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TMI Blog2015 (2) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee’s business which has not been controverted by learned DR by bringing any positive material on record. Accordingly, we do not find any infirmity in the order of CIT(A) for deleting the disallowance of travelling expenses. - Decided against revenue. Share transactions - Capital gain or business transaction - CIT(A) in respect of delivery based transactions of shares which were held as investment held that the gains so arose on sale of shares was liable to be taxed as capital gain tax - CIT(A) has also confirmed AO’s action with regard to loss of ₹ 59,64,109/- and treated the same as business loss instead of capital loss - Held that:- After analyzing the entire set of transactions the CIT(A) recorded detailed finding and reached to the conclusion that out of ₹ 1,01,89,029/- the assessee’s profit of ₹ 80,51,168/- was liable to be taxed as capital gain and balance as business income. The short term capital loss of ₹ 1,22,76,554/- was not accepted by the CIT(A) and he confirmed the action of the AO for treating the same as business loss. The CIT(A) has also directed the proportionate effect of interest pertaining to earning of short term capital gain a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrary, it was pleasure trip of the assessee only and not a business trip V. The Learned CIT(A) has erred in not appreciating the facts that the assessee has during the year repeatedly brought and sold shares after holding them for a short duration only with an intention i.e. profit making. There is no intention or holding the share for purpose of investment and earn dividend income. VI. The Learned CIT(A) has erred in not appreciating the recent decision of Ahmedabad ITAT in the ca sc of DC IT Vs. Deepa Shah (99 ITD 219), in which it is held that volume, frequency, continuity and regularity of transaction in shares makes it business of shares and it cannot be assessed under the head Capital gain . VII. The Learned CIT(A) has erred in not appreciating the decision in the case of ClT Vs. Godavari Corporation Ltd. 1984 (156 ITR 835) (MP), the Hon'ble High Court held that in a given set of circumstances, the borrowal of money for purchase of shares would be a strong evidence that dealing in shares was in a commercial sprit. VIII. The appellant prays that the order of the CIT (Appeals) on the above grounds be set aside and that of the AU be restored. 2. Rival contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of acquisition of the said asset. However, in the case of the appellant it is argued based on the details and evidences produced that the immovable properties acquired by the appellant are already put to use for the running of her pre-schooling business by the appellant. The AR has relied on the decisions of DCIT Vs. Core Health Care Ltd. (298 ITR 194) GSFL vs. A.C.LT. (313 ITR 244) borrowed was used for the purpose of the business, the interest on the borrowed capital was deductible under section 36(1 )(iii) of the Act, However, I find that these case laws are not relevant in the case of the appellant due to change in law as a result of amendment taken place with effect from 01.04.2004. At the same time from the facts as found available in the case of the appellant it is noticed that the term-loan was taken against mortgage of immovable properties, these properties were used by the appellant for the purpose of her pre-schooling business. Since, these properties were not under construction, and the buildings acquired out of the funds borrowed were used wholly and exclusively for the purpose of appellant's business of pre-schooling, I find that the appellant is eligible for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same submissions and arguments which were already put forth before the AO during the assessment proceedings. The AR has filed details of various schools, which were visited by the appellant in connection with the setting up of pre-schooling business by her during her foreign travelling as part of his written submissions which is placed on record. It is the case of the appellant that she had to do an in depth study of the pattern, course curriculum and other particulars of such pre-schooling activity widely prevalent in those countries. It was submitted that the appellant has followed the said pattern of pre-schooling activity prevalent in Singapore and Hongkong, and as a result of her visit, study of their pattern and course curriculum, her new business named Tree House at present has become a household name in Mumbai; having more than 80 branches, 4000 students in its roll and generating an income of more than 5 crores a year. 6.2.1 From the facts placed on record as mentioned above, it is evident that the appellant is engaged in the business of pre-schooling, carried out in the name of The Tree House‟. She is also carrying on the business of trading in shares and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively for the purpose of appellant‟s business and the same is an allowable expenditure. Therefore, the addition of ₹ 1,95,654/- on account of disallowance of foreign travelling expenses is hereby directed to be deleted. This ground of appeal is therefore allowed. 