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TMI Blog2016 (3) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of above judicial pronouncements and Board Circular, we are of the view that income of the assessee shown from short term capital gain from sale of shares should not be treated as business income. - Decided in favour of assessee - ITA No. 2974/Ahd/2008, ITA No. 132/Ahd/2010 - - - Dated:- 11-3-2016 - Kul Bharat (Judicial Member) And Manish Borad (Accountant Member) For the Appellant : Urvashi Shodhan, AR For the Respondent : Sonia Kumar, Sr. DR ORDER Manish Borad (Accountant Member) These two appeals of the assessee for Asst. Years 2005-06 2006-07 are directed against two separate orders of CIT(A)-IV, Surat dated 2.6.2008 and 17.8.2009. Assessments were framed u/s 143(3) of the IT Act, 1961 (in short the Act) on 30.11.2007 for Asst. Year 2005-06 and on 5.12.2008 for Asst. Year 2006-07 by ACIT, Cir-6, Surat. 2. Assessee has raised following grounds in her appeal in ITA No.2974/Ahd/2008 for Asst. Year 2005-06 :- 1. The ld. CIT(A) has grievously erred in law and on facts in confirming action of Assessing Officer in treating income from share transactions as business income as against short term capital gains declared by appellant. The tax on sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and to sell the scripts after a substantial time to make some profit. The short term sales are also more than short term purchases which mean that the holding period is negligible. It is further seen that even the appellant's own auditor has categorically reported that the appellant is in the business of trading in shares and the most important factor would be that the snares have been valued at cost price which would normally be less than the market price of such scripts as at the end of the year. An investor would always value the closing stock at market price and it is only when the income is in the nature of business that the closing stock would be valued at cost or market price whichever is lower. It is also seen that the purchases have been made exclusively with the intention of resale at a profit and the appellant had no intentions of holding the shares for himself or otherwise enjoying the benefits of it. There is also no intention to derive income by way of dividend etc. which is norm; 1 in the case of an investor. The appellant had sold large amounts of shares after holding the same for a few days which would lead to the inference that this was not by way of invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch in ITA No.6345 (Mum) of 2010 in the case of Dev Ashok Karvat vs. DCIT dated 18.01.2012. 7. On the other hand, ld. DR relied on the orders of lower authorities. 8. We have heard the rival contentions and perused the material on record. The only issue before us is that the assessee has claimed purchase/sale of shares under the head long term and short term capital gain wherein long term capital gain is exempted u/s 10(38) of the Act and short term capital gain is subjected to 10% rate of income tax as per provisions of section 111A of the Act. Whereas ld. Assessing Officer has treated the income from short term capital gain at ₹ 14,68,542/- as income from business from purchase/sale of shares. 9. From going through the records, we find that assessee has not shown any income from business from purchase/sale of shares and all the transactions relate to purchase/sale of shares have been categorized under the head long term capital gain and short term capital gain on shares. We further find that on the opening date of Asst. Year 2005-06 i.e. as on 1.4.2004 assessee was having investments in 17 scrips at a cost price of ₹ 2494027.90 appearing at page 31 of the pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction ^between those shares which are stock-in-trade and those which are held by way of investment. 7. The Apex Court in another decision in Commissioner of Income Tax, Bombay v. H, Hoick Larsen, 160 ITR 67 (SC), the Apex- Court has held as under :- The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the nature of investment was question of law. This was a mixed question of law and fact. 8. A Division Bench of this Court in Commissioner of Income-tax v. Rewashanker A. Kothari (2006) 283 ITR 338 (Guj.) has laid down the following test for determining the question as to whether an assessee can be said to be carrying on business. Such tests laid down by this Court are reproduced below ;- [al 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continuity and regularity and fell within the tests laid down by the Division Bench of this Court. 10. For the aforesaid reasons, we are of the considered opinion that the income earned by the assessee from trading in the shares under the head long term capital gain/short term capital gain was correctly shown. We do not find that in the Assessment Year 2005-2006 and 2006-2007, the transaction of sale of shares and volume were substantial. We do not find any error or irregularity in the impugned order passed by the Tribunal. The substantial question of law framed by this Court as mentioned above is answered in the affirmative and against the revenue. Both these Tax Appeals are accordingly dismissed. 10. We further find that co-ordinate bench ITAT, Mumbai in the case of Dev Ashok Karvat vs. DCIT (supra) addressing a similar issue has held as under :- Section 2(14) defines 'capital asset' to mean property of any kind held by an assessee, whether or not connected with his business or profession. The definition of capital asset' does not, however, include 'stock-in-trade' held for the purpose of business. Section 2(22) defines 'dividend' to inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the assessee behind the purchase of shares and such intention has to be gathered from the facts of the case including (he conduct of the assessee. [Para 10] Applying the principal/guidelines laid down by the Tribunal in the case of 'Sarnath Infrastructure (P.) Ltd. v. Asstt. CIT [2010] L24_JTD_Z1_ (Luck.) to the facts of the instant case, it is found that even according to the Assessing Officer, the nature of the assessee's business is insurance agent inasmuch as the Assessing Officer in the assessment order has treated the nature of the business of the assessee as 'Insurance Agent,. It is further found that the assessee in assessment years 2004-05 and 2005-06 has shown long-term capital gains and short-term capital gains on sale of shares and even in the year under consideration, i.e., in assessment year 2006-07 the Assessing Officer has treated the investment in shares and mutual funds as long term capital gain amounting to ₹ 4,55,172. It is further found that the assessee has maintained regular hooks of account, wherein he has treated investment in shares and mutual funds as investment and has shown gain arising there-from as long-term capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r No. 6/2016 Central Board of Direct Taxes Dated 29tfn of February, 2016 Sub; Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business income - Instructions in order to reduce litigation - reg.- Sub- section (14} of Section 2 of the income-tax Act, 1961 ('Act'} defines the term capital asset to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in-trade/trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in-trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in (he 2. Over the years, the courts have laid down different parameters to distinguish the shares hold as investments from the shares held as stock-in-trade. The Central Board of Direct Taxes ('CBDT'} has also, through Instruction No. 1827, dated Augus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. Aii the reinvent provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. 12. From going through the decisions of Hon. Jurisdictional High Court and co-ordinate bench as referred above in para 9 10 and the CBDT Circular dated 29/2/2016 bearing no. 6/2016 we find that the assessee has not opted to treat its holding of listed shares and securities as stock in trade and nor any income arising from transfer of such shares/securities has been treated as its business income rather assessee has been disclosing income from sale/purchase of shares as long term and short term capital gain consistently in its income tax return and also relying on the decision of Hon. Jurisdictional High Court in the case of CIT vs. Vaibhav J. Shah HUF (supra) and that of co-ordinate bench ITAT, Mumbai in the case of Dev Ashok Karvat vs. DCIT (supra), we are of the view that ld. Assessing Officer was not correct in treating the income from capital gains as business income. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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