9911796707
TMI Blog2014 (9) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... while short term capital gains was declared at Rs. 73,89,308. Considering the volume of business and the profit motive involved in the activity, the Assessing Officer proposed to treat the same as an adventure in the nature of trade and to hold the income offered under the head 'short term capital gains' as 'business income'. 3. In the assessment proceedings, the assessee contested that he is only an investor and is not doing any business activity. The assessee argued that all the transactions in shares were investments and there is no forward or speculative trading involved. The assessee also furnished details in respect of purchase and sale of shares along with the period of holding before the Assessing Officer. The assessee also averred that he was not maintaining any office or staff nor had claimed any expenditure incidental to earning of such income. The assessee also claimed that he had invested out of his own funds without availing any loan. It was submitted that no books of account were maintained for such activities and the assessee had even received dividend of Rs. 1.2 lakhs on the investments and hence it was claimed that the assessee's activities we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 crores was a huge amount for an individual. The Assessing Officer pointed out that in almost all the cases, the purchases happen in the year concerned only and the ratio of purchases to sale is around 1:1 with the closing stock being almost nil out of the total purchase of 4.57 crores showing that all the stock had been sold with an intention of making quick profits. The Assessing Officer relied on the decision of Mumbai ITAT in the case of Smt. Sadhana Nabera vs. ACIT in ITA No. 2586/Mum/2009. 7. On further appeal before the CIT(A), the representative of the assessee submitted that the assessee was earlier an employee drawing salary income. During the relevant previous year, however, he was not employed and derived income from 'Capital gains' and other sources. It was submitted that the assessee never intended to carry on any business activity. He kept his own funds for the purpose of acquisition of a share portfolio. The representative stated that the assessee was holding the share portfolio as an investment and not as stock in trade. However, whenever shares of one company were likely to reduce in their value, the assessee used to sell them and acquire another share. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares and no prudent man would purchase shares of one company only. Besides, it is not possible to purchase shares one company only, and therefore, he had to purchase shares of various companies. Accordingly, he had acquired shares of several companies as available at the time of investment and continued to hold it as investment, duly taking care to see that the investment does not reduce in its value. He averred that the entire exercise of purchase and sale was to retain the investment in shares. The representative further argued that even under the Act when shares are sold within one year, it is called Short term Capital gains only, and therefore, the Assessing Officer's reliance on decisions relating to Capital gains derived on other assets is not justified. 9. The AR submitted that the Assessing Officer treated the short term capital gains as business income. The Assessing officer accepted that the assessee held the shares as investment in so far as long term capital gains is concerned and did not accept the same with reference to short term capital gains. The Assessing officer did not provide reasons for doing so. While passing the order, the Assessing Officer relied on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther observed that in the list of transactions it is seen that many of the shares were purchased and sold as "same day trading". 12. The CIT(A) held that the assessee's conduct of a number of scrips on a regular buying and selling small quantities basis reflects the intention of making quick profits only. It cannot be presumed that such small investments on multiple occasions could have given any capital appreciation within a short time. He noted that such investments cannot be said as made out of the intention of earning any dividend income, as dividend, if any, on such small number of shares would be meagre only. The CIT(A) held that the intention of the assessee, therefore, was not to earn any dividends thereon, but to make quick profits from sale and purchase of those shares and this conclusion is supported by the fact that the assessee earned a meagre dividend income of Rs. 1.25 lakhs on the huge turnover of Rs. 5.38 crores. 13. The CIT(A) further held that while consistency is an important indicator, the nature of transactions of an assessee needs to be decided after considering the totality of the facts and conduct of the assessee and hence on a proper examination of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts as a business activity and accordingly taxed an amount of Rs. 73,89,308 as business income. On an appeal filed, the learned CIT(A) found that there are certain transactions which were squared up the same day without taking delivery of the scrips. The learned CIT (A) is also of the view that more than 100 companies shares were transacted during the year and many of the shares were purchased and sold as same day trading. 