6. We have considered rival contentions and found that foreign travelling undertaken by assessee to various schools was in connection with pre-schooling business, significant expansion of the assessee s pre-schooling business, introduction of private equity therein. A categorical finding recorded by CIT(A) to the effect that foreign travelling expenses were incurred wholly and exclusively for the purpose of assessee s business at para 6.2, which has not been controverted by learned DR by bringing any positive material on record. Accordingly, we do not find any infirmity in the order of CIT(A) for deleting the disallowance of travelling expenses. 7. The AO has also disallowed ₹ 5,57,85,718/- on account of short term capital gain on sale of shares treated as business income by the AO. As per the brief facts relating to this ground, the gain on purchase and sale of shares of ₹ 5,57,85,718/- earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end on the facts of the case in hand. Relying on the decision of the Hon ble Gujarat High Court in the case of CIT Vs. Motilal Hirabhai Spg. Wvg. Co.Ltd.(1978) 113 ITR 173(Guj.), the AO has held that the volume, frequency and regularity of share transactions undertaken in organized manner indicate that the assessee is in the business of share trading activity for the relevant assessment year and not an investor. 10. By the impugned order, the CIT(A) bifurcated the income shown by the assessee under capital head under different heads and directed the AO to levy taxes accordingly after having following observations :- 9.3 I have carefully considered the assessment order as well as the above noted submissions and arguments of the AR for deciding this ground of appeal. I have also gone through the various judgments relied upon by the AO in the assessment order and by the A R in appeal, From the facts placed on record and after careful analysis thereof, as noted above, I find myself inclined to agree with the views of the AR, to the extent that the appellant's income on sale of shares on delivery based transactions are in the nature of capital gains, except income arising o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry based transactions related to investment activity are shown under the head capital gains as short term capital gain/loss and long term capital gain/loss, depending upon the period of holding. The profit and/or loss from intra-day transactions. speculative transactions i.e. non-delivery based transactions, futures. options, derivative transactions and other share trading transactions, as discussed above are shown as her business income. The AO, has overlooked a vital fact available in the case of the appellant that her main business is running of preschooling and not share trading. He has not considered the fact that the appellant devoted major part or her time on running of her pre- schooling business, due to which her pre- schooling business as pointed out by the AR, has grown quite substantially both in size and revenue wise. It is stated that total number of branches have increased manifold with total strength of students on roll moving to approximately 4000 at present. It is also noticed that against the book loss of ₹ 49,07,897/- shown as on 31.03.2006, the appellant has shown net profit of ₹ 5154,891/- as on 31.03.2007 and further a net profit of ₹ 5,40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , M/s Innani Commodities Finance Ltd. and M/s Kotak Mahindra Primus Ltd. through whom these business transactions were carried out, for her share trading activities. It was also submitted that the appellant has utilized huge borrowings from her husband for financing her investment in shares on which no interest is paid. Therefore, on account of these facts, it is noticed that her classification or categorization of shares either as investment or stock-in-trade is mainly dependent upon her intention to earn quick profits taking higher risk on speculative transactions or to earn steady profits or appreciation or her investments by holding these shares for a longer period, based on market conditions, fundamentals of the shares purchased and the performance of the particular company or the sector it represents etc. 9.3.3 While holding the 'profit from purchase and sale of shares' shown by the appellant under the head 'capital gains' as 'business income', the AO considered the facts or the appellant's case on the basis of circular issued by the Central Board or Direct Taxes in the circular no.1827 dated 31.08.1989 and circular no.4/2007 dated 15.06.2007. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of many companies relevant in the appellant's case was very high i.e. ranging from ₹ 100/- per shares to ₹ 600/- per share (Face value ranging from ₹ 1/- to ₹ 10/-). Further, from the material brought on record, it is observed that the appellant entered into 181 transactions of purchase and sales during the relevant assessment i.e. 77 transactions of purchase and 104 transactions of ales, which worked out to only one transaction in two days. Besides, as submitted by the AR, the number of days devoted by the appellant for the purchase and sale of shares, in her investment activity was only for 123 days out of 365 days in the entire assessment year. Therefore, if overall facts of the case in hand are taken into consideration as stated above, the contention of the AO about substantial purchase and sale in the appellant's case is held to be not of much relevance to decide that the appellant was engaged in the share trading business for the relevant assessment year in respect to her STCG. 9.3.4 The next issue considered by the AO is the period of holding of the shares transactions undertaken by the appellant in which she has claimed STCG. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nomic front, the old golden rules of investment have become almost obsolete and more or less as redundant. They have been fast replaced by the modern concepts of capital appreciation and its timely realization. To-day, an investor is an informed and knowledgeable investor. He is constantly updated about the fast changing economic and political events all over the globe due to constant media coverage and multiplicity of news channels, newspapers, market oriented magazines, journals and easy and wide access or internet etc. Today an investor primarily makes investment of his valuable money/fund in shares for appreciation and gains and not for paltry dividend yield and sense of pride, because que to high value of shares, the dividend yield is negligible and sometimes even lower than the interest available on saving bank account in a bank. Therefore, due to his high risk prone investment venture, he or she has to constantly keep on churning his/her investment portfolio and realizing his/her gains on the basis of his/her understanding of economic meters, performance of companies, fundamentals of the script and sector, market rumors/information, political events, other major events, inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. Such huge transactions in shares, according to the AO, indicated that the appellant was engaged in trading in shares and was not an investor in shares. From the facts brought on record and on analysis thereof in the case of the appellant, it emerges that the appellant has entered into a total of 181 transactions of purchase and sale of shares on which she has shown STCG i.e. precisely, 77 assessment year, which works out to almost one transaction in two days. Therefore, it can never be construed that the appellant has transacted frequently in the shares on which she has claimed STCG. This feature could be found with any businessman of sufficient means and having interest in share market; whereby he places 2-4 orders of purchase or sale of shares, in an average per day to his broker in a boom period. Moreover, as argued by the AR, the number of days involved in purchase and sale of shares was only 123 days in the entire year, which goes on to establish that the appellant was not frequently and continuously engaged in the share transactions on which STCG is shown. Also, as discussed above, it is seen that the appellant had transacted in only 39 shares in her investment portfoli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and prevailing circumstances in a particular case is to be considered independently from the point of view of an investor, who is engaged in substantial investment activities in the stock market, which have developed substantially over a period of time with transparent transactions in purchase and sales. Therefore, if the contention of the AO is accepted, almost all the investors, particularly the high net worth individuals will fall under the category of share trading business, which is not intended by the CBDT circular relied on by the AO. 9.3.7 Regarding the frequency, regularity and continuity of transactions in purchase and sale of shares, the AO has specifically pointed out that the appellant was continuously buying and selling shares in large numbers. According to the AO, as per the details noted in para 3.4 of the assessment order, the appellant has transacted in 36, I 0,968 scripts of 38' companies having a turnover of ₹ 47.26 crores. Therefore, the AO' has inferred that huge volume of shares in each script was purchased in one single batch and sold over a short period of time in smaller batches, which according to the AO, indicated that the appellant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. According to the AO the majority of the income of the appellant for the relevant assessment year was derived from her share trading business. Moreover, it was also noted that while the appellant made handsome profit in the transactions related to short-term capital gain, she incurred loss of ₹ 42.27 lacs. in her share trading business on delivery based transactions. A loss of ₹ 59,62,028/- was claimed on account of diminution of value of shares of Siyaram Silk Mills, Synergy Login, Wimplast Ltd. and Saksoft Ltd at the year although these shares are part of her delivery based share trading business. This established that the appellant shifted loss making transactions to her share trading activity and profit making transactions to investment activity. Moreover; the appellant did not maintain separate de-mat account for share trading activity and investment activity. All these findings of the AO, are found to be absolutely