TMI Blog2011 (12) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... ares/mutual fund has been shown by assessee under the head "investment" only and no investment is shown under the head trading activity - Merely because assessee has shown shares/mutual fund under the head "investment" cannot alter the situation. It is the settled proposition of law that entries in books of account are not conclusive - Held that: transactions entered into by assessee for purchases and sale of shares in the year under consideration is in the nature of trade and not by way of investment - Appeals are dismissed - ITA Nos. 3063 and 3064/Mum/2011; - - - Dated:- 16-12-2011 - B.R. Mittal, T.R Sood, JJ. For the Appellant: Shri Vijay Mehta For the Respondent: Shri G.P. Trivedi ORDER B.R. Mittal, Judicial Member The assessee has filed these appeals for assessment years 2006-07 and 2007-08 against orders of Ld. CIT(A) both dt.25th March, 2011 on following ground: A.Y. 2006-07 On the facts and in the circumstances of the case and in law, the Hon'ble CIT (A)-18 Mumbai erred in confirming the action of the DCIT-8(3) Mumbai ( A.O ) in treating the Short Term Capital Gains on shares and Mutual funds aggregating to & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merous transactions b) The major activity of the assessee is dealing in shares and the activity stated to be the business activity of the assessee has not contributed any receipts for the year. c) The expenses claimed including staff expenses and other administrative expenses have mainly been channelized towards the share trading activity. (d) It cannot be accepted that merely because the shares/units have been shown as Investment in the Balance Sheet and not as stock in trade it has to be inferred that the activity has to be considered as investment and gain should be taxed as capital gain. (e) For obtaining capital gains and dividend is a fact based interpretation as the transactions can be given both the colour of investment and as a business. Courts of the land is helpful to draw inference as to whether the intention of the assessee was to trade in shares or was merely to hold it as a capital for earning dividend. (f) The decision of the Hon'ble Madras High Court in the case of Commissioner of Income-tax vs. N.S.S.Investments P. Ltd. reported at 277 ITR 149 wherein a company can hold some shares as stock in trade for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: 1. The appellant has earned total gains of ₹ 3,29,28,126/- from its investing activity in equity shares on BSE. It comprises of ₹ 1,20,07,344/- as long term capital gains, which was exempt u/s.10(23) and ₹ 2,09,20,782/- as Short Term Capital Gains chargeable @ 10%. The only motive and intention of the appellant behind making these investments is to earn dividend income and also to reap the benefits of appreciation in price of shares occasionally, which every investor in shares always does. 2. As even a serious investor has to frequently shuttle his portfolio in order to minimize to losses or also to maximize the profits. This does not signify that the investor is trading. Looking to volatility and uncertainty in the share market, the appellant many a times has to dispose of its investments in a short duration. Despite of such volatility in the share market, the appellant has earned a STCG of ₹ 2,09,20,782/-. Thus, the volatility in the share market has made the investors very vigilant and cautious to monitor there investments from time to time to safeguard there funds and to make profits or minimize losses. 3. The appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g activity. The gains earned by the appellant were clearly made out of the investments in shares. Merely because the appellant is dealing in share transaction does not convert its identity from investor to a trader. 10. The intention of the appellant was to earn dividend income and also to reap the benefits of appreciation in price of shares occasionally, which every investor in shares always does. The total turnover, as well as the volume and frequency of the share transaction is not an indicator to prove that the appellant is a trader in shares. It is an established principle that incomes is to be computed with regard to the transaction. The appellant relied upon as explained by the appellant in the preceding paras, the transaction in whole has to be taken into consideration and the magnitude of the transaction does not alter the nature of transaction from investment to trading. Authority for Advance Rulings (AAR) (288 ITR 641) = (2007-TII-03-ARA-INTL). 11. CBDT also emphasizes 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 compri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding in the appellant's case is long which supports the contentions of the appellant as regards the charge of gains as Capital Gains and not business income as treated by the learned officer. 