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TMI Blog2018 (1) TMI 1419X X X X Extracts X X X X X X X X Extracts X X X X ..... D, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals)- Jamnagar, vides Appeal No.CIT(A)/Jam/158/09-10/121 dated. 20.07.2011 for the Assessment Year (A.Y.) 2007-08 with the following grounds: 1. That the ld CIT(A), Jamnagar erred and was not justified in coming to the conclusion that ₹ 13,57,857/- is a business income, on transaction of purchase and sale of shares with thirty days, out of total short term gain of ₹ 16,37,389/- declared by the appellant but held by assessing officer as business income, on the facts and circumstances of the case. 2. That the appellant carves leave to and/or to amend and/or to alter to and/or to substitute to all or any of the grounds of appeal up to the hearing of appeal. 2. The only issue raised by the assessee is that Ld. CIT(A) erred in treating the purchase/ sale of shares completed within 30 days as business income amounting to ₹ 13,57,857/-. 3. Briefly stated facts are that the assessee in the present case is a HUF and engaged in the business of trading in shares and securities under the name and style of M/s. Pratish Enterprises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s valued at cost. Had the assessee been engaged in the trading activity of shares then it should have valued the investment in shares at market price or cost of acquisition whichever was lower. The basis adopting for the valuation of shares was duly accepted by the Revenue on a regular basis year after year. 3.4 Had the assessee been shown the investment activity in the nature of trading then it should have claimed deduction of the securities transaction tax paid by it as rebate u/s 88E of the Act. 3.5 The assessee alternatively submitted that if the AO wishes to treat the income from investment activity as trading in nature, then it should be allowed rebate u/s 88E of the Act. However, the AO disagreed with the contention of the assessee by observing that the intention was to earn the profit from the sale purchase of shares which was carried out systematically. As such, the assessee has carried out substantial transactions for the purchase and sale of shares. Therefore the AO after considering the frequency and magnitude of transactions held that the assessee has carried out trading activity in the purchase and sale of shares. Accordingly, the AO held the Short Term and L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment and profit: on sale should be charged as short-term capital gain, but when shares are held for less than a month, gain should be treated as profit from business. The same fact applies to the facts' of the case of appellant, Appellant is also having large frequency in several cases and holding period in many cases varied from 0 to 371 days. Applying as in the case of Sugamchand C. Shah discussed above, it is held that the shares which has been held for less than 30 days the profit earned should be taxed as income from business. IN the statement given during the appellate proceedings it is found that the figure for profit on sale of shares which has been held less than 30 days comes to ₹ 13,57,857, The AO is directed to treat this as income from bushels and rest of the profit on sale of shares is directed to be, treated as profit from short-term capital gains. As regarding the longterm capital gain shown by the assessee at ₹ 498, AO is directed to treat the same as income from long-term capital gain and not income from business. This ground of appeal is partly allowed. Being aggrieved by the order of the Ld. CIT(A) assessee is in appeal before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is lower, because the assessee never takes the delivery of trading shares traded on same date hence there is no opening or closing stock of trading shares. There cannot be a sub-division of transaction relating to STCG. The transactions cannot be bifurcated on the basis of holding period of 30 days so as to classify a part of the gain as STCG and a part as business profit. The assessee had separate portfolios for investment and trading and in the books, the shares giving rise to the STCG had been treated as an investment and not as stock-in-trade . The shares were valued at cost and not at lesser of market value. But the facts of the case is similar to Mumbai ITAT judgment in the matter of Gopal Purohit vs. Joint Commissioner of Income Tax, reported in (2009) 122 TTJ (Mumbai) 87: (2009) 29 SOT 117: (2009) 20 DTR 99, and also confirmed by the Bombay High Court requested to please held that the appellant has earned total short term capital gain of ₹ 16.37,389 and long term capital gain of ₹ 498 and not as trading income as held by Honorable CIT(A) that transaction of purchase and sale of shares within thirty days are business income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 he 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 decision 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 CIT vs. Associated Industrial Development Company (P) Ltd. 1972 CTR (SC) 239 : (1971 82 ITR 586 (SC), 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 matter which is within the knowledge of the assessee who holds the shares and it should, in norm; circumstances, be in a position to produce evidence from its records as to whether it has maintained an distinction between those shares which are its stock-in-trade and those which are held by way c investment. 