9911796707
TMI Blog2011 (3) TMI 1711X X X X Extracts X X X X X X X X Extracts X X X X ..... which are consequential to the total assessed income. 3. The AO while examining the details furnished by the assessee found that assessee was engaged in buying and selling of shares on daily basis but holding period varied from 14 to 1404 days. The entire difference between purchase and sale price was claimed as short term capital gains where holding period was less than one year. The AO had bifurcated the profit on sale of shares into two and treated the profit on sale of shares held over one year as long term capital gains but in respect of those where holding period was less than one year the AO rejected the claim of the assessee for short term capital gain and treated it as business income. For arriving at this conclusion the AO gave following reasons :- (1) The motive behind investment was business. Assessee has only earned dividend of 80,273/- whereas profit on sale of shares was ₹ 21,00,907/-. Thus the ratio between dividend and profit is 1:25. (2) Shares were on frequent transactions. The assessee has invested in 99 scrips. It had made 203 purchase transactions and 230 sale transactions. Thus there are 433 transactions in 99 scripts. Such large frequently transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness income and where shares are held for more than one but upto twelve months they should be treated as short term capital gains. He also submitted that if assessee would have been entirely trading in shares then the AO could have not assessed part of the profit as long term capital gain. The fact that the AO has treated part of the profit as long term capital gains shows that he also accepts that assessee has made investments and not entirely trading. He further submitted that if all the profits arising from sale of shares held for less than twelve months are treated as business income then provisions relating to short term capital gains would become otiose. In any case what is entered into the books should be given priority. The assessee has purchased and held shares as investment and, therefore, profits thereon should be assessed as short term capital gains not as business. 6. Against this, the ld. DR heavily relied on the order of AO and that of ld. CIT(A) and submitted that large transactions and volume clearly indicate that assessee is acting as a trader and not as an investor. Her intention is clear that she has earned profit of over ₹ 20 lacs whereas dividend is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by holding that principle of res judicata is not applicable to the assessment proceedings. There cannot be, in our view, any dispute on this aspect but there is also another judicial thought, that there should be uniformity in treatment and consistency under the same facts and circumstances and we have already found that facts and circumstances are identical, even though a different stand has been taken by the Revenue Authorities. This action of the Revenue Authorities has led us to ask ourselves that in this year why it has been done so. In the process to find the answer, we noted that there was a change in the scheme of taxation relating to short-term capital gains and long-term capital gains. Through the Finance Act, 2004, the Legislature imposed securities transaction tax on the sale and purchase of shares and other derivative transactions and, simultaneously, the Legislature exempted long-term capital gain under section 10(38) of the Act 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. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (SC), Central India Agencies Pvt.Ltd.v s. CIT (1970) 77 ITR 959 (All.), Mrs. Sarojani Rajah vs. CIT (1969) 79 ITR 504 (Mad.), Dalhousie Investment Co.Ltd. vs. CIT (1968) 68 ITR 486(SC), CIT vs. Associated Industrial Development Co.Ltd. (1971) 82 ITR 586 (SC), CIT vs. Sutlej Cotton Mills Supply Agency Ltd. (1975) 100 ITR 706 (SC) and culled out following principles which are described in para No.13 of that order:- "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 investing in an asset for retaining. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. When we examine the facts of the case, we find assessee has maintained the books of account in respect of dealing in shares and assessee has shown the transactions in shares as investment and not as stock-in-trade. It has been shown consistently for several years in the past and Department has not challenged the book keeping or accounting of shares as investment. No contrary material or facts have been pointed out by the Revenue to show that facts in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly confirm the order of the Learned CIT(Appeals) in respect of holding that profit of ₹ 37,52,281/- should be assessed as 'long-term capital gain'. 15. In respect of profit of ₹ 55,40,679/- being 'short-term capital gain' as claimed by the assessee and held as profits assessed under that business by two authorities, we find that in many cases there is delivery of shares and share were registered in the name of the assessee. The holding period of the shares is from '0' days to '366' days. In some cases, the frequency of transactions are apparently substantial as on one day the assessee has purchased several scripts and sold several of them on the same day. 16. The question is whether therefore, merely from frequency of the transactions carried on by the assessee, he is treated as dealer in shares or still he is held as investor. As found in the case of Sarnath Infrastructure (P) Ltd. vs. Asstt.CIT(supra) also, assessee adduced evidence to show that his holdings are for investment as recorded in the books of account. The holdings are valued at cost, and such accounting has been accepted by the Revenue in earlier years. There is no material to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a week or so that assessee is de facto selling and purchasing shares as trader. He is also holding shares for long period - indicating that they are held as investment. Therefore, a criteria has to be fixed for determining as to when he is acting as trader and when as investor. Accordingly, we decide following criteria to hold when gains are to be taxed as profit to be earned under the business or to be taxed as short term capital gain, we hold that if shares are not held even say for a month, then the intention is clearly to reap profit by acting as a trader and he did not intend to hold them in investment port-folio. We believe that if a person intends to hold his purchases of shares as investment, he would watch the fluctuation of rates in the market for which a minimum time is necessary, which we estimate at one month. Where shares are held for more than a month, they should be treated as investment and on their sale short term capital gain should be charged. When shares are held for less than a month, gain on them should be treated as profit from business. 20. The assessee will give the working and computing 'short-term capital gains' on the above basis. The rest o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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