14. Administrative expenses claimed by the appellant company. The major expenses are keyman insurance charges as it constitutes more than 50% of the expenses. The other expenses including petrol, fuel, motor car expenses, computer, office repairs and maintenance as well as business promotion are all related to the business of the appellant company. Further charges like audit fees and a minimal amount of professional fees have to be incurred for any business activity to be taken up by an entity and hence the A.O. is grossly mistaken in holding that the administrative expenses are directly related to the share trading activity of the appellant company. 15. Attention was invited to the assessment in the appellant's own case for AY 2005-06 wherein the appellant's case had been selected for scrutiny. The appellant had earned Capital Gains in the previous year as well. The assessing officer while completing the assessment for AY 2005-06 has accepted the stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in purchase and sale of shares is to make profit. Therefore transactions are in the nature of business transactions. Ld. AR referred to page-91 of Paper Book which contains details of treatment of capital gains/loss on sale of shares from assessment years 2004-05 to 2009-10 and submitted that except in assessment years under consideration, Long Term Capital Gain and Short Term Capital Gain as shown by assessee on account of purchase and sale of shares has been accepted by department. Ld. AR referred to financial statement for assessment year 2006-07 placed at pages 3 to 14 of Paper Book and submitted that assessee has shown in its balancesheet the investment in shares of ₹ 16.98 crores and there is no trading in shares. He submitted that in preceding assessment year, investment in shares was of ₹ 15.13 crores and department accepted Short Term and/or Long Term Capital gain shown by assessee. He submitted that main object of assessee is consultancy relating to tours and travels and not of dealing in shares. Ld. AR submitted that AO was influenced by fact that assessee borrowed unsecured loans of ₹ 1.55 crores. He submitted that said amount was borrowed by asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be substantial. During the course of hearing, attention of Ld. AR also drawn to the chart referred to by him and when it was pointed out that there were repeated transactions in respect of same share scrip on same date, Ld. AR submitted that these are only a few scrips and not in respect of all scrips there were repeated transactions. Ld. AR further submitted that Ld. CIT(A) has confirmed action of AO on the basis of CBDT Circular No. 4/07 dt. 15.6.2007 but that circular itself states that no single principle is decisive and total effect of all principles would have to be considered to determine whether in a given case, shares are held by assessee as investment or stock-in-trade. Ld. AR filed a Paper Book Volume-III enclosing copies of following decisions and submitted that in view of principles laid down in said cases, share profits as shown by assessee is to be considered as investment and not as business transactions: i) ACIT vs. Shri Satpal Singh Sethi- ITA No. 3650/M/2007 dt. 30.9.2011 ii) ACIT vs Shri Manish D. Desai- ITA No. 3661/M/2010 dt. 27.5.2011 iii) M/s. Crystal Impex Ltd. vs DCIT-ITA No. 237/M/10 dt. 15.7.2011 iv) Shantilal M. Jai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en place frequently acquired the character of trading and not of motive to make investment. He submitted that order of Ld. CIT(A) is justified and same be confirmed. 10. The Ld. AR in his reply to the submission of Ld. DR submitted that cases cited by Ld. DR (supra) are not relevant to the facts of case of assessee. He submitted that in the case of Sadhana Nabera (supra), period of holding was much less as compared to average holding of assessee. He further submitted that in that case funds were borrowed and there were repeated transaction in the same scrip. He submitted that said case is not relevant to facts of the case of assessee. Ld. AR further submitted that similarly the case of Smt. Rekha Khandelwal in ITA No. 785/M/09 (supra) is also not relevant as in that case borrowed funds were used for purchase and sale of shares unlike in the case of assessee. He further submitted that cases of of Rakesh J. Sanghvi in ITA No. 4607/M/08 and ITA No. 5710/M/09 (supra) are also not relevant to the case of assessee as in that case there was no capital gain and period of holding was also short unlike in the case of assessee. He submitted that claim of assessee that gain was from inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d those held as stock-in-trade. It has also been held by Hon'ble