correct, which is separately discussed in para 9.3.26 of this order. Therefore, addition made to this extent is held to be absolutely correct and justified and therefore, confirmed. However, based on the various judicial authorities including the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a dealer in shares or an investor in shares shall depend on all the factors taken combined together and not based on a single criteria as per CBDT circular and various case laws available on this issue. After carefully considering the same and as applied to the facts available in the case of the appellant, as noted above, I find that the appellant is a trader of shares so for as her transactions relating to non-delivery based transactions are concerned and investor of shares in respect to her delivery based share transactions except in respect to her certain delivery based share transactions on certain specific shares consistently shown and assessed accordingly, as discussed above. 9.3.10 The AO has also observed that appellant indulged in the share trading activity as a trader is further evidenced by the appellant s claim of rebate u/s.88E of the Act in respect of SIT paid as per her computation of income attached to her return of income filed for the relevant assessment year. According to the AO, a rebate u/s.SSE of the Act can only be claimed by a trader engaged in sale and purchase of shares on the STT paid by him/her during the year. Since, the appellant claimed the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as against stock-in-trade of ₹ 65,29,677/- in shares trading business in the assessment year 2005-06, sale and purchase of shares shown under investment activity being allied to her share trading business etc., which showed that her major thrust was towards share trading and not towards investment. For proper appreciation of the AO's contention, it is pertinent to consider the judgment of Hon'ble Supreme Court in the case of C.l.T. vs. Associated Development Company Ltd. 82 ITR 586, wherein the Hon 'ble Apex Court has-held that there is no bar to a dealer investing in shares. The same is further confirmed or endorsed by the CBDT circular which is heavily relied on by the AO, as discussed above. The Hon'ble Apex Court in the. above referred case has held that, whether a particular holding of shares was by way of investment or formed part of stock in trade was a matter which was within the knowledge of assessee who held the shares and it should, in normal circumstances, be in a position to produce the evidence from its record as to whether it had maintained any distinction to those shares which were its stock in trade and those which were held by way of investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant in her return or income while computing her STCG. The AO has further noted that the appellant in assessment has admitted that the major part of interest expenses pertained to share transactions on which short term capital gain was claimed. As against the same, in appeal the AR has argued that the appellant has obtained loan from various brokers which was used for her share trading business; mainly for funding margin money required in F O business. It was also argued that in view of these facts it was admitted in assessment that the loan raised on which interest is claimed as her business expenditure, was mainly used for her business purposes and not used for her investment purposes. However, the appellant has failed to correlate her claim by proving the nexus of utilization of loans raised only for her trading in shares, neither during the assessment proceeding nor in appeal. Therefore, on account of the same, the AO inferred that out of the total interest paid, a sum or Rs,9,66,115/- was related to investment in immovable properties and ₹ 53,00,038/-, which was paid to brokers and others was primarily related to her investment activities. Therefore, the interest ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be laid down in the controversy of capital gains vs. business income. There are several judgments for and against the assessees. Each of these judgments have been decided on the independent set of facts available in each case such case reported. These judgments merely lays down several broad and general guidelines on the basis of which the one has to decide if the gain should be taxed as capital gains or business income. The ratio laid down in these judgments, incorporated in the circular issued by the Central Board of Direct Taxes has been discussed in details in foregoing paragraphs of this order. The Hon‟ble ITAT Mumbai in the case of J.M.Share Stock Brokers Ltd. Vs. JCIT (ITA No.2801/Mum/2000), has held that an assessee can be investor as well as a broker only a share trader. So long as the records of shares held as stock-in-trade and shares held as investment are recorded separately, profit/loss there from is clearly and distinctly identifiable and the practice of holding some shares as stock-in-trade and some shares as investment is consistently followed, the profit from shares trading and share brokerage shall be assessed as business income and gains from shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.Y.2005-06. The Hon‟ble