9911796707
TMI Blog2010 (6) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... hort Term Capital Gains (STCG in short) as shown by the assessee instead of assessing by the Assessing Officer under the head "income from business or profession". In all the three assessment years, the common ground raised by Revenue, taken from ITA No.2863/Ahd/2008 assessment year 2004-05 reads as under:- "1. The learned CIT(A) has erred in law and on facts sin directing to tax the income earned from trading in shares under the head 'LTCG / STCG' as shown by the assessee instead of taxing it under the head 'Income from Business & Profession'. 3. At the outset, Ld. Counsel for the assessee, Shri S.N.Soparkar filed copy of Tribunal's order in Group cases of assessees in ITA No.2875 Ahd/2008, 2878- 2881/Ahd/2008, 2883-2884/Ahd/2008, 2887-2891/Ahd/2008 dated 17-09-2009 and stated that exactly on similar facts, this issue has been decided by the Tribunal confirming the order of CIT(A), assessing the income under the head of LTCG/STCG. When the order was confronted, Ld. SR-DR, Shri K. Madhusudhan relied on the assessment orders and he could not make any distinction in the order of Tribunal in the other assessees of the Group cases. 4. We have heard the rival contentions and gone th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is capital gain in nature depending upon transaction whether it is a STCG or LTCG and he held in paraa-6.1 of his appellate order as under:- "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 A.O 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 reported in 283 ITR 338 has laid down general guidelines I this regard and the conduct of the appellant had not been contradictory. The appellant was not solely occupied with shares but had income from other sources as well as per the details (noted in para 4.4 of this order). Thus on holistic consideration of the details on records, facts and circumstances of the appellant and the aforementioned judicial decisions, the action of the AO in treating the income shown as capital gains as business income, cannot be upheld. Consequently, the additions so made by the AO are deleted an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uiring return yielding investment. No interest has been claimed on the funds borrowed for making investment in shares. The assessee has referred to the CBDT Circular No.4/2007 for the proposition that the assessee can simultaneously earn income from trading in shares as well as capital gains from investment in shares so long as the assessee is clearly able to identify and demarcate the shares which are held for trading purpose from the shares which he has held as investment. The Assessing Officer considered the reply of the assessees and on the basis of his finding that the assessees have carried out number of transactions in selling and purchase in shares; that they have harrowed funds secured/unsecured which are interest bearing; looking to the holding period, held the activities of the assessee as not investment in share but trading in shares. He accordingly treated the same declared by the assessee as profit from purchase and sale of shares and treated them under the head "business" and not as long term/short term capital gains." And finally in para-11.1 to 13 of Tribunal's order in other assessees of Group cases (supra) held as under:- "11.1. Now we consider the relevant aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value ? Former will indicate intention of trade and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (5) How the value of the items has been taken in the balance sheet ? If the items in question are valued at cost, it would indicate that they are investments or where 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? And vice versa. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of income(s) earned by the assessee and the transactions were same in all those years, except transactions in F&O segment in some of the years wherein this kind of activity was started by the stock exchange. (ii) Interest on borrowed capital had been allowed as business expenditure against the profit on jobbing activities shown by the assessee as business profit. (iii) The assessee had shown shares purchased on delivery basis as investment at the end of the year and no stock-in-trade existed on that date and the assessee had earned both long-term and short-term capital gains which meant the assessee had also held shares for the period of more than 12 months. [Para 8] Thus, the nature of activities, modus operandi of the assessee, manner of keeping records and presentation of shares as investment at the year end were same in all the years, and, hence, apparently, there appeared no reason as to why the claims made by the assessee should not be accepted. However, the revenue authorities had taken a different view in the year under consideration by holding that principle of res judicata was not applicable to the assessment proceedings. There could not be any dispute on thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt into an apparent benefit to individual(s) entering into those transactions. Thus, in the facts and circumstances of the instant case, on the basis of principle of consistency alone, the action of the revenue authorities was liable to be quashed. It was ordered accordingly and the Assessing Officer