TMI Blog2012 (2) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.6.2010 passed by the ld. CIT(A) for the assessment year 2006-07. 2. Briefly stated facts of the case are that the assessee is an Insurance Agent. The return of income was filed showing an income of Rs. 49,56,545/-consisting income from insurance commissions, house property, capital gains and income from other sources. During the course of assessment proceedings the AO noted that the assessee has purchased shares amounting to Rs. 39,88,567/- and the same were sold at Rs.50,40,704/- declaring short term capital gain of Rs. 10,52,137/-. Considering the frequency of transactions of purchase and sales of shares, the short interval between purchases and sale of shares, the profit motive, which is clearly latent in these transactions and intention, the assessee was asked to show cause as to why short term capital gain shown at Rs. 10,52,137/- should not be treated as business income in stead of capital gains. In reply, the assessee vide letter dated 24.12.2008 while giving a note on style of operation, time devotion and number of transactions submitted as under : "( a ) From the working on record it can be clearly seen that the average length of holding of a share is more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 passed u/s 143(3) of the Income Tax Act, 1961 (in short the Act). 3. On appeal, the ld. CIT(A) observed that once the volume of transactions are found to be large and frequency of transactions are found to be recurring such transactions are bound to be considered as trading in nature, the appellant has not denied that the borrowings from the family members having not invested for purchase of shares, in the capital account an amount of Rs. 18,114/- has been debited under the head share trading expense and huge amount was shown as liability payable in the name of L.K.P Merchant Financing Ltd. and Jamnadas Virji who are stated to be share brokers, therefore, the appellant has been purchasing the shares on credit basis as well. The ld. CIT(A) while applying the ratio of the decisions of the Tribunal in the case of ACIT v. Mr. V. Nagesh and Vice-versa in ITA No. 5410/Mum/2008 and C.O. No. 151/Mum/2009 (AY:2005-06) dated 24.9.2009 and in the case of Sadhana Nabera v. ACIT in ITA No. 2586/Mum/2009 dated 26.3.2010 held that the AO was justified in treating the short term capital gain of Rs. 10,52,137/- as business income. 4. Being aggrieved by the order of the ld. CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 250 days 1,72,282 16.75% Between 100 to 150 days 2,69,305 26.18% Between 60 to 100 days 4,881 0.47% Between 30 to 60 days 4,08,471 39.71% Less than 30 days 52,781 5.13% Total 10,28,646 100% He further submits that the shares are shown as Investments in the Balance Sheet of the assessee. The share investment the assessee at the beginning of the year is Rs. 27,76,950/- and the same at the end of the year is Rs. 56,39,333/- which is evident from the copy of the Profit Loss Account, Capital account and Balance Sheet filed in the assessee's paper book. He further submits that investments in shares was made mainly out of own capital of the assessee. The unsecured loan from family members are Rs. 7,54,334.84 (Bhavi Karvat Rs. 90,000/- and Ashok Karvat 6,64,334.84). However, against this total, Rs. 27,29,497.33 are advanced to various family members and group concerns as can be seen from Loans Advances on the asset side of the Balance Sheet. Further, the loans from family members are also not bearing any interest. He further submits that the stock markets in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital asset held by an assessee for not more than thirty six months (twelve months in case of shares). He further submits that though the section has provided for an outer limit of time, there is no mention about the minimum period for which the assessee has to be held for qualifying to be a capital asset. As such period of holding is not very relevant as to whether the asset is a stock in trade or it is a capital asset. The reliance was also placed on the decision of the Tribunal in the case of Gopal Purohit v. JCIT [2009] 29 SOT 117 (Mum) upheld by the Hon'ble Jurisdictional High Court. 5.3 On the issue of no dividend has been earned, the ld. Counsel for the assessee submits that earning of dividend is no more relevant criteria and most of the times the investment decisions are based on the expected growth in the market valuation of companies rather than dividends. Return from investments can be either in the form of dividends or appreciation of capital invested. Once an investor is in a position to get his desired return in either of these forms, he is not bothered about the form of return. However, he submits that in the subsequent assessment year, the assessee has rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee while distinguishing the decisions relied on by the AO and the ld. CIT(A) relied on the following decisions: Sr. No. Name of the Case Citation 1 G. Venkataswami Naidu Co. v. CIT 35 ITR 594 (SC) 2 CIT v. Associated Industrial Development Co. Pvt. Ltd. 82 ITR 586 (SC) 3 Karamchand Thapar Bros. Pvt. Ltd. v. CIT 82 ITR 899 (SC) 4 Gopal Purohit v. JCIT 29 SOT 117 (Mum.) 5 Sarnath Infrastructure ( P. ) Ltd. v. ACIT 120-TTJ-216 (Luck.) 6 Janak S. Rangwala v. Asst. CIT 11 SOT 627 (Mum.) 7 CIT v. Girish Mohan Ganeriwala 260 ITR 417 (P H) He, therefore, submits that the profit on sale of shares and mutual funds shown by the assessee at Rs. 10,52,137/- be treated as short term capital gain and not as business income. 6. On the other hand, the ld. DR supports the order of the AO and ld. CIT(A). 7. We have carefully considered the submissions of the rival parties and perused the material available on record. 8. Section 2(14) of the Act defines "capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax as "short term capital gain", but as "profits and gains from business". 10. In order to ascertain as to whether the shares were purchased by the assessee as investment or stock in trade, the most relevant aspect which is to be seen is the intention of the assessee behind the purchase of shares and such intention has to be gathered from the facts of the case including the conduct of the assessee. 11. Recently, in the case of DCIT v. Securities Capital Investment India Ltd. [2011] 47 SOT 9 (Mum-Trib), the Co-ordinate Bench of the Tribunal has applied the guidelines/principal laid down by the Tribunal in the case of Sarnath Infrastructure ( P. ) Ltd. v. ACIT [2010] 124 ITD 71 (Luck) which are enumerated below : "(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-in-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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the assessee is complying with them. Whether it is the argument of the assessee that it is violating those legal requirements, if it is claimed that it is dealing as a trader in that item? Whether it had such an intention (to carry on illegal business in that item) since beginning or when purchases were made? (10) It is permissible as per CBDT' s 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." 12. Keeping in view the above principal/guidelines to the facts of the present case, we find that even according to the AO, the nature of the assessee's business is Insurance Agent inasmuch as the AO in column No. 10 of the facts sheet appearing at page 1 of the assessment order has treated the nature of the business of the assessee as 'Insurance Agent'. We further find that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that "...Since in the earlier years the Department has accepted the income from shares as falling under the head 'Capital gains', in our considered opinion and respectfully following the above judgments, that the ld. CIT(A) was justified in upholding the assessee's stand." 14. In Hitesh Satischandra Doshi v. JCIT [2011] 46 SOT 336(Mum), the Tribunal while observing that there is no indication of holding period of 30 days finds place either in the statute or in the circular/instructions as well as judicial pronouncements held that the ld. CIT(A) was not justified in treating the share transaction as business transactions in the case where the holding period is less than 30 days and further held that the income arisen from purchase and sale of shares held by the assessee is investment, cannot be treated as business income. 15. In Mr. Chetan R. Parikh v. ITO in ITA No. 1569/Mum/2010 (AY:2006-07) dated 25.5.2011, it has been held by the Tribunal that the units of mutual funds are not generally a trading instrument because of comparatively low fluctuation and number of transactions in units are also not large. Therefore in our view the purchase and sale of units ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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