ITAT Mumbai in the case of Sh.Gopal Purohit Vs. JCIT, in ITA No.4854/Mum/2008, dated 10.02.2009 has held that the delivery based transaction should be treated as of the nature of investment and profit there from should be treated as short-term capital gain or long term capital gains depending upon period of holding. It was categorically held that considering past history of the case, and the undisputed fact that the AO has assessed the same income as STCG under scrutiny will make the AO unreasonable to consider the same income of the appellant for the relevant assessment year as business on the pretext that the principle of res-judicata does not apply to income tax proceedings, by completely ignoring the principle of consistency, particularly when no new facts were brought on record by the AO. The deployment of infrastructure or frequent churning of investment and interest paid on borrowed funds cannot turn gains from investment into business income. In the appellant's case, the past history also showed that she had been engaged in share trading as well as shares investment which as noted above is duly admitted under scrutiny by the AO in her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was irrelevant circumstance. Hence , e do not find much substance in this findings of the Revenue authorities in the facts of the present case. The Revenue authorities have also held that borrowed funds were utilized for making such investments whereas ill earlier years, interest on such-loans has been allowed as business expenditure against profit on shores trading transactions shown as business income and in the year under consideration also, no nexus between the interest bearing funds and investment has been established, hence, for this reason also, we find no merit ill treating the long term capital gain and short term capital gain as business profits. 8.5 The learned counsel for the assessee has also contended that investment could be all organized activity also and we find some substance in this contention because now the stakes are high and nobody wants to loose money as there are great chances of capital loss in respect (or shares as compared to fixed interest earnings securities where the principle money remain secured and also everyone wants to maximize wealth and minimize risk, lienee, a person investing ill shares is bound to study the newspapers, business magazines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. (Emphasis supplied ) 9.3.17 Likewise, again the Hon'ble jurisdictional ITAT on .identical facts in the case or Shri. Janak S. Rangwala vs. ACIT has held in this regard as under :- In the facts of the present case, the assessee is holding the shares as investment from year to year. It is the intention of the assessee which is to be seen to determine the nature of transaction cOl1ductrd by the assessee. Though the investment in shares is on a large magnitude but the same shall not decide the nature of transaction. Similar transactions of sale and purchase of share ill the preceding years have been held to be income from Capital Gains both 011 Long Term and Short Term basis. The transaction in the year under consideration on account of sale and purchase of shares is same as in the preceding years and the same merits to be accepted as Short Term Capital Gains. There is no basis for treating the assesses as a Trader ill shares, when his intention was to hold the shares lit Indian companies as an investment and not as stock in Trade. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no easy answers but I have decided to make a beginning by revamping taxes on securities transact ions. Our founding fathers had wisely included entry 90 in the Union List in the Seventh Schedule of Constitution of India. Taking a cue from that entry, I propose 10 abolish the tax on long-term capital gains from securities transactions altogether. Instead, I propose to levy a small tax Oil transactions in securities on stock exchanges. The rate will be 0.15 per cent of the value of security. Thus, a transaction involving securities valued at, say, ₹ 1,00,000/- will now bear a small tax of ₹ 150. The tax will be levied on the buyer. In the case of short-term capital gains from securities, I propose to reduce tire rate of tax to a flat rate of 10 per cent. My calculation shows that the new tax regime will be a win-win situation for all concerned. 9.3.20 The above budget speech of the Hon 'ble FM, clearly brings out the of the Government. The taxation of capital gains related to shares was revamped by imposing STT on value of share transaction exempting long term capital gains and imposing flat tax rate of 10% on short term capital gains. The revenue lost by exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various judicial authorities as discussed above, particularly as held in the recent order of Hon'ble jurisdictional ITAT in the case Gopal Purohit (Supra), the entire income or loss on account of delivery based transactions are treated as her STCG or LTCG depending on the period of holding, except in case of tho0se shares which are consistently disclosed by the appellant as part of her 'stock in trade' in the preceding assessment years. The transactions relating to her STCG have a holding