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TMI Blog2017 (10) TMI 1468X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the income from profits and gains of business as from shares and accordingly, the appeal of the assessee stands dismissed. - ITA No. 1064/Del/2010 - - - Dated:- 13-10-2017 - Bhavnesh Saini, JUDICIAL MEMBER AND L.P. Sahu, ACCOUNTANT MEMBER For the Appellant : Amal Sinha, Adv. And Ashok Kumar Jain, CA For the Respondent : Ms. Rakhi Vimal ORDER Bhavnesh Saini, Judicial Member This appeal by assessee has been directed against the order of the Ld. CIT(A)-XXVIII, New Delhi, dated 27th October, 2009 for A.Y. 2006-2007, challenging the order of Ld. CIT(A) in treating the short term capital gain of ₹ 65,55,066 as business income. 1.1 Earlier, the appeal of assessee was dismissed in default, however, by allowing the M.A. the appeal was restored for deciding the same on merits. 2. Briefly, the facts of the case as noted in impugned order are that in this case, return of income for A.Y. 2006-07 declaring total income of ₹ 73,94,138 was filed by assessee on 31.10.2006. During the year, assessee has shown income under the heads, business income, capital gains, income from other sources. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date the above instructions for the information of assessee as well as for guidance of the Assessing Officers. E. In the case of CIT (Central) 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 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 maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. F. In the case of CIT v. H. Holck Larsen [1986] 26 Taxman 305/160 ITR 67, the Supreme Court observed : 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 a question of law. This was a mixed question of law and fact. G. The principles laid down by the Supreme Court in the above two cases afford adequate guidance of the Assessing Officers. H. The Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India for investment in India and realizing capital gains on investment from such remittances. The third principle suggests that ordinary 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. J. CBDT also wishes to emphasize 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 as capital assets and a trading portfolio comprising of stock-in-trade which to be treated as trading assets, where an assessee has two portfolios, the assessee may have income under both heads, i.e., gains as well as business income. K. Assessing Officers Officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on; and if such a claim is upheld that would be a factor against the contention that the transaction is in the nature of trade. (7) Was the purchase made with the intentions to resell it at a profit? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is not middle course and no half way house. Thus, from the reading of the Instructions No. 1827, dated 31st August 1989, along with CBDT Circular No. 4 of 2007, read with various judicial pronouncements, following questions needs to be answered, before arriving at a conclusion that whether sale and purchase of securities is Investment or Business activity: I. Whether the purchase and sale of securities was allied to his usual trade or business/was incidental to it or was an occasional independent activity. II. Whether the purchase is made solely with the intention of resale at a profit or for long term appreciation and/or for earning dividends and interest. III. Whether scale of activity is substantial. IV. Whether transactions were entered into continuously and regularly during the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment. Thus, it is clear that purchase is made solely with the intention of resale at a profit and not for earning dividends, interest or long term appreciation. III. In respect of third question, it is reasonable to mention that the net investment shown by the assessee as on 31.03.2006 was ₹ 2,62,89,244/- and the amount of advances taken for purchase of shares was shown as ₹ 2,36,00,000/- and the transaction turnover runs into crores (₹ 17,79,98,405/-). Thus, it is evident that the sale of activity is substantial. Moreover, it is incomparable to scale of his usual of business where the net profit earned by the assessee was just few thousands. The scale of activity can be better enumerated through this table: Head of Income Income (Rs.) % of Total Income Consultancy Business 83,142 1.21 Speculation business 1,29,025 1.87 Short term capital gain 65,55,066 95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 16 GHCL Ltd., 30 23 53 Titan Industries Ltd., 20 20 40 This chart clearly shows that the transactions were entered into continuously and regularly during the assessment year. V. Now coming to fifth question, it is worthwhile to point out that the balance sheet of the assessee clearly shows that assessee has taken advances of ₹ 2,36,00,000/-. As per the submissions of Authorised Representative dated 15.10.2008, these advances were taken from different parties for the purchase of shares. This proves it beyond doubt that the assessee, in addition to using his own funds has borrowed the money for transaction in securities, anticipating huge profits on the sale of shares, thereby clearly giving it a shape of business. VI. In respect of sixth question, it would be significant to reaffirm that Authorised Representative could submit details of dates on which shares were sold and purchased in respect of all the shares with great difficu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot make these transactions as investment. It is the intention of the assessee which has to be looked into rather than the treatment. Furthermore, it is meaningful to quote the judgment of Hon'ble Kerala High Court in the case of Asstt. CIT v. Kethan Kumar A. Shah [2000] 108 Taxman 23/242 ITR 83 wherein it was held that the assessee must show the securities as his personal asset, in his wealth tax return, if the claims it as his personal asset or as an investment. In this case, assessee has not filed any wealth tax return, despite of the fact that his investments in shares as on 31.03.2006 amounted to ₹ 2,62,89,244/-. Thus, the assessee is not treating the shares as an investment in his books rather; he is treating it as stock-in-trade. Moreover, in his case it was noticed that in respect of some shares on which assessee has claimed short term capital gains, assessee has also revealed speculative gains. In other words, share transactions which were squared up, on same day were treated as speculative transactions (business) by the assessees by virtue of section 43(5), and if they were being held by the assessees even for two days or more he has treated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn. (Evidence regarding same is placed on the record) is considered under the head Profits and gains of business and profession . Thus, in the total an amount of ₹ 65,55,066/- is added to the head Profits and gains of Business and profession and income chargeable under the head Capital Gain is treated as NIL. 3. The assessee challenged the assessment order before Ld. CIT(A) and it was submitted that assessee has been working as a financial consultant with GHCL Ltd., which is engaged in the business of Soda Ash and Textile with its plants at Gujarat and Tamilnadu with Regional Office at Delhi, Mumbai, Kolkata and Chennai. GHCL is also having its business interest in Romania, U.K. and USA. The turnover of GHCL is in excess of ₹ 1000 crores. The assessee being a financial consultant of GHCL has to look after their accounts and financial matters on day-to-day basis which includes supervision of accounts etc., Considering the nature of assignment with this company, assessee has to visit their various Offices located all over India. In consideration of the services rendered, he has been paid service charges by GHCL and the assessee has been showing the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The sheer volume of the transactions in fact precluded the assessee from furnishing details of purchase sale transactions in the ordinary course of business. The fact of assessee's intent in undertaking speculative transactions resulting in profit were also noticed on many such occasion. 7.3. It is also pertinent to note that the assessee apart from using his own funds for investment in shares has also resorted to huge borrowals thereby giving it a colour of a business activity. 7.4. The assessee's investments were mostly short term driven by market forces and the business of sale and purchase was carried on by the assessee with an intent to make substantive profits rather than hold positions by making long term investments. 7.5. Therefore, I conclude that the Assessing Officer has rightly assessed the income from Profits Gains of business from shares therefore the appeal stands dismissed. In the result, the appeal is dismissed.' 4. Learned Counsel for the Assessee, reiterated the submissions made before the authorities below and submitted that assessee has intention to earn dividend only. PB-5 is balance sheet t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e usual trade or business of the assessee. The assessee was therefore, found to be involved mainly in business activities. It was also found that assessee has earned dividend of ₹ 3,71,459 only which was very meagre and negligible in comparison to the total sales and forms only 5.7% of total capital gains. Further there is not even a single share out of total share transaction which has been retained by the assessee for more than 12 months as the long term capital gain shown by assessee was NIL. Shares are sold at considerable profit. The net investment made by assessee in assessment year under appeal was ₹ 2,62,89,244 and the amount of advance taken for purchase of shares was shown at ₹ 2.36 crores and the transaction turnover runs into ₹ 17.79 crores. It is, therefore, evident that scale of business activities is substantial. The A.O. also found that income of the assessee from sale of shares was 95% as against the total activities conducted by the assessee. The assessee also could not furnish complete details of share transactions before A.O. because it was finding difficult to furnish the actual details. The A.O. also noted that in this case assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant. The Hon'ble Supreme Court in the case of Dalhousie Investment Trust Co. Ltd. (supra) held as under : The appellant company, whose principal activity was investment of its capital in shares and stocks, confined its activities mostly to the shares of McLeod and Co. and companies managed by McLeod and Co. It changed its investments by sale of its shares from time to time. During the previous years ending March 31 of 1953 to 1956, the appellant sold 6,900 shares of McLeod and Co. and other shares in the companies managed by McLeod and Co. some other companies. The objects specified in clause 2 of its memorandum of association was to acquire, hold, sell and transfer shares . . . ; and the Appellate Tribunal held that the purchases and sales of those shares were in pursuit of that clause. The 6,900 shares of McLeod and Co. were purchased by the appellant during the years 1948 to 1952, at a time when their market price was continuously falling. In order to make those purchases the appellant had taken loans amounting to ₹ 8 lakhs and the dividend declared on these shares was at a very low rate. The shares were sold during the previous year ending March 31, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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