18. The AR submitted that most of the profit was derived from the shares held for more than 180 days as exhibited at page 16 of the paper book. It can be seen that about 73% of the profit was derived from scrips held for more than 6 months. The assessee submits that the activity of holding the shares is carried out by him as an investment in share portfolio and the transactions were undertaken by the assessee with a view to protect the investment made and not with a view to carry on business. The following facts concerning the assessee are necessary for the purpose. a) The assessee started investing in share portfolio from the year 2004-05 and onwards and the shares were held only as investment and not as stock-in-trade and were shown as such in the returns of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e identical to the facts stated in the case decided by the Hon'ble ITAT. 20. The AR relied on the decision of ITAT, Mumbai A- Bench in the case of Kunvarji Nanji Kenia vs. ACIT (supra). The learned AR further relied on the ITAT, Mumbai Bench in the case of Shantilal Jain vs. ACIT reported in ITA No. 2690/Mum/2010 dated 27-04-2011. The AR relied on the decision of Delhi High Court in the case of CIT vs. Avinash Jain reported in ITA No. 703/2012 dated 09.01. 2013. The AR submitted that the judgment of the High Court of Andhra Pradesh in the case of PVS Raju vs. Addl.CIT reported in 340 ITR 75 and the decision of the Jurisdictional High Court in the case of Spectra Shares applies to the present case. 21. The learned counsel for the assessee relied on the decision of the ITAT Mumbai Bench 'C' in the case of ACIT vs. Jahangir T. Nagri reported in 23 SOT 512. In the said case, the assessee was treating the sale of shares as investment. In the year he suffered losses, the assessee converted the treatment into stock-in-trade. The Assessing Officer objected to such treatment. The ITAT while deciding the appeal held that it is the sweet will of the assessee to decide as to when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnificant stock of shares left in his hand year end. Further, the Hon'ble Supreme Court laid down the rules by various judgments such as those in the case of: (i) Dalmia Cement Ltd. vs CIT (1976) 105 ITR (SC) (ii) CIT Vs Sutlej Cotton Mills Supply Agency Ltd., (1975) 100 ITR 706(SC) and (iii) P.M. Mohammed Meerakhan vs. CIT (1969) 73 ITR 735. 24. The DR submitted that principles have been elaborated in the judgement of Patna High Court in the case of Eclat Construction (Pvt.] Ltd., vs CIT (1988) 172 ITR 84 (Patna). In this case, there is no doubt that share trading business was carried on by the assessee. Further, the assessee did not do only one single transaction but a huge number of transactions. The only contention is whether the stated transactions were done with the object of earning profit or simply with an investment motive. Going by the principles in CBDT Circular No. 4/2007, the assessee is fulfilling almost all the conditions and, hence, the assessee motive of investment is not confirmed but, in fact the profit motive is clear. All these facts indicate that the intention of the assessee is to gain profit by dealing in short term period only. 25. Head both parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he is an investor and not a trader. All the factors mentioned above are in favour of the assessee. 27. In the case of ACIT vs. Pradip U Patel in ITA No. 8686/Mum/2011 order dated 28.12.2012 the Mumbai Bench of this Tribunal held as follows: "8. We have carefully considered the orders of the authorities below and the submissions of Ld. Representatives of the parties. We have also considered the cases which have been referred to by the authorities below in their respective orders. We have also perused the relevant pages of the Paper Book and particularly Pg. Nos. 18 to 21 of the Paper Book which is a share holding chart in terms of number of days of the shares held by the assessee and the companies of which the assessee purchased/sold shares in the Financial Year relevant to the AY under consideration. On perusal of the details of the said shares, we observe that there are no repetitive transactions in shares of the same script in the Financial Year relevant to the AY under consideration. Further, it is a fact that the assessee has used his own funds for the purchase of shares and no borrowed fund was used by the assessee. The Ld. DR has also not disputed the fact that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a mere investor. (1) The first test is whether the initial acquisition of the subject matter of the transaction was with the intention of dealing in the item or with a view to finding on investment. If the transaction, since inception appears to be impressed with a character of a commercial transaction entered into with a character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guide line; (2) The second test is to how the assessee dealt with the subject matter of transaction during the time the asset was with the assessee whether it has been treated as stock-in-trade, are being shown in the books of account and balance sheet as an investment; (3) The third is how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessment. This factor, can afford good and cogent evidence to judge the nature of transaction. The Hon'ble Apex Court has observed in the case of CIT Vs. Associated Industrial Development Company (P) Ltd., (82 ITR 586) that whether a particular holding of share is by way of investment or forms part of Stock ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