period of minimum of one day and maximum of 306 days. The proper delivery is taken and given in all these cases of share transactions. The similar income shown on identical facts and method of accounting is already accepted, by the AO in scrutiny in her preceding assessment years. Most of the parameters of the CBDT guidelines as discussed above are not satisfied in the case of the appellant. The Board as well as the various judicial authorities categorically held in number of cases that no single criteria shall decide this issue, but overall ratio thereof viz-a-viz the facts available in a particular case will decide whether, it is a case business or investment.. Therefore, on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and profit or loss earned thereon is shown as her business income and the same is regularly accepted and assessed by the department. For the relevant assessment year, as per the trading account of the appellant, the profit thereon is for ₹ 80,51,168/-. However, in addition to the said trading results for the relevant assessment year, the appellant has clandestinely manipulated her trading account; whereby, she has deliberately shown the closing stock of these six shares as part of her trading portfolio and further adjusted or reduced her business income by showing lesser value of the closing stock of these four shares to the extent of ₹ 59,64,109/-. The market value of these shares as on the end of the previous year are lesser by a sum of ₹ 59,64,109/- to its cost price. Or in other words by manipulating her final accounts, the appellant has deliberately reduced her business income and proportionately increased her short term capital gains to this extent with the sole motive of enjoying the differential rate of taxation between these two heads of income. A careful consideration of the facts and details brought on record, I find that the AO is absolutely correct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details and facts brought on record, I find that the appellant, in the relevant assessment year in addition to her regular portfolio of shares held for trading purposes as shown in her opening stock as on 31.03.2005, has also shown a number of share transactions as part of her delivery based share trading on which she has incurred a loss of ₹ 1,22,76,554/-. The details there of is enclosed as Annexure-B to this order. This loss of ₹ 1,22,76,554/- is further found to be clandestinely adjusted against her business income with' a sole motive of saving her tax liability due the differential rate of taxation. All these shares on which the appellant has claimed loss as discussed above are found to be the same shares on which she has shown substantial STCG for the relevant assessment year. None of these shares are part of her opening stock in trade and accordingly, the same can not be considered as part of her delivery based share trading portfolio, due to the reasons that the appellant herself as discussed above has admitted that she is consistently maintaining her separate portfolio of shares held in her investment and share trading business. The AO has worked out the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting of STCL and valuation loss as her business income, from her delivery, based share trading business. However, at the same time, her STCG' may be reworked out taking into consideration the related provisions of the Act. The addition made to this extent by treating her STCG as her business income is therefore, confirmed. 9.3.24 Therefore, on account of the above, it is duly established that the appellant has deliberately reduced her business, income on account of her share trading business of delivery based share transactions by deliberately adjusting against the loss incurred on account of shares share transactions which .as discussed above are found to be part of her investment portfolio and the said loss realized as per law is to be adjusted against her STCG and not against her share trading business. In this process the appellant, as noted above has disclosed a net loss on trading business of delivery based share transactions of ₹ 1,01,89,029/-, instead of a net such share trading business income of ₹ 80,51,168/-, Therefore, as discussed above no adjustment of the said loss of ₹ 1,22,76,554/- is allowed against her share trading business since, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, on account of the same and particularly since the appellant has utilized her bank account for all her transactions relating to investment as well as share trading and other business, I find it appropriate to disallow proportionate interest expenses pertaining to the realization of STCG on the basis of her income shown under the different heads of income. 9.3.26 Therefore, on account of the aforesaid discussion, the AO is directed to rework out the business income and the STCG of the appellant, by adding proportionate interest expense, since the same pertains to her STCG and as per the prevailing provisions of the law, the' deduction thereof is not allowable. The interest of ₹ 9,552/- as discussed in para 4.2.1 above amounting is also directed to be bifurcated in the ratio of income shown under these heads of income and accordingly, the business income and STCG is computed, for the relevant assessment year. Accordingly, the AO is directed to compute the business income of the appellant on non-delivery based share transactions and other share trading business, after allocation of interest and expenditure on the proportion of income shown, as discussed above. 