TMI Blog2010 (12) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA NO. 5463/MUMBAI/2009 - - - Dated:- 15-12-2010 - D. MANMOHAN, VICE PRESIDENT P.M. JAGTAP, ACCOUNTANT MEMBER ORDER P.M. Jagtap, Accountant Member This appeal is preferred by the Revenue against the order of learned CIT(Appeals)-XXI, Mumbai dated 28.7.2009 and the same is being disposed of along with the cross objection filed by the assessee. 2. The relevant facts of the case giving rise to this appeal as well as cross objection are that the assessee is an individual who filed her return of income for the year under consideration on 31.7.2006 declaring total income of Rs. 71,04,518. The said income comprised of capital gains from purchase and sale of shares, speculation income and income from other sources. Income from capital gains was consisting of long term capital gain of Rs. 91,46,233 and short term capital gain of Rs. 67,82,154. From the details of capital gains furnished by the assessee during the course of assessment proceedings, the AO found that short term capital gain to the extent of Rs. 67,39,159 was in respect of sale of shares and the balance amounting to Rs.42,995 was on account of sale of units of mutual funds. It was also found by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how the money was being mobilized by the assessee for acquiring of shares and it was not the determining factor to decide whether the transactions in shares are business like or otherwise. He held that similarly it was not necessary that every business should invariably have borrowed funds. He noted in this context that there are several companies across the world who operate on a "zero-debt philosophy" and they are well appreciated. As regards the claim of the assessee relating to her intention of purchasing and holding the shares as investment based on earning of dividend, the Assessing Officer found that there were several scrips transacted by the assessee in respect of which no dividend income was disclosed. He noted in this context that the said companies were dividend paying companies and if the intention of the assessee was to invest in the shares of said companies for earning dividend income, there was no reason why she sold the said shares without receiving the dividend income. He held that the assessee thus was primarily intended to make profits from the transactions in shares and it was rather incidental that she received dividend on some of the shares so transacted. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or long term appreciation or for earning dividends etc. it is already discussed in the earlier part of the order that in almost 35-40% of the shares that the assessee transacted in, no dividend was declared for taxation. (iii) Whether the scale of activity is substantial. It is already mentioned earlier that the scale of activity and the amounts involved are substantial. The assessee traded in more than 140 scrips and the number of transactions is almost 500 which include 93 sale transactions of long term capital gain. (iv) Whether the transactions were entered into continuously and regularly during the assessment year. In the instant case, the assessee transacted in the markets almost everyday on an average. (v) Holding period It is already illustrated that the holding period is very less. In most of the cases, it is less than one month. (vi) Ratio of sales to purchases and holding. Very less. Almost 70% of the shares purchased during the year have been disposed of during the year itself. (vii) The time devoted to the activity and the extent to which it is the means of livelihood. The assessee has disclosed taxable incomes of Rs. 71.04 lacs out of which R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an organised, continuous and systematic activity carried on exclusively with a motive to earn profits from resale could be regarded as a business activity. It was also contented that the intention of the assessee behind the purchase of shares and holding the same is a vital factor which has to be considered for deciding whether the transactions in shares are an investment activity or business activity. Reliance in this regard was placed on CBDT circular no.4 of 2007 dated 15.06.2007 to point out that guidelines have been laid down by the board in the said circular to distinguish between the shares held as stock in trade and shares held as investment. The following submissions were also made by the assessee to contend that if the said guidelines laid down in the board circular are applied to the facts of her case, it would become clear that the intention of the assessee was to purchase and hold the shares as investment and not as stock in share: 1. Intention supported by facts : The intention of the appellant was always to invest his surplus post tax income in shares and securities and to earn dividend income and also future capital accretion. This fact is clearly underlined b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 54,68,231. Accordingly, he held that the profit of Rs. 54,68,231 arising from sale of shares held for more than 30 days was chargeable to tax in her hands as short term capital gain and the profit of Rs. 5,67,565 arising from sale of shares held for less than 30 days was chargeable to tax as business income. Aggrieved by the order of the learned CIT (Appeals), the revenue has preferred this appeal before the Tribunal and the assessee has also filed her cross objection. 7. The grounds raised by the revenue in its appeal and by the assessee in her cross objection read as under :- GROUNDS RAISED BY REVENUE : 1. (i) The Ld. CIT(A) erred in treating the business income on account of trading in shares as short term capital gain by applying the shareholding period for short term capital gain as more than 30 days but less than 1 year, (ii) The Ld. CIT(A) while providing relief to the assessee has taken 30 days as holding period of shares to distinguish between trading and investment which is arbitrary and not in consonance with the CBDT Circular 1827 dated 31.08.89 supplemented with CBDT Circular No.4 of 2007 dated 15.06.2007. 2. The appellant prays that the order of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a housewife of 60 years age and the shares were purchased and held by her as investment out of surplus funds available. He contented that the intention of the assessee thus was to purchase and hold the shares as investment and the profit arising from sale of such shares was chargeable to tax as capital gains. He contented that various guidelines have been laid down by the CBDT in the circular issued from time to time as well as by the Tribunal in its various decisions to ascertain whether the assessee in a particular case has dealt in the shares as investor or trader. In this regard, he furnished a statement giving the relevant facts of the assessee's case with reference to such guidelines in order to show that the assessee had undertaken the transactions in shares as investor and not as trader. He contented that even in the earlier years involving similar facts, the assessee was treated by the AO as investor in shares and the profit arising from the transactions in shares was assessed in her hands under the head capital gains. He submitted that even in the year under consideration, the AO has accepted the claim of the assessee for long term capital gain arising from the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whether the transactions in shares are undertaken by the assessee as investor or as trader. At the time of hearing before us, the learned representatives of both the sides have argued their respective cases in the light of these guidelines. However, before we examine the facts of the present case in the light of the said guidelines, there is one peculiar fact involved in the present case which, in our opinion, has a material bearing on the issue involved in the present appeal. 11. It is observed that the claim of the assessee right from the beginning was that all the shares were being purchased and held by her as investment and there was no intention on her part to trade in the delivery based shares. Accordingly, the profit arising from sale of shares was offered by her as capital gains, either short term or long term, depending upon the period for which the said shares were held by her. In sofar as the claim of the assessee for long term capital gains is concerned, the AO himself has accepted the same and this is a peculiar fact involved in the present case having material and direct bearing on the issue under consideration. This is because if the AO himself has accepted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions giving rise to long term capital gain were also furnished by the assessee before the AO and as mentioned by the AO on page 2 of his order, it was noted by him from the said details that the frequency of such transactions was also on higher side in as much as there were 98 transactions of sale made by the assessee during the year under consideration giving rise to long term capital gain. He also noted that the bifurcation between the long term and short term capital gain was made by the assessee on the basis of one year time period as provided in the act. After taking note of these details, the AO proceeded to consider the claim of the assessee relating to short term capital gain only and after examining the transactions giving rise to the short term capital gain in the light of various guidelines, he treated the short term capital gain declared by the assessee as her business income. He however, did not make any adverse comment on the claim of the assessee for long term capital gain thereby accepting the said claim by implication. The Assessing Officer thus treated the shares dealt in by the assessee partly as investment and partly as stock in trade merely on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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