TMI Blog2003 (11) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... ,739 Jyotiben 52,11,366 31,07,494 6,67,525 Swati (Jyotiben s daughter and clubbed with Jyotiben s income) -- 15,61,072 16,400 Chandrakantbhai 2,43,855 20,54,856 3,66,100 4. Going by the conduct of the assessees of carrying out numerous share transactions by borrowing huge funds, the AO was of the view that the assessees had indulged in share business and hence they were asked as to why income from share dealings should not be treated as business income. Broadly, the explanation of the assessees was (a) that large part of savings was invested in shares, (b) that the investments were made by them as ordinary investors, (c) that in almost all cases delivery was taken, (d) that the holdings had continued for fairly long-time, and (e) that the shares were not shown as stock-in-trade by them in their respective wealth-tax returns. Reliance was placed on the decision of the Supreme Court in the case of Raja Bahadur Kamakhya Narain Singh vs. CIT (1970) 77 ITR 253 (SC). The AO was not convinced with the explanation given. He observed that assessees did not have sufficient funds of their own and had indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) (j) Motilal Hirabhai Spg. Wvg. Co. Ltd. vs. CIT 1977 CTR (Guj) 674 : (1978) 113 ITR 173 (Guj) (k) CIT vs. H. Holck Larsen (1986) 58 CTR (SC) 53 : (1986) 160 ITR 67 (SC) (l) CIT vs. Minal Rameshchandra (1987) 61 CTR (Guj) 80 : (1987) 167 ITR 507 (Guj). The CIT(A) summarised the principles emerging from the above decisions and considered (a) the occupation of the assessees, (b) the composition of disclosed incomes, (c) the genesis of capital balances, (d) the proportion of capital invested in shares and yield therefrom, (e) the composition of share holdings, (f) the extent of purchase/sale of scrips/securities, (g) volume of sales of shares/securities, (h) the position of bank accounts, (i) interest payment vs. dividend yields, (j) running accounts with S.H. Koticha Co., stock brokers, (k) nature of activity, (l) nature of purchases, (m) nature of sales and (n) overall conduct of the assessees. The CIT(A) finally concluded that the dominant purpose behind the investments from the beginning was to seize upon the opportunity of quick profits presented by the goings on in the stock markets and with this motive, the assessees embarked upon the adventure of regular purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng through a plethora of erudite decisions of various High Courts, both, of our High Courts as well as those of other countries and of our Supreme Court. The common thread running through all these decisions, as argued by the learned counsel, was that if the investments were not purchased with the intention to resell them, they could not be regarded as trading assets. It was also argued that number or volume of transactions was immaterial to decide the issue. In this connection, our specific attention was drawn to the observations of the Supreme Court in the case of CIT vs. H. Holck Larsen wherein it was observed that the question is whether the later stages of the whole operation show that the first step the purchase of the shares was not taken as, or in the course of, a trading transaction. In the present cases, it was submitted, the holdings were accepted as investments in the wealth-tax assessments and in income-tax assessments also the assessees have been held to be investors till asst. yr. 1992-93. It was argued that even an investor cannot stand static or remain insensitive to the market and it was with a view to boost the capital market, Government thought it wise to amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Departmental Representative placed heavy reliance on the findings of the CIT(A) and also on the decision in the case of Minal Rameshchandra. 11. The learned counsel, in his counter-reply, described it as a strange spectacle in so far as that in the proceedings under s. 263 the assessees were held as investors upto asst. yr. 1992-93 and now suddenly they are not investors. It was also argued that entire interest is allowed as deduction against income from other businesses, which means that the borrowings pertain to overall activities of the assessees. Hence, now it cannot be said that interest pertains only to share activities. 12. We have duly considered the rival contentions and the material on record. A somewhat similar issue had come up before their Lordships of the High Court of Justice in the case of The Dunn Trust Ltd. vs. Williams in 31 Tax Cases 477. Lord Vaisey, who authored the judgment, observed as follows at p. 484 of the report: "Now, I have been very much puzzled by this case, and of course I fully subscribe to the view that I must be very careful not to depart from any conclusions reached by the Commissioners if those conclusions are justified by the evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that he also carried out badla transactions. These features are, undoubtedly missing in the present cases. But it has to be clarified that these features may have had some bearing on the decision in that case, they were not the only reasons, which had guided the Tribunal to take the decision it took. Therefore, the absence of these features in the present case cannot automatically lead us to conclude that the assessees are investors and not dealers. Another distinguishing aspect, which was pointed out was that in the case of Shashikant, the magnitude of transactions was higher than in the present cases. This, again, is a pointer but not the sole criterion to decide the issue. However, how the transactions of purchase and sales have been entered into, that is, the conduct of the assessees, do guide us significantly to gather the intention. 14. One of the factors, which guided the decision in the case of Shashikant was the extremely short period of holding the shares. In that case, there were about a dozen instances in which the holding had remained for less than a month, and in at least half-a-dozen cases the shares had been sold either on the same day or on the next day. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... six scrips acquired during the year. In case of Shri Chandrakant, only two scrips are sold out of five acquired during the year otherwise than by way of rights. From the foregoing analysis, the following picture, though somewhat hazy, emerges: (1) significant portion has been acquired by way of right shares; (2) the original shares on which rights have been received, were acquired long back; (3) out of the right acquisitions, most have been retained by the assessees; (4) fewer scrips have been sold out of the total acquisitions during the year; (5) except in case of Pushpaben, in the rest of the cases, majority of the scrips have been retained by them till the end of the year. Thus, from the above analysis, the conduct of the assessees is very much like an investor. It does not reflect either the trading flair in the assessees nor an instinct, which would drive them to carry out an adventure, which can smack of trade. 16. In the case of J.P. Harrison (Watferd) Ltd. vs. Griffiths 40 Tax Cases 281, it was observed that what has to be seen is whether the later stages of the whole operation show that the first step the purchase of the shares was not taken as, or in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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