for the purpose of determining whether the shares were held as investment or trading assets. Since in the present case, the intention of the assessee is to hold the shares as investments it cannot be treated as income from b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain. He further submitted that while in case of PVS Raju (supra) the shares were held for short term and not an investment, the assessee has held the shares as investment and never held his shares for short period. While in case of the assessee from inception of the activity till date, the entire portfolio was an investment portfolio and not a trading portfolio and in case of PVS Raju different treatments were given to the various activities carried on by the assessee. It was submitted that in case of PVS Raju the profit made has not enhanced the value of shares but is a profit made is carrying on the business. Whereas in case of the assessee it is mere increase in the capital and not profit derived in the process of trading. In case of PVS Raju, shares were sold even prior to purchase. However, in case of the assessee no share was sold prior to the purchase and majority of shares were held for a long term. All shares were taken delivery and were given delivery. The learned AR relied upon a judgment dated 9-1-2013 of Hon'ble Delhi High Court in CIT V/s. Avinash Jain and submitted that the Board's circular No.4 of 2007 dated 15-6-2007 was interpreted by the Hon'ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, principle or test. The Hon'ble High Court further observed that no single criterion is decisive in determining the question whether particular receipt is capital or revenue. The jurisdictional High Court after taking into consideration the ratio laid down by the Hon'ble Supreme Court and different High Courts laid down certain parameters for differentiating business income from capital gain. The tests laid down are as follows:- (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elivery base excepting one solitary instance of Reliance Industries Ltd. (g) The assessee was registered as NBFC with RBI. (h) The assessee never claimed set off of the losses arising from sale of investments against other income. (i) Merely because of large frequency of volume of transacstion, a conclusion that an assessee is a trader cannotbe drawn without considering the period of holding of those shares by the assessee. (j) A trader in shares normally holds them for a short time only and is unlikely to invest in unquoted shares or in mutual funds he is likely to borrow funds for his trading activity. (k) The fact that the assessee is monitoring the stock market and buying at dips and selling at highs with an intention to make profit from these transactions is not conclusive of the fact that the assessee is a trader because even an investor would not buy or sell blindly and take the risk of suffering losses. (l) The fact that the assessee has a administrative set up and incurs considerable administrative costs is not a factor to hold that the assessee is a trader. (m) The fact that the assessee is making repetitive purchases and sales of same shares is a factor in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars i.e., till assessment year 2005-06, the assessee's income has been accepted as capital gain, further the assessee being an investor has not borrowed any fund to make investment in shares but has used his own funds. There is also no intra-day transaction. If these facts are correct and the assessee has used his own funds and carried on the activities as investor and is consistently showing the income under the head capital gain and the department was also accepting this position upto assessment year 2005-06 then the ratio laid down by the Hon'ble jurisdictional High Court in case of M/s Spectra Shares and Scrips V/s. CIT (supra) would apply. 29. The CIT (A), though, in his order has mentioned specific instances of shares being held for a very short period while coming to his conclusion that the assessee is not an investor but is engaged in a trading activity. However, he has not properly examined the facts whether the assessee has used his own funds and not borrowed funds in the investment in shares, the department has been accepting the income from shares as capital gain upto assessment year 2005-06, there is no intra-day transactions. These facts definitely will have a beari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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