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TMI Blog2015 (5) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... taking into account all facts and circumstances as enumerated above. The Ld. CIT(A) should examine the three years independently as entire facts in one year may not be available in another year. The case laws relied upon by Ld. A.R. are distinguishable on the facts as in the case law as M/s. Devasan Investments (P) Ltd.[2014 (4) TMI 682 - DELHI HIGH COURT] the number of scripts was quite low and there was no frequency of transactions. Moreover, in determination of the nature of income of an assessee as to whether income is from capital gains or from business, a combination of factors has to be considered and no case law can be made as a precedent. - Decided in favour of revenue for statistical purposes. - I.T.A. No.895 /Del/2000, 6806/Del/2010 & 4946/Del/2011 - - - Dated:- 13-1-2015 - T.S. KAPOOR AND A.T. VARKEY, JJ. For The Appellant : B.R.R. Kumar, Sr. DR For The Respondent : Ajay Vohra, Sr. Adv. Gaurav Jain, Adv. and Sahil Mehta, CA ORDER T.S. Kapoor, Accountant Member These are three appeals filed by Revenue against separate orders of Ld. CIT(A) dated 03.12.2009, 22.10.2010 and 12.08.2011 respectively. These appeals were heard together and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee specially in the light of the facts that usual business of export of carpets had shown decline in business. 3. Aggrieved, assessee filed appeal before Ld. CIT(A) and made various submissions. Ld. CIT(A) deleted the additions by holding similar findings. For the sake of convenience, the finding of Ld. CIT(A) in Assessment Year 2006-07, 2007-08 and 2008-09 are reproduced below: A Assessment Year 2006-07: {7} The issue of dealing in shares or, investment in shares , has often invited the attention of the courts, as there is often a very thin line of distinction, in cases more than often. Recently, the Lucknow Bench of the Tribunal in Sarnath Infrastructure (P) Ltd. vs ACIT (2008) 16 DTR Lucknow) (Trib) 97, had the occasion to consider almost all the important judicial decisions that have laid down legal principles to determine the nature transactions, such as Raja Bahadur Visheshwara Singh (Deceased) Others vs CIT (1961) 41 ITR 685 (SC), CIT vs Associated Industrial Development Co. Ltd (1971) 82 ITR 586 (SC), CIT vs H.Holck Larsen (1986) 160 ITR 67 (SC), Fidelity Northstar Fund Others (2007) 288 ITR 641 (AAR) Dalhousie Investment Trust Co. Ltd. vs CIT 68 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. (6) How the company (assessee ) is authorized in memorandum of association/articles of association? Whether for trade or for investment ? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? (7) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holding. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock in trade) then onus would shift to Revenue to prove that apparent is not real. (8) The mere fact of credit of sale proceeds of shares (or for that matter any other item in question) in a particular account or not so much frequently of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment. (9) One has to find out what are the legal requisites for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act, 2005. While taking the decision, I have also been convened by the argument of the assessee, that had he been a trader he would have indulged in shorting, hedging etc. {9}. In view of the discussion above, I hold that the assessee is not a trader in shares and therefore, the Id A.O has erred in treating the income as income from business. The assessee succeed in ground of appeal No 1. B. Assessment Year 2007-08: {4} The issue of dealing in shares or investment in shares , has often invited the attention of the courts, as there is often a very thin line of distinction, in cases more than often. Recently, the Lucknow Bench of the Tribunal in Sarnath Infrastructure (P) Ltd. vs ACIT (2008) 16 DTR (Lucknow) (Trib) 97, had the occasion to consider almost all the important judicial decisions that have laid down legal principles to determine the nature of transactions, such as Raja Bahadur Visheshwara Singh (Deceased) Others vs CIT (1961) 41 ITR 685 (SC), CIT vs Associated Industrial Development Co. Ltd (1971) 82 ITR 586 (SC), CIT vs H. Holck Larsen (1986) 160 ITR 67 (SC), Fidelity Northstar Fund Others (2007) 288 ITR 641 (AAR) Dalhousie Investment Trust Co. Ltd. vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. (6) How the company (assessee ) is authorized in memorandum of association/articles of association? Whether for trade or for investment? If authorized only for trade, then whether there. are separate resolutions of the board of directors to carry out investments 'in that commodity? (7) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holding. If the assessee is able to discharge the primary onus and could prima fade show that particular item is held as investment (or say, stock in trade) then onus would shift to Revenue to prove that apparent is not real. (8) The mere fact of credit of sale proceeds of shares (or for that matter any other item in question) in a particular account or not so much frequently of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment. (9) One has to find out what are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, thereby earning dividends. The quantum of dividend at ₹ 14,33,706/- cannot be said to be insignificant as the dividend is always declared on the face value of the shares ,and if seen from the point of view of capital investment, which is normally at the market rate, it would always appear low in terms of percentage. Therefore, the Assessing Officer's action in taxing the income from Short Term Capital Gains as