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TMI Blog2014 (4) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... d cannot be called as business or share trading income; it is short term capital gain - There is nothing to show the frequency of trading, or volume of share transactions, or any other factor (use of borrowed funds, or the line of business of the assessee being share trading) pointing to the amount gained to be on account of share trading – Decided against Revenue. - ITA 539/2012 - - - Dated:- 1-4-2014 - S. Ravindra Bhat And R. V. Easwar,JJ. For the Appellant : Mr. Balbir Singh, Sr. Standing Counsel with Mr. Abhishek Singh Baghel, Advocate. For the Respondent : Mr. Ajay Vohra with Ms. Kavita Jha and Mr. Vaibhav Kulkarni, Advocates. ORDER Mr. Justice S. Ravindra Bhat (Open Court) 1. In this appeal, the revenue contends that the Tribunal (hereafter ITAT ) fell into error in holding that the amount originally brought to tax as business income of the assessee, was short term capital gains as claimed in the returns filed. The following question of law arises in the appeal: Did the ITAT fall into error in endorsing the decision of the CIT (A) that the sum of Rs.8,78,16,545/- represented short term capital gain (for 2007-08) as claimed by the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deciding if any amount claimed as capital gains, is in fact that or business income, the CIT (A) and ITAT fell into error in application of those tests to the facts of this case. It was argued that during the Assessment Year, the gross total income reported was Rs.9,35,80.539/-, which consists of STCG of Rs.8,78,16,545/-. It was argued that transactions in shares do not constitute peripheral activity but the main activity of the assessee. He is carrying on the business as proprietor of M/s Variety Book Depot, the profit from which was only Rs.39,34,648/- This amount was less than 20% of the STCG. The computation of total income for assessment year 2005-06, especially the computation showed gross total income of Rs.2,17,26,901/- and this amount inter alia includes profit from M/s Variety Book Deport of Rs.3,42,146/- and STCG of Rs.2,01,51,090/-. Thus, in that year also the substantial activity of the assessee was in respect of share transactions. A similar position existed in assessment year 2006-07, in which business profits from M/s Variety Book Depot amounted to Rs.40,33,907/- and STCG amounted to Rs.2,32,33,691/-. Thus, the assessee has been systematically indulging in share tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is intimately connected with Quantum Securities(P) Ltd., a company dealing in stocks and shares. He has undertaken all his transactions through this company for which a running account is maintained and the website of the company which describes him as a managerial personnel. This means that the assessee has easy access to the necessary infrastructure available with Quantum Securities (P) Ltd. for undertaking transactions in shares; (ii) the books of Variety Book Depot show the debit balance of about Rs. 19.68 lakhs on his account, which indicates that business funds of this proprietary concern have been used for undertaking transactions in shares; (iii) admittedly, the assessee has a long experience and knowledge of equity market operations; a fact exploited even by Quantum Securities (P) Ltd. in its website (iv) the assessee has undertaken a large number of transactions of purchase and sale of shares, which show that the transactions are undertaken systematically with a view to earn profit.; and (v) even the bonus shares of Unitech Ltd. received in this year were sold in this very year showing that there was no intention to hold on them as investment for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out from the treatment given to the purchase in the assessee s books of account. (2) Did the assessee borrow money to purchase the shares, and paid interest for it. Money is generally borrowed to purchase goods for the purposes of trade and not for investing in an asset for retaining. (3) Volume and frequency of the purchases and sale/disposals. If purchase and sales are frequent, or there are substantial transactions in an item, that can indicate trade. Habitual dealing in a particular item is indicative of intention of trade. Likewise, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). Another related factor is the duration for which the shares are held. (4) Was the purchase and sale made for realizing profit, or for retention and appreciation in its value. The former indicates the purchases being part of trade; and the latter is indicative of the purchases being an investment. Furthermore, it would be relevant to ask whether the intention behind the purchase was to enjoy dividend, or merely to earn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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