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TMI Blog2019 (1) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... .w.s. 263 of the Income Tax Act, 1961(herein- after referred to as the Act ) dated 16.12.2010 relevant to Assessment Year (AY) 2006-07. 2. The grounds of appeal raised by the assessee are as under:- 1. The Learned CIT(A) as well as the A.O have grossly erred in law and on facts treating the Short termaianoR.961606/- and Long term capital gain of ₹ 25471/- as business income of the appellant. 2. The Learned CIT(A) and the A.O. have also erred in law and facts in not appreciating the facts of the case in proper perspective in treating the income shown under the head Short term capital gain and Long term capital gain as the business income of the appellant. 3. The Learned CIT(A) equally erred in not appreciating the written submissions filed by the appellant before him during the proceeding as well as not properly applying the Judgment of Hon'ble Gujarat High Court in CIT vs. Rewashankar A. Kothari vide 383 ITR 338. 4. In the alternative and without prejudice to above, The Learned CIT(A) as well as the Leaned A.O have also erred in not following the provisions of the Act regarding the calculating of the cost of opening stock of the shares involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he losses and to make investments in the better script. v. He has invested a sum of ₹ 4,29,258/- as Share Application money where shares were purchased in the initial public affairs. vi. All the investments in the shares were made out of the own funds of the assessee, and there was not used any borrowed fund. However, the AO disagreed with the submissions of the assessee by observing that the assessee has carried out numerous transactions in a systematic manner. 4.2 There was no distinction made by the assessee in its books of accounts between the shares held as stock in trade and by way of investment. In view of above, the AO held that the motive of the assessee was to earn a profit by way of trading in the shares. Therefore the same should be treated under the head business and profession. Accordingly, the AO treated the sum of ₹ 9,87,077/- as business income. 5. Aggrieved, assessee preferred an appeal to Learned CIT(A). The assessee before the Learned CIT(A) submitted that the investment was made to earn dividend income and not to earn by way of sale and purchase of shares. 5.1 The shares were sold in the year under consideration intending to cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is in the nature of business. Relying on its own judgment in C1T vs. Rewashankar A Kothari (supra), hon ble Gujarat High Court in CIT vs. Vaibhavi J. Shah (HUF) in Tax Appeal No. 77 78 of 2010 has held as follows:- It is clear that where number of transactions of sale and purchase, of shares takes place, the most important test is the volume, frequency, continuity and regularity of transactions of purchase and sale of the shares. However, where there is repetition and continuity, coupled with magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can be drawn that activity is in the nature of business. Learned counsel for the revenue from the records could not demonstrate that there were large number of transactions which had frequency, volume, continuity and regularity and fell within the tests laid down by the Division Bench of this Court. For the aforesaid reasons, we are of the considered opinion that the income earned by the assessee from trading in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as Business Income. With due regard to ratio of judgment in cases relied on by the appellant, the same are not applicable in the present case as the facts are different. In view of discussion above, I hold that the AO was justified in treating STCG of ₹ 9,61,606/- and LTCG of ₹ 25,471/- on sale of shares as Business Income. The AO has rightly treated profit from sale of shares as Business Income. Accordingly, this ground of appeal is dismissed. Being aggrieved by the order of Learned CIT(A) assessee is in appeal before us. 6. The Learned AR before us filed a paper book running from pages 1-45 and reiterated the submissions as made before the Learned CIT(A). 6.1 The Learned AR also submitted that in the assessment year 2005- 06 the activity of the assessee was accepted as under the head capital gain in the assessment order framed u/s 143(3) of the Act pertaining to the A.Y. 2005-06 vide order dated 16.10.2007. 6.2 The assessee has made all the investment in the IPO, and as such there was no investment by way of acquiring shares from the secondary market. 7. On the other hand, Learned DR vehemently supported the order of Authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2(29A) and section 2(29B). Short-term capital assets and gains are dealt with under section 2(42A) and section 2(42B). 3. Trading asset is dealt with under section 28 of the Act. 4. The Central Board of Direct Taxes (CBDT) through Instruction No. 1827, 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 assessees as well as for guidance of the Assessing Officers. 5. In the case of Commissioner of Income-tax (Central), Calcutta v. Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586, the Supreme Court observed that : 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 it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed its shares under the head investment. Therefore the Circular issued by the CBDT applies to the instant facts of the case. Therefore, keeping in view the provision of the Circular issued by the CBDT we are inclined to hold that the income from the investment of share on account of sale purchase should be liable to tax under the head capital gain. 8.3 We also note that the benevolent circulars issued by the CBDT are binding on the Tribunal as held by the judgment of Hon ble Supreme Court in the case of Keshavji Ravji Co. Vs. CIT reported in 183 ITR 1 wherein it was observed as under : The task of interpretation of the laws is the exclusive domain of the courts. However, - this is what Shri Ramachandran really has in mind - circulars beneficial to the assessees and which tone down the rigour of the law issued in exercise of the statutory power under section 119 of the Act or under corresponding provisions of the predecessor Act are binding on the authorities in the administration of the Act. The Tribunal, much less the High Court, is an authority under the Act. The circulars do not bind them. But the benefits of such circulars to the assessees have been held to be permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are its stock-in- trade and those which are held by way of investment 11. The CBDT has further thrown light on this controversial issue in its Circular No. 6/2016 dated 29.02.2016 and the same reads as under:- 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 capita! 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 the past. 2. Over the years, the courts have laid down different parameters to distinguish the shares held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions. 5. It is reiterated that the above principles have been formulated 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. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. 12. Considering the facts in hand, in the light of the aforementioned circular of the Board, in our considered opinion, the intention of the assessee at the time of the purchase of shares is paramount. If the assessee has clear intention of being an investor and showing the shares as investment, we do not find any reason to disturb the intention of the assessee. The assessee under consideration is investor and, therefore, any gain arising out the transfer of shares should be treated as capital gains be it short term or long term. 13. In the light of the aforementioned discussion, we have no hesitation in upholding the findings of the First Appellate Authority. Ground No. 1 is accordingly dismissed. 8.6 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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