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TMI Blog2018 (4) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of accounts do not alter the character of commercial transaction. The profit that has been attributable to this trading activity corresponding to conversion of stock-in-trade into investment is to be treated as ‘business income’ and accordingly to be taxed. In view of the above findings of CIT(A) that the income from investment is to be taken as ‘capital gains’ and conversion of stock-in-trade to investment is to be taken as ‘trading income’, which is based on facts of the case and need no disturbance. - Decided against revenue. - ITA No. 436/Kol/2016 - - - Dated:- 10-1-2018 - Shri N. V. Vasudevan, JM And Dr. A. L. Saini, AM Assessee by : Shri Soumyajit Dasgupta, Addl. CIT Respondent by : Shri Sujoy Sen, Advocate. ORDER Per Dr. Arjun Lal Saini, AM: The captioned appeal filed by the Revenue, pertaining to assessment year 2007-08, is directed against the order passed by the ld. Commissioner of Income Tax (Appeals) 4, Kolkata in Appeal No.195/CIT(A)-4/Cir- 12/Kol/14-15, dated 17.12.2015, which in turn arises out of an order passed by the Assessing Officer u/s.147/143(3) of the Income Tax Act 1961, (hereinafter referred to as the Act ), dated 01. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess carry forward of loss/depreciation. At the time of reassessment proceedings, the AO asked the assesseeto explain as to why the following income shall not be considered business income: a) STCG on Mutual Fund ₹ 71,60,368 b) STCG on Share ₹ 7,37,097 c) LTCG on Shares ₹ 37,57,174 d) LTCG on Mutual Fund ₹ 17,10,257 The assessee replied to the AO stating that assessee company is a NBFC Company and such shares and mutual funds were held by the assessee as investment only and hence the gain has to be treated as capital gain. These investments were purchased by the company out of its own funds and in audited accounts all these investments have been shown under the head Investments . However the assessee s contention was not accepted by the AO. The AO noted that considerable parts of transactions were completed in a very short period or frequent intervals. These systematic organized frequent transactions carried out within a limited period of holding clearly indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to year as per its convenience.The CIT(A) also ignored that the motive of the assessee was not bona fide and it carried out its activities on share transactions in a systematic and organized manner and effected sale of shares at an opportune moment and arranged the transaction as per its own whims and fancy in its books of accounts to lower the tax incidence. 6. On the other hand, the ld. Counsel for the assessee has submitted that the assessee s case under consideration is fully covered by the Hon ble Tribunal, Kolkata, in assessee`s own case, in the case of ITA No.783/Kol/2009, A.Y 2005-06 wherein the Hon ble Tribunal held that the treatment given in the books under the head investment clearly shows that the assessee s intention to deal in shares as investment. Going by the same arguments/logic and applying the same principles as laid down by the courts, the above conversion of investment into stock-in-trade in AY 2004-05 and continuing the trading under that head and again converting the closing stock under that head into investment in the AY 2005-06 under consideration amounts to a clear change of intention depending on the circumstances. The Hon ble Tribunal noticed sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to him carried out in a systematic and organized manner involving large volumes of transactions in shares. As seen from the principles laid down by various courts, the main test prescribed is the initial intention of the assessee to decide whether an activity amounts to trading activity or investment activity . As seen from the above facts, the assessee is justified in its argument that its original initial intension is to hold the shares as investments and not as stock-in-trade . The intention of the assessee as is evident from the circumstances at the time of purchase of shares/units, is a relevant factor and often a conclusive factor in determining whether a transaction is in the nature of trade or in the nature of investment. The assessee had been keeping its holdings in certain companies from a few months to a few years, which clearly indicates that the motive and intention of the assessee is to earn returns in the form of capital gain apart from dividend income. We note that the sources for acquisition of shares are from share capital, reserves and surplus funds. The assessee has been an investor and not a trader as seen from the intention of the assessee. The treat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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