6. In the case of CIT vs. H. Holck Lar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e furnishes a guide for determining the nature of transaction by verifying whether there are substantial transactions, their magnitude, etc., maintenance of books of account and finding the ratio between purchases and sales. It will not be out of place to mention that regulation 18 of the SEBI Regulations enjoins upon every FII to keep and maintain books of account containing true and fair accounts relating to remittance of initial corpus of buying and selling and realizing capital gains on investments and accounts of remittance to India for investment in India and realizing capital gains on investment from such remittances. The third principle suggests that ordinarily purchases and sales of shares with the motive of realizing profit would lead to inference of trade/adventure in the nature of trade; where the object of the investment in shares of companies is to derive income by way of dividends etc., the transactions of purchases and sales of shares would yield capital gains and not business profits. 10. CBDT also wishes to emphasis that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years; ( c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT. 6.1 As per the above circular, the case on hand falls under the clause c and it is pertinent to take guidance from the CBDT Circular No. 4/2007 dated 15.06.2007. The relevant extract reads as under: 1. The Income-tax Act, 1961 makes a distinction between a capital asset and a trading asset . 2. Capital asset is defined in section 2(14) of the Act. Long-term capital assets and gains are dealt with under section 2(29A) and section 2(29B). Short-term capital assets and gains are dealt with under section 2(42A) and section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt portion of the balance sheet of the assessee which is placed on page 25 of the Paper Book and reproduced as under: SHARES APPLICATION ADHUNIK METAL SHARE APPL. 94,500.00 BIRLA POWER SOLU. SHARE APP. 94,500.00 KEWAL KIRAN CLO. SHARE APP. 96,250.00 ROHIT FERRO TECH SHARE APPL. 96000.00 SHIVALIK GLOBLE SHARE APPL. 48,000.00 4,29,250.00 INVESTMENT N.S.C. ACCOUNT 30,000.00 30,000.00 SHARE INVESTMENT SHARE ACCOUNT 1,73,439.46 1, 73,439.46 From the above balance sheet, it is clear that the assessee has demarcat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the matter-and if there was no change it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12. 6.5 We also note that the ITAT, Ahmedabad in the case of ACIT vs. Bhanuprasad T. Trivedi HUF in IT(SS)A No.460/Ahd/2010 pertaining to the A.Y. 2005-06 vide order dated 11.07.2016 has decided the issue in favor of the assessee by observing as under: 10. The dispute is regarding the nature of income on sale and purchase of shares by the assessee. The issue, whether the income from sale and purchase of shares in a particular case should be treated as capital gain or as business income has been a debatable issue and there are conflicting decisions of the Tribunal on this issue. Each case is therefore, to be based on its own factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uiring such shares/securities. In this background, while recognizing 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 business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the Following a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-intrade, the income arising from transfer of such shares/securities would be treated as its business income, b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business income, calls for no interference . 6.7 We also note that the Revenue against the order of Hon ble Gujarat High Court in the above case had filed a petition before the Hon ble Supreme Court which was dismissed by the Hon ble Supreme Court reported in 95 taxmann.com 19. 6.8 We also note that the case law relied on by the Ld. CIT(A) has not considered the CBDT Circular No.6/2016 dated 29.02.2016. Therefore we are reluctant to rely on the judgment relied upon by the Ld. CIT(A). In view of above, we hold that the frequency, magnitude of the transaction in a systematic manner cannot be the criteria to hold that the assessee is engaged in a business activity of shares. Therefore, we are inclined to set aside the order of the Ld. CIT(A) and direct the AO to treat the income from investment activity under the head capital gain. Hence, the ground of appeal of the assessee is allowed. 6.9 We also note that the case law relied on by the Ld. CIT(A) is not applicable to the present facts of the case. In that case, the assessee was unable to show any demarcation between shares held as stock-in-trade and investment. Therefore the income from the shares held for less than o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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