9.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s investment by the appellant under the head 'Short-term directed above is, therefore, confirmed and the balance addition made as business income is directed to be deleted, which shall be assessed as her STCG as per the various provisions of the Act. The additional ground raised by the appellant as mentioned above is not adjudicated separately, since due consideration thereof, is already given while deciding his main ground of appeal, as discussed in the preceding paragraphs of this order. This ground of appeal is therefore, partly allowed. 11. We have considered rival contentions, carefully gone through the orders of the authorities below and also statement of investment and own funds vis- -vis statement of sources of funds for investment during the year under consideration. We have also deliberated upon various case laws cited by the ld. Authorized Representative and ld. DR and in the context of factual matrix of the case. We had also deliberated on the case laws referred to by lower authorities in their respective orders. The question as to whether the assessee has earned capital gain or business profits on the shares sold by him depend on the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee as investment in books of account. There is also no dispute to the well settled legal proposition that res judicata do not strictly apply to the income tax proceedings, but at the very same time, it is well settled that principle of consistency under the same facts and circumstances is the fundamental of judicial principle, which cannot be brushed aside without proper reasoning. 12. Merely because the assessee liquidates its investment within a short span of time, which had given better overall earning to the assessee, would not lead to the conclusion that the assessee had no intention to keep on the funds as investor in equity shares, but was actually intended to trade in shares. 13. Here, it is pertinent to mention the intention of Government for introducing the security transaction tax and exempt the long term capital gain earned from sale of shares and levying 10 % tax on short term capital gain earned on sale of shares. It is noted that under the old provisions of the Income-tax Act, profits or gains arising to an investor from the transfer of securities were charged to tax either as long term capital gains or short term capital gains depending on the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.e.f. 01.10.2004; on the share transactions subjected to STT; concessional tax rate of 10% (which has been increased to 15% from AY 2009-10) are applicable in respect of STCG whereas no tax is chargeable in respect of LTCG. It is also noted that the CBDT vide its Circular no.4/2007, dated 15.06.2007 has also recognized possibility of two portfolios, i.e. one 'Investment portfolio' comprising of securities which are to be treated as capital assets and the other 'Trading portfolio' comprising of stock in trade which are to be treated as trading assets. In view of these facts, profit arose on shares in respect of delivery based transaction are liable to be taxed as capital gain and not as business income. 14. Even the Hon'ble Apex Court in the case of K.P. Verghese vs TO, 131 ITR 597 (SC) observed as under:- ‟The task of interpretation of a statutory enactment is not mechanical task. It is more than a mere reading of mathematical formulae because few word possesses the precision of mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must always be remembered that language is at best an im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income has to be treated as short term capital gain. Identically in the case of Nagindas P Seth (ITA No.961/Mum/2010) it was held that despite large number of transactions in shares, the profit can be assessed as capital gains under the facts of the case. The case of the assessee is further fortified by these decisions more specifically when the assessee was hold the shares in his books as investor, as well as tock-in-trade separately. The decision in the case of Janak S Ranawala, 11 SOT 627 (Mum.) further supports the case of the assessee. Likewise, the decision from Hon'ble Madras High Court in CIT vs N.S.S. Investment Pvt Ltd. 227 ITR 149 (Mad), CIT vs. Associated Industrial Development Company, 82 ITR 526 (SC) supports the case of the assessee. In the present appeal, we note that the assessee made investment in shares with intention to earn dividend income on appreciation of price of shares. Therefore, it cannot be said that the assessee was doing business. 18. In the instant case, gain on purchase and sale of shares, such gain was both in respect of delivery based transaction as well as non-delivery based transaction. In respect of delivery based transactions of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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