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TMI Blog2022 (10) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The issue involved in this appeal is whether the tribunal was right in reversing the order passed by the Commissioner of Income Tax (Appeals) VI, Kolkata CIT(A) dated March 18, 2008 and holding that the gain of Rs. 21,31,153/-made by the assessee during the previous year relevant to the assessment year 2005-2006 on sell and purchase of shares was business profit and not short term capital gains. The CIT(A) had taken note of all the material particulars and details which were placed by the assessee before the assessing officer during the scrutiny assessment under Section 143(3) of the Act dated December 31, 2007. The CIT(A) pointed out that the assessee had maintained separate accounts for trading in shares and in this account, shares were bought and sold at frequent interval and even on daily settlement basis. The shares by way of investment were held for period varying from one day to more than 100 days and the fact that the assessee purchased the said shares by way of investment only has been made clear by the assessee by debiting the cost thereof to investment account. The learned tribunal had reversed the order passed by the CIT(A) by giving the same reasoning as that of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n several cases, has culled out the following principles:- (i) "Where a company purchase 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 transactions; (ii) The substantial nature of transactions, the manner of maintaining books of account, 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 transactions; (iii) Ordinarily the purchase and sale of shares with the motive of earning a profit would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend, etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt". Dealing with the above three principles, the AAR has observed in the case of Fidelity group as under: "We shall revert to the aforementioned principles. The first principle requires us to ascertain whether the purchase of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gains are made the gains would be capital gains and not profits of any business venture and in the latter case any gains would amount to profit in business. In Merlin Holding Private Limited, the question was whether frequency of the transactions could be sole determinative factor to ascertain the intention of the assessee as to whether the same was an investment or stock-in-trade. The said question was answered by pointing out that frequency alone cannot show that the intention was not to make an investment, as the legislature has not made any distinction on the basis of frequency of transaction. The benefit of short term capital gain can be availed of for any period of retention up to 12 months. Although a ceiling has been provided but there is no indication as regards the floor, which can be as little as one day. Further it was pointed out that the investor has to adduce and prove to show that some transactions were intended to be business transactions and some transactions were intended to be by way of investment, some transactions by way of speculation and the revenue cannot find fault merely because there were thousands of transactions in a year or that the majority of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t decisive, for accretion to capital did not become taxable income merely because the asset was acquired in the expectation that it might be sold at a profit. Further it was observed that if a transaction was related to the business which was normally carried on by the assessee, do not directly partake, an intention to launch upon the adventure in the nature of trade might readily to be inferred. In P.M. Mohammad Meerakhan, it was reiterated that it is not possible to evolve a single legal test or formula which could be applied in determining whether a transaction was an adventure in the nature of trade or not. The answer to the question must necessarily depend in each case on the total impression and effect of all relevant factors and circumstances accrued therein which determined the character of the transaction. In Raja Bahadur Kamakhya Narain Singh Versus Commissioner of Income Tax (1970) 77 ITR 253 (SC) the Hon'ble Supreme Court held that where a person while selling his investment realized an enhanced price, the excess over his purchase price was not profit assessable to tax as income, but it would be so, if what was done was not a mere realization of the investment but an ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. Considering the total investment income to that of the short term capital gains which was treated as business income, it is only about 4.4 % of the total investment income. The question would be whether this could have been treated as business income. The assessing officer picked up 25 transactions and listed the same in a tabulated format giving the names of the shares, the number of shares, the date of purchase, the date of sale, the number of shares sold, the period of holding and the profit earned. In the said table, 25 shares have been listed of which we find the substantial amount is in respect of shares held by the assessee in Bank of India and Reliance Industries Limited. It is not in dispute that shares were held by the assessee in 13 other companies which the assessing officer accepts to be an investment. The assessing officer was largely guided by the period of holding and held that the frequency of purchase and sales was very high and therefore held the same to be trading in shares and the profits earned to be business income. In the aforementioned decisions, it has been held that the frequency in the transaction is not the sole determinative factor. The tribunal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out earlier, the short term capital gains which was treated as business income was only about 4.4% of the total investment income of Rs. 6,61,40,926/- and out of the said income substantial income has been treated as either short term profit or long term profit, in other words about Rs. 6.30 crores has been accepted by the assessing officer to be an investment income. Therefore, in our view the learned tribunal had committed an error in reversing the order passed by the CIT(A) which had granted relief in favour of the assessee taking note of the entire material which was on record. The learned senior counsel appearing for the appellant assessee had elaborately referred to the balance sheet as at 31.03.2005 and pointed out the various facts and figures. During the course of scrutiny assessment, the assessee was called upon to explain as to why the 25 transactions should not be treated as business transactions and to such query, the assessee had explained that they had dealt with the shares in two different capacities which was an accepted fact before the assessing officer. Further it was explained that whether shares were acquired by the assessee from the secondary market or from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts but if it falls within the latter the receipts will be trading receipts and profits therefrom is business income and in deciding this question the object with which such operation are carried on assumes importance. In Union of India Versus Azadi Bachao Andolan, (2003) 263 ITR 706 (SC), it was pointed out that to decide as to whether the sale of shares amounted to capital gains or business income would require examination of facts. Further it was held that the capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced value motivated the investment. Further a transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale. Further it was pointed out where the purchase of any article or of any capital investment, for instance shares is made without the intention to resell it at a profit, the resale under such changed circumstances would only be realization of capital and would not stamp the transaction with a business character. If the above legal principles are applied to the facts of the case on hand, the on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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