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TMI Blog2016 (12) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income declaring a total income of Rs. 1,46,03,588. The Assessing Officer noticed that the assessee had declared the business income at Rs. 21,52,974, short-term capital gains on sale of shares at Rs. 73,30,424, short-term capital gains on futures at Rs. 12,47,345, short-term capital gains on mutual funds at Rs. 5,63,033, long-term capital gain on shares at Rs. 19,33,968, long-term capital gains on mutual funds at Rs. 1,68,335. Since there were enormous transactions in sale/purchase of shares and volume of turnover was huge, he show caused the assessee as to why income from long-term capital gain and short-term capital gain should not be treated as business income. The assessee in its reply, inter alia, submitted as under : "(i) The company had no borrowings or line of credit and needs to keep its surplus funds invested for future investments and needs from these surplus balances built from profits of the company. (ii) The purpose of investment in shares was to gain dividend income on surplus funds as a substitute for fixed deposits and hope fully over long-term gain some capital return as well. (iii) The sales were made for the twin purposes of protection of capital and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 0 0 56.86 NA 1999-00 0.08 0 0 105 143(1) 2000-01 3.13 0 -22.88 344.4 143(1) 2001-02 -29.97 5.24 -10.41 265.2 143(1) 2002-03 -3.03 2.63 0.37 311.7 NA 2003-04 6.2 16.66 -1.57 243.8 NA 2004-05 6.41 -3.24 11.95 226.1 NA 2005-06 94.92 24.62 15.57 197.1 143(3) 2006-07 91.62 19.03 -1.41 319.89 Appeal Total 168.85 64.94 -8.38 2118.85 7. He further submitted that all transactions are delivery based transactions and the assessee has not made any borrowing for making investment in shares. He further referred to the Central Board of Direct Taxes Circular No. 6, dated February 29, 2016 ([2016] 382 ITR (St.) 14 ), where the Board has, inter alia, given following guidelines (page 15) : ". . . 3. Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/ securities. In this background, while recognising that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e., whether the same is in the nature of capital gain or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Central Board of Direct Taxes issued in this regard laying down guidelines for the purpose of holding the income as business income or capital gain. It is correct that in the instant case the appellant has been making similar investments in the earlier years and has been showing the income as long-term as well as short-term capital gain and the position as such, was accepted in all the earlier years, including the assessment year 2005-06 for which the assessment was made under section 143(3) of the Act after going through the details of purchase and sale of shares. Further, it has also been noted from the memorandum of the appellant-company that there is no objects clause for trading in shares. The memorandum only authorises the company to make investment of funds not immediately required. The company has made no borrowings for the purpose of making investment in shares. Accordingly, only the surplus funds have been invested in fixed deposits, mutual funds and shares. The contention of the appellant to the effect that it had taken actually delivery of all the shares, which were purchased by it and the same had been duly transferred to its D-Mat account has also been found t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Mumbai Bench of the Income-tax Appellate Tribunal in the case of Gopal Purohit v. Joint CIT [2009] 122 TTJ (Mum) 87, which has also been affirmed by the High Court, vide order dated January 6, 2010, and also the decision of the Income-tax Appellate Tribunal Delhi Bench in the case of Nirmal Kumar Jain v. Addl. CIT, copy of which has been submitted, fully supports the contention of the appellant. In fact the facts of these cases are quite similar to the facts of the case of the appellant as the number of transactions and volume and magnitude of purchase and sale of share and also of amount of capital gain has also been substantial in the facts of these cases also. 13. Considering the facts and the case law, in my view there can be no doubt as far as long-term capital gain of Rs. 19,33,946 earned on shares by the appellant-company. The holding period of these shares has been from 372 days to 1,867 days and sale of shares was only of nine companies. Further, the cost of acquisition of these shares was only Rs. 18,29,473 which had been sold for consideration of Rs. 37,63,441 and capital gain of more than 100 per cent. was earned. Keeping in view the period of holding as well as g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and, therefore, there cannot be requirement of keeping separate books of account. Accordingly, this contention of the Assessing Officer does not hold good. The Assessing Officer has also wrongly observed that the appellant-company has been showing gain on sale of shares as business income up to assessment year 2001-02. The appellant-company has submitted details in respect of earlier years along with copies of computation of taxable income and has been shown that from the assessment year 1996-97 onwards it had been regularly showing similar income as long-term/short-term capital gain. Accordingly, the contentions taken by the Assessing Officer in this regard do not have force to arrive at a conclusion that income in the case of appellant was in the nature of business income. Considering the totality of facts and circumstances of the case, I am inclined to agree with the contention of the appellant principally that purchases were made by way of investment and income on sale was in the nature of capital gain and not in the nature of business income. It is, however, noticed that in the case of the appellant on the basis of details called for in regard to period of holding of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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