Correct head of income - Income earned from purchase and sale of share - STCG OR business income - Whether considering the magnitude, intention, frequency of transactions which reflects modus operandi of assessee of share business as an adventure in the nature of trade? - HELD THAT:- It is held in the case of Motilal Hirabhai Spg. & Svg. Co. Ltd. [1977 (8) TMI 33 - GUJARAT HIGH COURT] and Raja Bahadur Visheshwara Singh (DECEASED) [1960 (12) TMI 12 - SUPREME COURT] that treatment in the books by an assessee will not be conclusive and if the volume, frequency and regularity at which transactions are carried out indicate systematic and organised activity with profit motive then it becomes business profit not capital gain.
Keeping in view the above principles, the facts in the present case of the assessee are examined. The assessee during the entire previous year had entered into transaction of purchases and sale of shares of about 32 companies totalling to ₹ 1,87,83,440/- and these shares were sold for a value of ₹ 2,69,71,368/-.
The transactions were effected by actual delivery of shares at the time of purchase and sale of shares except in the case of Hiran Orgo Chem, where there are 19 transactions of purchase and sale on the same day of various number of shares involving a total purchase of ₹ 7,00,457 and sale of ₹ 6,95,224 with a loss of ₹ 5,232/-. There were expenses incurred with reference to brokerage, interest, security transactions, bank charges , etc. totally to ₹ 1,67,829/-.
In all the transactions where capital gain shown during the year the holding period was less than even 6 months. Most of the gain earned by the assessee is in the shares held for a period 31 days to 90 days to an extent of ₹ 30.81 lakhs and 90 day to 180 days, i.e. ₹ 51.29 lakhs. In fact there were no shares which were held for more than 6 months period on which gains were earned. Thus the maximum holding period was from 1 day to a maximum of 180 days.
In the first 6 months of the year the assessee has transacted in 25 scrips and gained ₹ 45,659/- and the investment in those shares is not much when compared to the large transactions as discussed above after 01.10.2004. Most of these shares were also purchased and sold immediately and there are no shares which are acquired prior to 01.04.2004 held after 31.01.2005. All these facts indicate that the intention of the assessee is to gain profits by dealing in short term period only.
Not only the above, AO also discussed about borrowing of funds, small amount of dividend when compared to the gain in sales and also the fact that assessee group companies are involved in share trading. Conclusion of the Revenue authorities that the income from sale of shares declared by the assessee during the year as short term gain is income from business activity is correct and calls for no interference. there are no long term gains in assessee’s case except in small amounts in A.Y. 2001-02 and in the later year only on one group which was discussed above which are from investments discussed above of few company shares. Appeal of the assessee is dismissed.
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