TMI Blog2010 (1) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... -term basis should be sold only at the time of need or in emergency. Thus if in the past, the Department has accepted the sale of shares of holdings of more than a year as investment and profits thereon has been assessed under the head "capital gain", then there is no reason to hold differently this year & should be assessed as 'long-term capital gain'. Regarding profit of ₹ 55,40,679/- being 'short-term capital gain' - Held that:- As assessee is neither fully acting as a trader nor as fully investor - Where shares are held for more than a month, they should be treated as investment and on their sale short term capital gain should be charged. When shares are held for less than a month, gain on them should be treated as profit from business - Assessee is directed to give the working on above basis. Thus assessee will give the working and computing 'short-term capital gains' on the above basis. - ITA Nos. 3554/Ahd/2008, ITA Nos. 4024/Ahd/2008, ITA Nos. 2219/Ahd/2009 & 1932/Ahd/2009 - - - Dated:- 29-1-2010 - T.K. Sharma, D.C. Agrawal, JJ. Rasesh B. Shah for the Appellant C.K. Mishra for the Respondent ORDER D.C. Agrawal: These are four cross ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w on the subject, the learned CIT(Appeals) has erred in partly confirming the action of the Assessing Officer in treating income of Rs.76,48,757/- from sale of share as business income instead of capital gain shown by assessee. 2. It is therefore prayed that above treatment given by Assessing Officer and confirmed by CIT(Appeals) may please be reversed. 3. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal. (D) Revenue's appeal, ITA No.2219/Ahd/2009 for A.Y. 2006-07 (1) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to treat the profit/gains earned on the transaction of purchase and sale of shares and securities of Rs.95,46,273 as "long term capital gain" as against treated by the AO under the head "business income". (2) On the facts and in the circumstances of the case, the learned CIT(A) ought to have upheld the order of the Assessing Officer. (3) It is, therefore, prayed that the order of the CIT(A) may be setaside and that of Assessing Officer may be restored to the above extent. 2. Assessee's appeal ITA No.3554/Ahd/2008 and Revenue' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ephone expenses of Rs.43,000, Electricity expenses of Rs.6,300/- and total expenditure in the establishment amounted to Rs.5,85,231/-. Thus, assessee has organized and established infrastructure and system for engaging in share transactions. (iv) The assessee has taken unsecured loan amounting to Rs.41,02,914/- and has maintained account with HDFC Bank, Sarvodya Sahakari Bank, Standard Chartered Bank and ABN Amro Bank. (v) The period of holding of shares is not more. (vi) Majority of the scripts (70T to 80%) are held for less than 45 days. The transactions have been carried out as and when there was scope to earn profits. If assessee was to hold the shares as investment, he would have retained them for a longer period. (vii) The assessee is engaged major share brokers to confirm the transaction in shares. If he was only an ordinary investor, he should not have engaged them. (viii) The normal house-hold investor cannot be expected to work in a volatile market. The assessee has transacted for the peak times of market volatile and is a high risk degree who intend to reap profits from such turbulence. ASSESSEE is not small time house-hold investor to a person who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. The turnover of weaving job-work is Rs.13,30,302/-. Investment in plant and machinery is Rs.16,18,045/-. (viii) It is incorrect to hold that majority of the scripts 70% to 80% were held for less than 45 days. No such basis for working out the date is given. In fact, out of shares on which 'shortterm capital gain' was earned, gains above Rs.45 lacs pertained to the shares which were held for more than 30 days. (ix) It is incorrect on the part of the Learned CIT(Appeals) to hold that assessee has deployed infrastructure or that it is working with three stock brokers. Once the assessee has investment port-folio of over Rs.2 crores, the assessee considered is fit to use the services of sub-brokers to safeguard investment. Even otherwise for such large port-folio investment, it is quite normal to maintain accounts and take assistance. The expenditure as mentioned by the Learned CIT(Appeals) in his order was, in fact, incurred in respect of business of weaving on job-work basis and not for sale and purchase of shares. Further, expenses in Profit and Loss account have been debited against dividend from shares, interest from banks, rental income form premises, services char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld for long-term. 5.1 Finally, the Learned Authorised Representative of the assessee relied on the decision of ITAT Delhi Bench in the case of Arjun Kapur vs. DCIT 70 ITD 161 (Del.), wherein it has been held that shares held for a period of one year or more should be treated as 'long-term capital gain' when sold. He then referred to the decision of ITAT Bombay Bench in the case of Janak Rangwalla vs. ACIT 11 SOT 627 (Bom.) for the proposition that mere volume of transactions transacted by the assessee would not alter the nature of transactions. The transaction as a whole has to be taken into consideration. 5.2. Further, the Learned Authorised Representative of the assessee referred to the decision of ITAT Bombay Bench in the case of Gopal Purohit vs. Jt. CIT (2009) 29 SOT 117(Bom.) for the position that if transactions are delivery based, then it should be treated as capital gains. He also referred to the decision of ITAT Lucknow Bench in the case of Sarnath Infrastructure (P) Ltd. vs. Asstt. CIT (2009) 120 TTJ 216 (Lucknow) for the similar proposition. 