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TMI Blog2009 (9) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... the conversion of stock-in-trade into investments and treated the gains arising from sale of such shares as giving rise to long term capital gains with all incidental fall outs arising therefrom to be considered or given effect to accordingly. 2. The learned CIT has erred on facts and in law while upholding the disallowance of telephone exps. For personal use at ₹ 15,000/-. Your appellant submits that the estimate made by learned ACIT is on very higher side and needs to be suitably reduced. Your appellant prays for leave to add, alter, amend, modify or substitute all or any of the grounds before this appeal is finally disposed of 2. Facts, in brief, as per the relevant orders are that return declaring income of ₹ 27,86,914/- filed on 31-10-2001 by the assessee, a practicing ophthalmologist, after being processed u/s 143(1) of the Income-tax Act,1961[hereinafter referred to as the Act ] was selected for scrutiny with the issue of notice u/s.143(2) of the Act on 24-10-2002. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee had shown long term capital gains of ₹ 63708/- and short term capital loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted. In view of the above facts and considering the past conduct of the appellant and for the reasons discussed in the appellate order for A.Y. 1997-98, the finding of the AO that the profit on sale of shares is business income, is confirmed. Accordingly, this ground of appeal is dismissed. 4. The assessee is now in appeal against the aforesaid findings of the ld. CIT(Appeals). The ld. AR on behalf of the assessee submitted that on termination of PMS with one M/s.DSJ Financial Services Ltd, the shares received from said company on 01-04-1996 were converted into capital asset. Since then the assessee did not sell a single share so received and for the first time in the year under consideration, the assessee sold some of these shares. Thus, the findings of Ld. CIT(Appeals) regarding frequency and regularity of share transactions in earlier years were not in accordance with the facts of the case in the year under consideration.Relying upon a circular no.4/2007of the CBDT, the ld. AR contended that income has to be assessed as capital gains on sale of shares. On the other hand, the ld. DR while relying upon the findings of the ld. CIT(Appeals) submitted that there was nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose which are held by way of investment. 6. In the case of Commissioner of Income Tax, Bombay Vs H. Holck Larsen (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. 7. The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the assessing officers. 8. The Authority for Advance Rulings (AAR) (288 ITR 641), referring to the decisions of the Supreme Court in several cases, has culled out the following principles :- (i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction; (ii) the substantial nature of transactions, the manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income. 11. Assessing 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 assessing officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade. 12. These instructions shall supplement the earlier Instruction no. 1827 dated August 31, 1989. 6. In the light of guidelines laid down in the aforesaid circular and the ratio of various decisions referred to therein, if we analyse the facts of the case under consideration, we find that there is no material on record that after the termination of their PMS with M/s DSJ Financial Services Ltd., the assessee frequently and with regularity traded in ..... 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