9911796707
TMI Blog2010 (9) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... ar issues are involved , these five appeals were heard together for the sake of convenience and are being disposed of through this common order. 2 Facts, in brief , as per relevant assessment order for the AY 2000-01 are that a search u/s 132 of the Income-tax Act , 1961 [hereinafter referred to as the "Act"] was conducted in the group cases of Shri Himanshu J Shah on 22-09-2005. A warrant of authorization u/s 132 was issued in the name of the assessee also. Consequently, in response to a notice dated 22.5.2006 u/s 153A(a) of the Act , the assessee filed return declaring income of ₹ 2,21,020/- for the AY 2000-01 on 17.5.2007. Likewise returns were filed for the remaining assessment years also. During the course of assessment proceedings, the Assessing Officer[AO in short ]not iced that Shri Himanshu J. Shah and his following family members had entered in to transact ions in shares over a period of time, including during the period relevant to the A.Ys 2000-2001 to 2006-2007: Sr. No. Name Relationship with Himanshu J. Shah 1: Shri Himanshu J. Shah Self 2. Shri Bankim J. Shah Brother 3. Shri Vaibhav J. Shah Brother 4. Smt. Bela H. Shah Wife 5. Smt. Hemangi B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-11-07 17-12-07 & 19-12-07 3. On appeal, the ld. CIT(A) allowed the claim of the assessee in the following terms:- "6. The details on record, submissions made etc. were carefully considered. It is held that the challenge to the validity of the assessment order(s) is not only misplaced but also misdirected. The appellant has vainly attempted to.yoke together the hetrogenous concepts of the Chapter-XIV B with the provisions of Section 153A. Further, no specific instance of any denial of natural justice is brought on record. Moreover, this is not the forum before which the legal validity of the provisions of the Act can be challenged. Thus, the related grounds of appeal are dismissed without further elaboration. 6.1 The appellant had disclosed income from capital gains / dividends in earlier years and the shares as investments in the books of account/balance sheets. The transactions were on delivery basis and were not repetitive / numerous, enough to warrant the conclusion of the appellant as being a trader. The doubts of the AO in this regard have been answered by the appellant as summarized in para 3.4 of this order. The decisions of the Hon'ble High Court of Gujarat rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 (MAD) 5. Dalhousie Investment Trust Co. Ltd. Vs. Commissioner of Income-tax (1968) 68 ITR 486 (SC) 6. Commissioner of Income-tax Vs. Associated Industrial Development Co. (P.) Ltd. (1971) 82 ITR 586 (SC) 7. Commissioner of Income-tax Vs. Holck Larsen (H.) (1986) 160 ITR 067 (SC) 8. Commissioner of Income-tax Vs. Sutlej Cotton Mills Supply Agency Ltd. (1975) 100 ITR 706 (SC) 11.2. Principles have been culled out from these judgement as under : 13. After considering above rulings we cull out following principles, which can be applied on the facts of a case to find out whether transaction(s) in question are in the nature of trade or are merely for investment purposes : (1) 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 it gives to such purchase in its books of account. Whether it is treated as stock-in-trade or investment. Whether shown in opening/closing stock or shown separately as investment or non-trading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon ? Normally, money is borrowed to purchase goods for the purposes of trade and not for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 ? (10) It is permissible as per CBDTs Circular No. 4 of 2007 of 15th June, 2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate account for each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios. (11) 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. 11.3. These decision has been followed by the Mumbai Bench in the case of Gopal Purohit v. JCIT [(2009) 29 SOT 117 (Mum)] wherein it had been held as under : "It was noted that the assessee was engaged in the activity of sale and purchase of shares for a quite long period. It was also noted that non-delivery based transactions had been treated by the assessee as business activity and delivery based transactions ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares and other derivative transactions and, simultaneously, the Legislature exempted long-term capital gain under section 10(38) from the levy of tax and on short-term capital gain, a concessional rate of tax i.e., 10 per cent has been levied subject to the condition that transactions resulting into this type of gain must have suffered securities transaction tax. That was the first year of such change and, having regard to the quantum of gains, this scheme of taxation only must have prompted the revenue authorities to take a different view on the same types of transactions entered into by the assessee in earlier years. There was no dispute that the assessee had claimed exemption under section 10(38) and/or had paid tax under section 111A at concessional rate on the transactions, where securities transaction tax had not been paid. It was also noted that the assessee had paid tax on short-term capital gains at normal rates on share transactions executed in the period prior to imposition of securities transactions tax. The legislative change of this nature, whereby no change had been made in respect of nature and modus operandi of such share transactions, resulting into any