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TMI Blog2010 (10) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in shares. In coming to such a conclusion, the AO listed a number of tests and gave his conclusion after applying these tests to the facts of the assessee s case. Aggrieved, the assessee carried the matter in appeal. The first appellate authority recapitulated 12 tests considered by the AO and after taking into consideration the replies given by the assessee, the CIT(Appeals) came to a conclusion that the income in question from divestment of shares and redemption of units of mutual funds, has to be assessed only under the head Income from capital gains and not under the head Income from business . Aggrieved, the Revenue has filed this appeal on the following grounds : (1) On the fact and in the circumstances of the case and in law the Ld. CIT(A) has erred in directing the A.O. to tax income under the head Short Term Capital and Long Term Capital Gain which was assessed by the AO as income under the head Business or Profession , ignoring the fact that the assessee has received about 92.6% of income from shares and only 7.3% from (2) On the fact and in the circumstances of the case and in law the Ld. CIT(A) has failed to appreciate the in depth analysis made by the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has given a reply. Thereafter he took this bench through the various case laws considered by the AO and to the tests culled out by the AO and the facts brought out and submitted that once the tests are applied to the facts, it was clear that the assessee is a trader and not an investor in shares. Specifically he relied upon pages 19 to 23 of the order of the AO and reasons given by him. The arguments can be summarized as follows : a) The assessee earns 92.68% of her income from share trading activity and income from other heads is only 7.3% of the total income and thus it is her usual business activity and not an incidental one. b) The assessee has invested in more than 40 companies and there was purchase and sale of shares for nominal profit and there was huge quantity of transaction. c) The intention of the assessee when analyzed, discloses that he had profit motive for entertaining into transactions. d) The fact that the assessee has disclosed the shares in its balance sheet as investment and not stock-in-trade is not conclusive. e) The transactions were in high volume and that the purchase and sales are continues and repetitive. f) The intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n liquid mutual funds. He filed a chart giving the abstract of investment and divestment of shares for the assessment year 2006-07. He pointed out that from the chart it is clear that the major amount of ₹ 2.96 crores was earned as capital gain on shares which was held above 365 days. He pointed out that the gains earned, where the holding period was less than 180 days, was much lesser than the gains earned or investments held for more than 180 days. 6. Mr. Gopalkrishnan further submitted that for the earlier assessment year 2005-06 the assessment was completed u/s 143(3) and similar income was assessed under the head Capital gains . He similarly pointed out that for the assessment year 2004-05 an order was passed u/s 143(3) assessing the income from sale of shares under the head Capital Gains . For the earlier years also, the learned counsel pointed out that the income was offered only under the head Capital Gains . He submitted that the AO has not given any circumstance for change in opinion. He further pointed out that the assessee had earned substantial dividend income not only in this year but for the earlier assessment year also. He pointed out that all the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same company more than once. The assessee earned dividend income of ₹ 19.48 lakhs during the year. For the previous two years the dividend income earned by the assessee is ₹ 31.97 lakhs and ₹ 18.49 lakhs respectively. The consistent receipt of dividend income for the past few years points to the moto of the assessee. It is also seen that the assessee has not borrowed money for making investments. The entire investments were made out of own funds. The assessee had well diversified port folio and has invested in over 40 companies. An amount of ₹ 300.74 lakhs, out of a total investment of ₹ 667.48 lakhs was made in mutual funds which works out to 45% of the investment. Out of 300.74 lakhs invested in mutual funds, ₹ 274 lakhs were invested in liquid mutual funds i.e. about 90%. No trader invests in such a manner. In our considered view, no trader in shares would make substantial investments in mutual funds. The assessee had no infrastructure for doing business in shares, nor has she incurred any expenditure either administrative or otherwise for investing and divesting in shares. The assessee has been consistently declaring capital gains from these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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