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TMI Blog2015 (9) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... ck-intrade” to be valued at cost or market price whichever is lower. From the perusal of the balance sheet of the assessee it is quite clear that no specific funds were borrowed for the purchase of shares and the main source of investment in shares and securities was from the capital account of the assessee. Assessee has also maintained separate profit and loss account for F 1,05,11,605/-and thereafter during the Financial Year 2005-06 the shares purchased and sold under the investment account have been treated as short-term and long term capital gains. However, looking to the transactions entered into by the assessee as shown under the head short term capital gains, have been properly analyzed by the CIT(A) and, therefore, in view of above, we do not find any error at the end of learned first appellate authority and, therefore, no interference is called for in the order of CIT(A). - Decided against revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts. However, the CIT(A) heavily relied on the decision of ITAT, Ahmedabad in the case of Shri Sugam Chand C. Shah vs. ACIT, Circle-3, Surat in ITA No.3554/Ahd/2008 for AY 2005-06 and 1932/Ahd/2009 for AY 2006- 07 and made the following finding :- "2.3 I have considered the facts of the case, assessment order and appellant's submission. Assessing Officer treated short-term capital gain disclosed by the appellant as business profit on the ground that appellant was not making investment but trading in shares. On the identical facts, ITAT Ahmedabad in the case of Shri Sugam Chand C. Shah vs. ACIT, Circle-3, Surat in ITA Nos. 3554/Ahd/2008 for AY 2005-06 and 1932/Ahd/2009 for AY 2006-07 held that in cases the shares are held for more than 30 days, the transaction has to be categorized on an investment transaction whereas the sales held for a period upto 30 days, the same shall be treated as business transactions. In arriving at this decision, the ITAT Ahmedabad has considered several decisions of various benches of ITAT, High Courts and Supreme Court. The ITAT Ahmedabad has also considered the circular issued by the Central Board of Direct Taxes and has come to this cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Sarnath Infrastructure (P) Ltd.(supra) that delivery of shares is an important criteria for holding that assessee is investing in them but after dematization where shares are delivered in the DEMAT account the next day, it cannot be held that in all such cases, it would be investment and not trading. If that is so held, then all those traders in shares in whose DEMAT accounts shares are delivered can be said to have earned capital gains and not profits. Therefore, only one criteria, i.e. Delivery of shares alone will not be sufficient to decide the issue. Even otherwise in Sarnath Infrastructure (P) Ltd.(supra) itself it has been held that cumulative effect of several factors will decide the issue. 19. Considering the totality and peculiarity of the facts of this case, we find that assessee is neither fully acting as a trader nor as fully investor. Demarcation is quite hazy; though in the books he is showing all the purchases as investment but frequency of transaction in several cases is so large and holding period in many cases is so small - from 0 to a week or so that assessee is de facto selling and purchasing shares as trader. He is also holding shares for long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR made reference to certain principles culled out from the decision of ITAT Lucknow Bench in the case of Sarnath Infrastructure (P) Ltd. vs. ACIT 124 ITD 71 (Luck). After considering the above ruling we culled out following principles which can be applied on the facts of the case to find out whether the transactions in question are in the nature of trade or are merely for the purpose of investment. The relevant portion from the above judgment read as below- In view of the Circular No.4 of 2007, dated 15.6.2007, and various decided cases, following principles can be applied on facts of a case to find out whether transactions in question are in nature of trade or merely for investment. a. What is the intention of the assessee at the time of purchase of the shares (or any other item)? This can be found out from the treatment that it gives to such purchase in its books of account. Whether it is treated as stock-in-trade or investment. Whether it is shown in opening/closing stock or shown separately as investment or non-trading asset. b. Whether the assessee has borrowed money to purchase and paid interest thereon? Normally money is borrowed to purchase goods for the purposes of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying with them. Whether it is the argument of the assessee that it is violating those legal requirements if it is claimed that it is dealing as a trader in that item? Whether it had such an intention (to carry on illegal business in that item) since beginning or when purchases were made? j. It is permissible as per the CBDT's Circular No.4 of 2007 dated 15.6.2007, that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate accounts for each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios. k. Not one or two factors out of above alone will be sufficient to come to a definite conclusion but the cumulative effect of several factors, has to be seen.(Pra 13) 7. The ld. AR of the assessee made following submission. While applying the facts of the case to the above referred principles - (i) where a company purchases and sells shares, it should be shown that they were held as stock in trade, for the activity to constitute business: The assessee in the given case has disclosed the shares as assets under the category of investments. The assessee has thus duly adhere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing his risk by investment in a number of scripts and this is a prudent practice followed by major mutual funds to derisk their portfolio. Hence the contention of the assessing officer that the assessee is holding a large no of scrips and has transacted in a large number of script in no way can classify the activity of the assessee as trading activity. (iii) whether the motive behind purchase and sale of shares was earning profit or income by way of dividend, etc: The above principle states the investment should be made with the objective to earn dividend, etc. The assessee has earned substantial dividend income of ₹ 2,92,293/-, had the investments be held for a short period the assessee could not have earned dividend income of substantial nature being almost 3% of the average investment holding. In light of the above circumstances the change in investments amounts to capital gain. The assessing officer has misunderstood and misapplied the circular no.4/2007 at para 3.5 of his order where in he has referred to the F & O transactions, the assessee has at the time of filling the return properly classified his F & O transactions as business income, has classified the short ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/-. It is also seen by the AO that the assessee was engaged in the business of F & O transaction and during the year the sales in F & O category amounted to ₹ 5,66,37,310/- and the assessee has shown the profit from F & O business at ₹ 4,75,294/-. Due to these very reasons the AO has believed that the transactions of sale and purchase of shares which were claimed by the assessee under short term capital gain head, as income from business transaction. But the AO has accepted the capital gains from sale of shares held by the assessee for more than one year as long term capital gain which means that the AO has accepted that assessee is having some part of his portfolio as for investment and not for business which further gives support to the claim of assessee by showing income from share transactions in two heads i.e. 'capital gains' and 'business income'. 10. Further in the light of various decisions quoted by the ld. representative as well as various principles laid down and on the basis of facts of the case it is very clear that the intention of the assessee at the time of purchase of shares was very clear and the shares held by the assessee at the close of the Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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