TMI Blog2011 (12) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground in assessee s appeal: That the order u/s. 250 passed by the Learned CIT(Appeals)-XIII, New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the learned ACIT, Circle 10(1), New Delhi in treating the short-term capital gain amounting to Rs.26,82,115 as business income by rejecting the appellant s company s claim as to Special tax Treatment as per Sec. 111(A) of the Income-tax Act, 1961 . Ground in Revenue s appeal: 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A.O. to treat the income of Rs.31,11,006 earned on trading of long term share holding as income under the head capital gain instead of business income , as held by the A.O. 2. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of the hearing . 2. The brief facts of the case are that the assessee has filed its return of income electronically on 30.11.2006 declaring a total income of Rs.3,19,787. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Income-tax Act, 1961 was issued on 21.11.2007. During the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in 160 ITR 67. On an analysis of these decisions, vis- -vis, the details submitted by the assessee, he treated the activity of the assessee as a business and assigned following reasons: 3.7 In the context of the issue involved, the action of the assessee of treating the gain from sale and purchase of shares instead of business income is not acceptable for the reasons given as under: a) The assessee is not maintaining separate books of account for the alleged investments and regular business. b) No separate bank account is maintained for differentiating the alleged investment made and for business activity. c) Moreover, the assessee had made payment for purchase of shares only from the income received from business and not invested the funds from independent sources. d) The assessee has utilized the sale proceed of shares alleged to be investment for the business purpose. Merely, an assumption by the assessee that their purchases are investment is not sufficient. If it is allowed then every person shall opt for income trading of shares as capital gain income, only because tax on capital gain is either levied lesser rate or Nil rate. e) The assessee had income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction is not important rather one has to evaluate the substance of the transaction. For buttressing his contentions, he relied upon the decision of Hon'ble Supreme Court in the case of Chouranghee Sales Bureau Vs. CIT reported in 53 ITR 261, Kettlewell Bullen Co. Vs. CIT reported in 53 ITR 261, CIT Vs. Distributors Baroda (P) Ltd. reported in 83 ITR 377. 6. On the other hand, the learned counsel for the assessee submitted that assessee company was incorporated on 18.12.1984 under the name and style of M/s. Anamika Leasing Co. Ltd., its name was subsequently changed to the present name and an approval was granted by the Registrar of Companies on 8.10.2002. The assessee was to undertake number of objects i.e. to carry on the business of higher purchase and leasing and to acquire on hire purchase lease basis all type of industrial office plant etc. to finance the industrial enterprises, to loan or advance money to builders, to carry on the business of finance, trust, legal trusts and to finance industrial enterprises, to carry on the business of commission agent, broker, factories, consultants, representative, middleman in real estates, iron and steel, food grains, importer and ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an investment. The learned counsel for the assessee submitted that it is other way round Assessing Officer has assumed the investment in shares as a trading activity The assessee has been accounting its investment as an investment. With regard to the objection of the Assessing Officer, that quantum of sale purchase was used as well as number of transactions were innumerous. He agreed that transactions were large in number but that alone is not sufficient to treat the investment of the assessee as a trading activity. He further submitted that this is one factor which may goad of an adjudicating authority to harbor a belief that a transaction may be of a trading transaction but solely on the basis of this one factor, it cannot held that assessee was involved in trading of shares. How frequency of transaction has been looked into at various levels. He made a reference to the Order of the ITAT in the case of Shri Ramesh Babu Rao rendered by the ITAT, Mumbai in ITA No.3719/Mum/2009. In this case, the assessee had dealt with 54 scripts which were purchased and sold during the year which results in sales of more than Rs.24 crores but after looking into other aspects, ITAT has upheld the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. In our understanding, instead of residing and discussing all the case laws relied upon before us, it is better to take note the broad tests propounded by the ITAT, Lucknow Bench. 8. After considering above rulings we cull out following principles, which can be applied on the facts of a case to find out whether transaction(s) in question are in the nature of trade or are merely for investment purposes : (1) What is the intention of the assessee at the time of purchase of the shares (or any other item). This can be found out from the treatment it gives to such purchase in its books of account. Whether it is treated as stock-in13 trade or investment. Whether shown in opening/closing stock or shown separately as investment or non-trading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon. Normally, money is borrowed to purchase goods for the purposes of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchases and disposal in that particular item. If purchase and sale are frequent, or there are substantial transactions in that item, it would indicate trade. Habitual dealing in that particular item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade . (10) It is permissible as per CBDTs Circular No. 4 of 2007 of 15th June, 2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate account for each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios. (11) Not one or two factors out of above alone will be sufficient to come to a definite conclusion but the cumulative effect of several factors has to be seen. 9. Let us examine the facts of present case in the light of these tests. In the books of account, assessee has shown its purchases of shares as investment. The copies of the balance sheet ending as on 31.3.2005 as well as on 31.3.2006 are available. Assessee has not used borrowed funds for the purchase of shares. Assessing Officer has pointed out that assessee is not maintaining separate bank account and it has used the business funds. The assessee pointed out that share capital of more than Rs.304 crores is available with the assessee. The non-maintenance of separate bank account, would not be a very material facts. The next test is about the frequency of purchases and disposal of particular ..... X X X X Extracts X X X X X X X X Extracts X X X X
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