was directed to accept the claims of assessee in regard to short-term capital gain and long-term capital gain. [Para 8.1] Further, on the basis of merits also, in view of the ratio of the decision of Sarnath Infrastructure (P.) Ltd.'s case (supra), it was held that the delivery based transaction should be treated as of the nature of investment transactions and profit therefrom should be treated as short-term capital gain or long term capital gain depending upon the period of holding. [Para 8.3] The revenue had also held that presentation in the books of account was not conclusive which may be true to some extent, but it is the most crucial source of gathering intention of the assessee as regards the nature of transaction and, in law, it is also so, i.e., such presentation reflects, prima facie, a view of the assessee on a particular subject and this principle was effectively applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 827 dated August 31, 1989, had brought to the notice of the Assessing Officers that there is a distinction between shares held as investment (capital asset) and shares held as stock-in-trade (trading asset). In the light of a number of judicial decisions pronounced after the issue of the above instructions, it is proposed to update the above instructions for the information of the assessees as well as for guidance of the Assessing Officers. 5. In the case of CIT v. Associated Industrial Development Company (P) Ltd. [1971] 82 ITR 586, the Supreme Court observed that (headnote) : Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and he should, in normal circumstances, be in a position to produce evidence from his records as to whether he has maintained any distinction between those shares which are his stock-in-trade and those which are held by way of investment. 6. In the case of CIT v. H. Holck Larsen [1986] 160 ITR 67, the Supreme Court observed (page 87) : The High Court, in our opinion, made a mistake in observing whether transactions of sale an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 18 of the SEBI Regulations enjoins upon every FII to keep and maintain books of account containing true and fair accounts relating to remittance of initial corpus of buying and selling and realizing capital gains on investments and accounts of remittance to India for investment in India and realizing capital gains on investment from such remittances. The third principle suggests that ordinarily purchases and sales of shares with the motive of realizing profit would lead to inference of trade/adventure in the nature of trade ; where the object of the investment in shares of companies is to derive income by way of dividends etc., the transactions of purchases and sales of shares would yield capital gains and not business profits. 10. The Central Board of Direct Taxes also wishes to emphasise that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction, which are being assessed as income from capital gains in the past several years. The Assessing Officer was to be directed to set off the long-term capital loss against the short-term capital gain of the year under consideration. [Para 7] In the result, the appeal filed by the assessee was allowed. [Para 9]" 12. When we apply the principles laid down in the above judgments, we find in the present case that - (1) The assessees did not have dealings in large number of scrips or large frequency of transactions which would warrant interference that they are traders; (2) In the books of accounts the assessees have never treated the shares as stock in trade and returns of income have been filed prior to the search showing them as investments and profit there from as capital gains; (3) Even though money has been borrowed to invest in shares, neither the interest paid on borrowed money or security transaction tax has been claimed while computing capital gains; (4) The assessees have retained the shares for enjoying appreciation in value and not for the purpose of realization of profit. There is apparently no commercial motive which is an essential ingredient to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers even though shares are registered in their names. In the above two judgments namely Sarnath Infrastructure (P) Ltd v. ACIT (122 TTJ 216) and Gopal Purohit v. JCIT [(2009) 29 SOT 117 (Mum)], it has been held that assessee would be investor primarily if shares are registered by it in its name. Once there is no contrary material to hold otherwise, we would respectfully follow these decisions and hold that the assessees in the instant cases on hand have discharged the primary onus by getting the shares registered in their names and therefore, they can very well claim as investors. Since the case of the Revenue is based merely on suspicion and not on adequate material to show that the assessee is acting as a trader, we are unable to interfere with the order passed by the learned CIT(A) which is quite elaborate, reasoned and based on judgments of Courts." We find that the issue is squarely covered in favour of the assessee and against the Revenue by the Tribunal's decision in other assessees of Group cases (supra). We further find that in this case also, assessee have taken delivery of share and there is no material to show that shares were sold without taking delivery and earned pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
