9911796707
TMI Blog2014 (1) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... ived income from sale of the investments from time to time depending upon market conditions. For the impugned assessment year the assessee filed its return of income on 15-11-2006 showing long term and short term capital gain of Rs.45,17,556/- and Rs.1,03,96,804/- respectively and declared the total income of Rs.85,67,964. Assessee's return was selected for scrutiny. During the scrutiny assessment proceeding, the Assessing Officer noted that the assessee had earned an income of Rs.1,49,14,360/- from sale of shares and securities and the same has been reflected in P & L account as per the books of account for the year under consideration. But in the computation filed with the return of income, the assessee has reduced the same from business income and treated it as capital gain. He therefore asked the assessee to explain why the income should not be treated as business income. In its reply, assessee stated that share transactions are investments only, hence income derived therefore has to be treated as capital gain. It was stated that the shares were acquired entirely from the companies listed in NSE. The dividend received during the year from shares and units in MF was Rs.65,39,113 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived there from has to be treated as capital gain. The CIT (A) summed up his conclusions as under:- "6.18. From the above discussion, it is amply clear that the Assessing Officer has not been able to justify the different view taken by him of the transaction of the appellant in shares and securities during the year, as against the consistent approach adopted and accepted in the earlier years. On the other hand, it is clear that the appellant has been classified his holdings in shares and units of mutual funds, as "investments" right from the beginning, whereas the benefit of sec. 111A of the Act was introduced w.e.f. 1.11.2004 only, much later than the acquisition of the investments by t~ company. Therefore, it cannot be said that the shares / securities had been so classified as investments' and shown as resulting in Long Term capital gains and Short term Capital gains only with a view to obtain the benefit of the above provisions. It is also clear that the appellant has not made repeated purchase and sale of same scrips on a regular basis with a view to take advantage of the market fluctuations. It is also seen that despite substantial volume on account of huge investments itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, whereas investments are Rs.8,25,89,612. He submitted that the details of sundry creditors show that the assessee is buying shares from the creditors. It was submitted that 50% of the investments are out of borrowed funds only. The learned DR referring to page 38 of the paper book submitted that there are about six different occasions of purchase and sale of shares of Gurarat NRE coke. He submitted that in case of shares of Gruh Finance Ltd., also shares were purchased and sold during the year and actual number of transactions are more. The learned DR submitted that though the assessee has shown the holding period but the frequency of transaction has not been given. He therefore submitted that going by the frequency and volume of share transactions it cannot be anything else but business of the assessee. In support of his contention the learned DR relied upon the decision of the Hon'ble AP High Court in case of PVS Raju vs. Addl. CIT (340 ITR 75). 7. The learned AR placing the facts of the case submitted that, the assessee has sold 40 scrips and number of sale transactions are 175 during the years. In this context, he invited our attention to page 37 to 45 containing details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute the assessee has earned dividend income of Rs.65.39 lakhs and over a period of time, the assessee has earned substantial dividend details of which are at page 26 of paper book. The intention of the assessee is that of investment is also clear from the fact that in spite of substantial appreciation in value of investment, the assessee has held shares for quite a long period. In this context, the learned AR referred to the details at page 28 to 33 of paper book. It was submitted that the shares and units have been shown as investments in the financial statements and this method is consistently followed in all years and the same has been accepted by the department. The learned AR submitted that shares and units have always been valued at 'cost' and not at 'cost or market price' whichever is less. He further submitted that there are no employees and no salary cost has been incurred. During the year the company has incurred total administrative overhead expenses of Rs.4,61,489 only. He further submitted that interest expenditure incurred is against interest income earned as NBFC. It was submitted the assessee has not used any interest bearing borrowed funds for the purpose of makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Before taking a decision on the issue, let us examine certain facts which have a crucial bearing on the decision to be taken. Undisputedly, the assessee is registered with the RBI as a NBFC. The nature and character as per the main objects of the company as mentioned in the Memorandum of Association, a copy of which is placed at page-16 of the paper book, is 'investment company'. For the impugned year the assessee declared total gain of Rs.1,49,14,360 from sale of shares and mutual funds out of which long term capital gain of Rs.45,17,556 was claimed as exempt and short term capital gain of Rs.1,03,96,804 was offered to tax. Facts on record further reveal that from the assessment year 2001-02 onwards the assessee has been showing them as investments and offering capital gain in the returns filed. The department has also accepted it throughout even in scrutiny assessments which were completed u/s 143(3) of the Act for the asst. years 2002-03, 2004-05 and 2005-06. A perusal of the assessment order passed u/s 143(3) of the Act for the asst. Year 2002-03 would show that not only the Assessing Officer has accepted the assessee as an investment company but has also accepted the loss s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assessing Officer finally completed the assessment by accepting the long term and short term capital gain from sale of share shown by the assessee as can be seen from the income computed by him in page 5 of this order. In fact except in the impugned assessment year, the Assessing Officer in all other assessment years, prior and subsequent, has accepted the dealings in shares as investments only by assessing the gain there from as either long or short term capital gain. Therefore, consistency has to be maintained with regard to the assessability of gain from sale of shares. In case of Radhasoami Satsang vs. CIT (193 ITR 321) the Hon'ble Supreme court has held that though principles of resjudica do not apply strictly to income tax proceedings each assessment year being an independent unit, but still then consistency is to be followed. If a position has been consistently accepted both by the assessee as well as the department it should not be disturbed, unless there are new facts emerging. 13. In the present case, we do not find any changed circumstances which could have led the Assessing Officer to take a different stand than what he has taken in other years. Furthermore, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ume 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 favour of holding that the assessee is an investor in view of the amendments to section 10(38) and section 115JB of the Act. (n) The revenue had accepted that the assessee was an investor whose income is chargeable under the head capital gains for a number of years. 14. Though the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eria to say that it is a trading activity. Similarly, the fact that the assessee is monitoring the stock market and buying at dips and selling at high with an intention to make profit is not conclusive to treat it as a trading activity. Thus, applying the aforesaid tests laid down by the jurisdictional High Court to the assessee's case, the transactions in purchase and sale of shares cannot be anything else but 'investments' of the assessee and the gain from sale of shares certainly as income of the assessee under the head 'capital gain'. 15. So far as the parameters laid down in case of PVS Raju Vs. Addl. CIT (340 ITR 70) for treating it as a trading activity of the assessee in that case, none of them are present in assessee's case. Furthermore, in case of PVS Raju vs. Addl. CIT (supra) the assessee's claim of 'investments' was not accepted because assessee himself was treating it as a trading activity prior to introduction of sec. 111A of the Act and whereupon the assessee started treating the share transactions as an investment activity. Whereas, the assessee before us, from the very inception has been treating the share transactions as 'investments' which is much prior to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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