income from business and profession does not stand the test of various judicial pronouncements on the issue as discussed above and therefore, addition made by the Assessing Officer in treating the same under the head Income from Business Profession is deleted. C. Assessment Year 2008-09: {4} I have carefully considered the appellant's various submissions and have examined the facts of the case in the light of the principles laid down in the cited judgments. I have also seen that this issue has been decided in favour of the appellant by my learned predecessor in the Assessment Year 2006-07 and 2007-08 vide orders dated 03.12.2009 and 22.10.2010. It is further noted, as in earlier years, that the appellant has treated the securities as investments, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief to the assessee which is against the facts and circumstances of the case. 6. Ld. Sr. Counsel on the other hand submitted that the shares purchased by assessee were reflected as investment in the books of accounts and were also valued at cost price instead of cost price or market price whichever is less and, therefore, they were accepted as investment in the year of purchases and, therefore, sales of the same in subsequent years cannot be treated as out of stock in trade for the purpose of calculation of business profits. In support of his arguments, Ld. Sr. Counsel heavily relied upon the decision of Hon'ble Delhi High Court in the case of Devasan Investments Pvt. Ltd. in I.T.A. No. 1102 1103 placed at paper book pages 9-27. Ld. Sr. Counsel submitted that SLP filed by department in this case has already been dismissed. Ld. A.R. invited our attention to calculation of short term and long term capital gain in these three yeas which was placed in paper book at pages 28-35, 101-150 and 86-91 respectively. Ld. A.R. highlighting from the statement in Assessment Year 2006-07 submitted that the shares purchased on various dates were transferred to demat account of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain or business income, facts of each case has to be analyzed separately and no case law can be made as a precedent as the facts of each case always differ. A combination of factors has to be kept in mind and one of the factors is the intention of assessee at the time of purchase and intention of assessee can always be judged from the treatment of shares in the balance sheet of the assessee for the proposition that as to whether the assessee had reflected the purchases as investment or stock in trade. Undisputedly, in the present cases, the assessee had classified the shares as investment and had valued the same at cost price, as is verifiable form the copies of balance sheets placed at paper book pages 12,10 and 12 respectively for the above assessment years. However, the only classification of shares as investment in the balance sheet cannot lead to the conclusion that assessee was an investor. This factor has to be examined in conjunction with other factors such as whether assessee had borrowed funds and what is the frequency and volume of transactions how the account of broker is settled as to whether it is kept as a current account or is settled after every transaction or af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of shares were utilized is not correct in view of the fact that assessee had debited interest of ₹ 4,27,753/-, ₹ 3,34,415/- and ₹ 9,38,655/- in the P L account as placed in paper book pages 14,12 and 11 respectively. The assessee has also claimed the expenditure of interest in the computation of income against long term and short term capital gains in two years as is apparent form paper book page 1 in Assessment Years 2006-07 and 2007-08. In view of this, the observation of Ld. CIT(A) that no borrowed funds were used, is against the facts of the cases. (v) During arguments, the Ld. Sr. Counsel had submitted that all purchased shares were first transferred into demat account of assessee in this respect, he had invited our attention to remand report for Assessment Year 2006-07, also wherein the A.O. on the basis of test checks had stated that purchases of shares were found to be entered in demat account. However, from the details of script-wise holding period, we find that all scripts cannot be said to have been first transferred into demat account as period of holding in certain cases ranges from one day to seven days within which period, it may not be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day to day basis can only manage such a huge portfolio. (ix) The mere number of scripts dealt with by assessee coupled with frequent trades and changes in scripts by selling one and by buying another or buying the same script after a period itself indicates that assessee cannot be classified as investor only. Ordinarily, an investor in shares does not indulge into so many scripts and that too so frequently. All these facts and circumstances as listed above indicate that assessee cannot be classified only as an investor but he is a trader also. (x) The Ld. CIT(A) has decided the issue in favour of assessee by looking at scripts which were held by the assessee for a longer period and has not looked into the entire facts. (xi) The mere fact that period of holding for some of the scripts exceeded more than 365 days or more itself cannot lead to the conclusion that gain was necessarily a long term capital gain as it can happen in the case of trader also where some of the scripts remain unsold for a long period of time for a number of reasons. (xii) While deciding the issue in favour of assessee, Ld. CIT(A) observed that had the assessee been a trader, he would also have sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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