TMI Blog2012 (5) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... de - in favour of the assessee. - ITA 1172/2011 - - - Dated:- 27-4-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. Kamal Sawhney, sr. standing counsel with Mr. Amit Shrivastava, Adv. For Respondent: Mr. Ajay Vohra, Ms. Kavita Jha and Mr. Somnath Shukla, Advs. SANJIV KHANNA, J: (ORAL) We have heard counsel for the parties. We frame the following substantial question of law : Whether the Income Tax Appellate Tribunal was right in holding that the gains from sale and purchase of various securities should be treated as long term capital gains or short term capital gains and not business income? 2. The respondent Vinay Mittal is an individual and for the assessment year 2007-08 had filed his return of income on 31.10.2007 declaring total income of Rs.6,00,62,080/-. Long term capital gains of Rs.2,59,52,165/- which was claimed as exempt and this included short term capital gains of Rs.5,53,32,591/- from sale and purchase of various securities. 3. The Assessing Officer held that the two amounts should be treated as business income and not income from capital gains and an addition of Rs.8,12,84,756/- was made. The said additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.5 2878042 1240433 7. Rico Auato 48920 2965417 09/07/2005 14/09/2006 1.2 3566727 601310 8. Lumax Auto 26489 529780 2002-03 09/10/2006 4 1533396 1003616 9. Mahindra Gesco 12590 2677277 10/08/2005 22/062006 (sic.) 1.1 10285855 7608578 10. J.P. Associates 15000 416250 2002-03 09/09/2006 4.5 6354414 5938164 Total 25952165 5. During the course of hearing ld. counsel for the Revenue has stated that as far as long term capital gains is concerned the findings recorded by the CIT(Appeals) and the Tribunal are correct and Revenue cannot really contest the same. He however, submits that as far as short term capital gains is concerned, the Revenue is right as the assessee had earned substantial amount of Rs.5,53,32,591/- and he has also drawn our attention to the findings recorded by the Assessing Officer, which are as under : a) The sole and exclusive purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset) and shares held as stock-in-trade (trading asset). In the light of a number of judicial decisions pronounced after the issue of the above instructions, it is proposed to update the above instructions for the information of the assessees as well as for guidance of the Assessing Officers. 5. In the case of CIT (Central), Calcutta v. Associated Industrial Development Co. (P) Ltd. [1971] 82 ITR 586, the Supreme Court observed that : Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from his records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. 6. In the case of CIT, Bombay v. H. Holck Larsen [1986] 160 ITR 67, the Supreme Court observed : The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the nature of investment was a question of law. This was a mixed question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orpus of buying and selling and realizing capital gains on investments and accounts of remittance to India for investment in India and realizing capital gains on investment from such remittances. The third principle suggests that ordinarily purchases and sales of shares with the motive of realizing profit would lead to inference of trade/adventure in the nature of trade; where the object of the investment in shares of companies is to derive income by way of dividends etc., the transactions of purchases and sales of shares would yield capital gains and not business profits . 10. CBDT also wishes to emphasise 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 comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads, i.e., capital gains as well as business income. 11. The Assessing Officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rather the most important test, is as to the volume, frequency, continuity and regularity of transactions of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is in the nature of business. 9. In the present case, the assessee is an employee and is in service of a company. He has salaried income. The assessee had also made purchases and had sold securities. He is maintaining two separate portfolios i.e. investment portfolio and trading portfolio. The Assessing Officer has admitted the said position in the assessment order. It is pointed out that the shares in question which are subject matter of short term capital gains form part of the investment portfolio and were not part of the trading portfolio. We are not concerned with the trading portfolio in the present case as profits and gains from the trading portfolio have to be treated as business income/loss. As far as seven shares/transactions subject matter of short term capital gains are concerned it is noticeable that in four ..... X X X X Extracts X X X X X X X X Extracts X X X X
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