advant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies had also held that borrowed funds were utilized for making such investments whereas in earlier years, interest on such loans had been allowed as business expenditure against profit on share trading transactions shown as business income and in the year under consideration also, no nexus between the interest bearing funds and investment had been established and, hence, for this reason also, there was no merit in treating the long-term capital gain and short-term capital gain as business profits. [Para 8.4] In the facts and circumstances of the instant case, the assessee's claim of short-term capital gain and long-term capital on share transactions where the delivery had been taken or given and securities transaction tax had been paid, was liable to be accepted. Accordingly, the orders of revenue authorities were to be reversed. [Para 9]" 11.4. Even CBDT in Circular No.4/2007 dt.15.6.2007 has laid down the principles for holding as to when profits earned from transactions in share should be held as business or should be treated as investment Circular No. 4/2007, dated June 15, 2007 Sub : Distinction between shares held as stock-in-trade and shares held as investment-T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction ; (ii) the substantial nature of transactions, the manner of maintaining books of account, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions ; (iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade ; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt. 9. Dealing with the above three principles, the AAR has observed in the case of Fidelity group as under (page 661) : We shall revert to the aforementioned principles. The first principle requires us to ascertain whether the purchase of shares by a FII in exercise of the power in the memorandum of association/trust deed was as stock-in-trade as the mere existence of the power to purchase and sell shares will not by itself be decisive of the nature of transaction. We have to verify as to how the shares were valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... walla v. Assistant Commissioner of Income-tax, Range-12(2), the Tribunal has similarly held as under : "The mere volume of transaction transacted by the assessee would not alter the nature of transaction. It is an established principle that income is to be computed with regard to the transaction. The transaction in whole has to be taken into consideration and the magnitude of the transaction does not alter the nature of transaction. Though the principle of res judicata does not apply to the Income-tax proceedings as each year is an independent year of the assessment but in order to maintain consistency, it is a judicially accepted principle that same view should be adopted for the subsequent years, unless there is a material change in the facts. [Para 6] In the facts of the instant case, the assessee was holding the shares as investment from year to year. It was the intention of the assessee which was to be seen to determine the nature of transaction conducted by the assessee. Though the investment in shares was on a large magnitude but the same would not decide the nature of transaction. Similar transactions of sale and purchase of shares in the preceding years had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad them on monthly basis as observed by us above; (7) Assessees have always taken the delivery of shares and made them registered. It has been held in Sarnath Infrastructure (P) Ltd v. ACIT (122 TTJ 216) that once shares are registered in the name of the assessee, intention is clear that it is an investment and not a trade; (8) There is no material on record to suggest that the assessee has fulfilled the legal requirement for dealing as a trader in shares. 13. In our considered view the suspicion of the Revenue to hold the transactions made by the assessees as in the nature of trade is based on the premise that the assessees are frequently reshuffling its portfolio and merely because shares are registered/transferred in the names of the assessees would not be sufficient to hold that the transactions are investment. But we are of the considered view that the perception of the Departmental authorities is legally misplaced. Though apparently it may appear that merely because shares are registered/transferred in the name of the assessee he may not go out of ambit of a trader but the fact is that the assessees have discharged their onus by getting the shares registered in their na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is related to the business normally carried on by an assessee. The nature of the commodity would also be a relevant factor. It is equally well settled that, merely because the original purchase was made with the intention to resell, if an enhanced price could be obtained, that by itself is not enough to infer that an assessee is carrying on business. However, though profit motive in entering into a transaction is not decisive, if the facts and circumstances indicate that the purchase of the asset was made solely and exclusively with an intention to resell the asset at a profit, it would be a strong factor for inferring that the transaction was in the nature of business. In the case of Pari Mangaldas Girdhardas v. CIT [1977] CTR 647 (Guj), after analysing various decisions of the apex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business. (a) The first test is whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commer ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