Apex Court in the case of Raja Bahadur Visheshwara Singh 41 ITR 685 and Hon'ble Gujarat High Court in the case of Motilal Hirabhai Spg. and Weaving Co. Ltd. 113 ITR 173 that treatment in the books by an assessee will not be conclusive and if the volume, frequency and regularity at which transactions are carried out indicate systematic and organized activity with profit motive then it becomes business profits, not capital gain. The Hon'ble Apex Court has also held in the case of Janki Ram Bahadur Ram vs CIT 57 ITR 21 (SC) that no single fact has any decisive significance and question must be answered depending on collective effect of all relevant material brought on record. Therefore, it depends on the facts and circumstances of each case as to whether Profit and Loss shown by assessee for purchase and sale of shares is business income or capital gain. The legal principles which have been laid down by Courts on account of treatment of income as 'business income' or 'capital gain', can be summarized as under: a) It is possible for an assessee to be both an investor as well as dealer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracts and has made timely entries be made therein. Further the company has held all its shares, securities, debentures and other securities in its own name. 16. It is evident from above that assessee is dealing in or trading in shares but the entire investment in purchase and sale of shares/mutual fund has been shown by assessee under the head investment only and no investment is shown under the head trading activity. During the course of hearing, a specific query was raised by the Bench to Ld. AR as to whether all the share transaction entered into by assessee were delivery based or they were sequared of. Ld. AR could not place any document as to whether all the share transactions/mutual fund on which assessee has shown Short Term Capital Gain were completed of after taking delivery or only by booking the difference. No bank statement evidencing payment made by assessee for purchase of shares and evidencing receipt of sale proceeds thereof are on record. Merely because assessee has shown shares/mutual fund under the head investment cannot alter the situation. It is the settled proposition of law that entries in books of account are not conclusive. The conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of trade and not by way of investment. 17. As mentioned hereinabove, Ld. AR has not disputed the fact that out of its total funds available of ₹ 20.51 crores, it invested in shares/units a sum of ₹ 16.99 crores and dividend income is only ₹ 30.59 lakhs which gives a yield of 1.8%. Therefore, above criteria as to whether motive is to earn profit by making purchase and sale of shares or motive is to derive income by way of dividend does not support stand of assessee. The Hon'ble Apex Court has also held in the case of Sole Trustee, Loka Shikshana Trust vs CIT, Mysore 101 ITR 234 that as to whether a person carries on business in a particular commodity, it must depend upon volume, frequency, continuity and regularity of transactions of purchases and sales in a class of goods and the transactions must ordinarily be entered into with a profit motive. Further Hon'ble Apex Court has also held in the case of CIT vs Prabhu Dayal 82 ITR 804 that the question as to whether receipt is a capital receipt or income has to be judged from the facts of each case and question of law can be drawn from such facts. As mentioned hereinabove, Hon'ble Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt Term Capital Gain shown by assessee after considering details as may be furnished by assessee, while giving effect to our this order. 19. Hence, ground of appeal taken by assessee for assessment year 2006- 07 is rejected but subject to our observation mentioned in para-18 i.e. to recompute the amount which is to be considered as business income as against Short Term Capital Gain on shares/Mutual funds claimed by assessee. 20. In respect of assessment year 2007-08, Ld. Representatives of both parties submitted that facts are identical to A.Y. 2006-07 save and accept the amount involved therein varies and Ld. CIT(A) has also followed his order for A.Y. 2006-07 and whatever decision is taken for assessment year 2006-07 may Ipso-facto be applicable to assessment year 2007-08. 21. In view of above submissions of Ld. Representatives of parties and also considering the chart giving details of transactions of shares for which assessee has shown Short Term Capital Gain and also considering the fact that there are certain transactions of shares in which period of holding is exceeding 365 days, copy placed at pages 31 to 33 of Paper book, we following the reasonings as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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