6. On the other hand, the Learned Departmental Representative supported the orders of the authorities below. He submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gain would be charged which is taxed at much but rates as compared to business income. The assessee is frequently dealing in shares at large scale. Such camouflage as recorded in the books of account should be understood and such veil should be pierced. Reality should be brought out and artificiality should be filtered. The Learned Departmental Representative also submitted that after dematization of the shareholding, delivery of shares is no longer criteria to decide whether an assessee is dealing in shares as trader or as are investor. It was relevant when settlement period was more than seven days and physical delivery of shares used to take place. Further, relevant factor is that share should be transferred in the name of the assessee if assessee really intended to make investment. In any case, Learned Departmental Representative submitted that Tribunal should fix up the criteria for deciding which transaction should be treated as a trading and which transactions should be treated as investment. 8. In rejoinder, the Learned Authorised Representative of the assessee clarified that decision of Hon'ble Supreme Court in the case of Patnaik and Co.Ltd. vs. CIT (supra) woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken by the Revenue Authorities. This action of the Revenue Authorities has led us to ask ourselves that in this year why it has been done so. In the process to find the answer, we noted that there was a change in the scheme of taxation relating to short-term capital gains and long-term capital gains. Through the Finance Act, 2004, the Legislature imposed securities transaction tax on the sale and purchase of shares and other derivative transactions and, simultaneously, the Legislature exempted long-term capital gain under section 10(38) of the Act from the levy of tax and on short-term capital gain, a concessional rate of tax i.e., 10 per cent has been levied subject to the condition that transactions resulting into this type of gain must have suffered securities transaction tax. This is the first year of such change and, having regard to the quantum of gains, this scheme of taxation only, in our view, has prompted the Revenue Authorities to take a different view on the same types of transactions entered into by the assessee in earlier years. At this stage, we consider it fit to state that there is no dispute before us that assessee has claimed exemption under section 10(38) and/or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that order:- "13. 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-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 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 is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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." 11. When we examine the facts of the case, we find assessee has maintained the books of account in respect of dealing in shares and assessee has shown the transactions in shares as investment and not as stock-in-trade. It has been shown consistently for several years in the past and Department has not challenged the book keeping or accounting of shares as investment. No contrary material or facts have been pointed out by the Revenue to show that facts in the current year are different than the facts in earlier years. It is also not pointed out by the Revenue that frequency and number of transactions are abnormally high in the current year as compared to what was done in earlier years. 12. There is also no material to come to the conclusion that the valuation of investment has been done on cost or net reliable value whicheve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares and share were registered in the name of the assessee. The holding period of the shares is from '0' days to '366' days. In some cases, the frequency of transactions are apparently substantial as on one day the assessee has purchased several scripts and sold several of them on the same day. 16. The question is whether therefore, merely from frequency of the transactions carried on by the assessee, he is treated as dealer in shares or still he is held as investor. As found in the case of Sarnath Infrastructure (P) Ltd. vs. Asstt.CIT(supra) also, assessee adduced evidence to show that his holdings are for investment as recorded in the books of account. The holdings are valued at cost, and such accounting has been accepted by the Revenue in earlier years. There is no material to show that assessee has declared himself as a trader in shares and legal requirements therefor have been complied with. It is also a fact that he has not borrowed any money for investing in shares. Merely because, assessee had some borrowed funds it would not by itself show that they were deployed in investment. Notwithstanding, even borrowing are required to settle payments obligations in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess or to be taxed as short term capital gain, we hold that if shares are not held even say for a month, then the intention is clearly to reap profit by acting as a trader and he did not intend to hold them in investment port-folio. We believe that if a person intends to hold his purchases of shares as investment, he would watch the fluctuation of rates in the market for which a minimum time is necessary, which we estimate at one month. Where shares are held for more than a month, they should be treated as investment and on their sale short term capital gain should be charged. When shares are held for less than a month, gain on them should be treated as profit from business. 20. The assessee will give the working and computing 'short-term capital gains' on the above basis. The rest of the profit will be treated as assessable under the head "business". 21. As a result, appeal of the assessee, i.e. ITA No.3554/Ahd/2008 for Assessment Year 2005-06 is treated as allowed but for statistical purposes. ITA Nos. 2219 and 1932/Ahd/200 for A.Y 2005-06 22. The brief facts of the case are that the assessee has earned a total profit of Rs.1,71,65,030/- as 'short-term capital gain' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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