TMI Blog2012 (11) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... are directed against separate orders of the Commissioner of Income-tax(Appeals) IV, Hyderabad, both dated 29.2.2012 for the assessment years 2007-08 and 2008-09. Assessee has also filed applications seeking stay of recovery of outstanding demand for those two years, till the hearing and disposal of those appeals. Similarly, the appeal of the Revenue is directed against the order of the CIT(A) Guntur, dated 28.2.2011 for the assessment year 2006-07. Since all these matters involve a common issue, these appeals are clubbed and heard together and are being disposed off with this common order for the sake of convenience. 2. In the appeal of the Revenue for the assessment year 2006-07, ITA No.803/Hyd/2011, the grievance of the Revenue is against the direction of the CIT(A) to treat the income arising out of the assessee/s transactions of buying and selling shares as long term capital gains. Similarly, in the assessee's appeals for the assessment years 2007-08 and 2008-09, the common grievance of the assessee is against the direction of the CIT(A) to treat the income arising out of the assessee's activities in buying and selling of shares as income from business, instead of as long ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es held as stock-in-trade (trading asset). In the light of a number of judicial decisions pronounced after the issue of the above instructions, it is proposed to update the above instructions for the information of assessees as well as for guidance of the assessing officers. 5. In the case of Commissioner of Income Tax (Central), Calcutta Vs Associated Industrial Development Company (P) Ltd (82 ITR 586), the Supreme Court observed that: Whether a particular holding of shares is by way of investment or forms part 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initial corpus of buying and selling and realizing capital gains on investments and accounts of remittance to India for investment in India and realizing capital gains on investment from such remittances. The third principle suggests that ordinarily 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. 10. CBDT also wishes to emphasise 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 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 gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The contention of the assessee is that it always treated the shares ass investment, and there is no business activity whatsoever carried on by the assessee with reference to shares. He further submitted that the principle of consistency has to be followed and there is no purchase made during the years under appeal, and all that the assessee has dealt with are in the shares brought forward from earlier years. 8. Coming to the facts of the present case, we consider the facts relating to the assessment year 2008-09, as the facts for all the three years are similar. For the assessment year 2008-09, the figures are as follows- Particulars Current Year Income 1.4.2007 to 31.03.2008 Rs. Sale of investments 244,311,161 Dividend 4,382,774 Interest on loans 806,852 Brokerage and Professional fees 836.400 Rental Income 96,000 250,233,187 Expenditure Cost of Investments sold 134,253,585 Administrative expenditure 1,430,747 Municipal Taxes 23,212 Depreciation 150,451 Securities Transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is made not for running the business of working it with a view to produce profits it is relatable to stock in trade. In determining the question whether after acquiring the shares, the assessee dealt with it as an investor or carried on business with it treating it as its stock-in trade or as a trading asset, what is relevant is that, if the case falls within the former category, receipts by way of sale of such shares will be capital receipts but if it falls within the latter the receipts will be trading receipts and profits therefrom business income. The intention with which such operation is carried on is relevant. If a owner of an investment realizes it and obtained a greater price for it than the price at which he originally acquired, if the enhanced value obtained from the realisation or conversion of securities may be profit from business. The distinction whether the investment transaction is a mere realization of the investment or an act done for making profit depends on the question whether excess was an enhancement of the value for realising the shares by a gain in an operation of making profit. If the transaction is in the ordinarily lien of the assessee's business, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rip to another; (k) Mere classification of these share transactions as investment in the assessee's books of accounts was not conclusive; (l) The intention of the assessees at the time of purchase was only to sell the shares immediately after purchase; (m) Frequency of purchase and sale of shares showed that the assessee never intended to keep these shares as investment; and (o) It is only for the purpose of claming benefit of lower rate of tax, under Section 111A of the Act, that they had claimed certain shares to be investment, though these transactions were only in the nature of trade. 12. In the light of the above parameters and the decision of the jurisdictional High Court, on perusal of the statements incorporated by the assessing officer in the assessment order for the assessment year 2008-09, we find that the assessee has made several transactions of purchase of shares during the relevant year under consideration, and if there high volume, frequency and regularity of the activity carried on by the assessee in a systematic manner, it would partake the character of business activities carried on by the assessee in shares, and it cannot be said that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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