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TMI Blog2012 (7) TMI 400X X X X Extracts X X X X X X X X Extracts X X X X ..... Facts, in brief, as per relevant orders are that return declaring income of Rs. 21,228/- filed on 30th Oct, 2007 by the assessee, after being processed u/s 143(1) of the Income-tax Act 1961, (hereinafter referred to as the 'Act') was selected for scrutiny with the service of a notice u/s 143(2) of the Act, issued on 16 Sep, 2008. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee claimed loss of Rs. 5,72,283/- (1129602 - 557319) on purchase and sale of shares besides reflecting commission from insurance during the year under consideration. The assessee sold shares for Rs. 25,25,610/- on which long-term capital gain of Rs. 11,99,532/- was shown besides capital loss of Rs. 4,016/-on sale of shares of Rs. 26,34,561/-.Since the assessee indulged in transactions of purchase and sale of shares with an intention to earn profit, to a query by the AO as to why short term and long-term capital gain on shares be not treated as business income, the assessee replied that the investment in shares was made by the assessee in his personal name and payment made in his personal capacity and shown in his personal balance sheet as investment in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the purchase and sale of shares made by the appellant in his personal capacity in the code allotted In his personal name, Security Transactions Tax has been duly charged by the brokers and paid by the appellant and is being taken into consideration while working out the short term/long term capital gain/loss. A perusal of the purchase and sale of shares noted by the Ld. Assessing Officer at pages 4 & 5 of the impugned assessment order clearly reveals that the shares which are subject matter of discussion had been held by the appellant for more than a year. For instance, 2017 shares of DCM Shriram Industries were purchased by the appellant in F.Y. 2003-04 for an aggregate amount of Rs. 23418/- and were sold on 03.11.2006 for Rs. 244451/-. Likewise, shares of Indian Sucrose were purchased on 10.05.2005 and sold after one year on 10.05.2006. In the course of Bellery Steels Ltd, 450000 shares purchased on 13.09.2005 were sold on 07.11.2006. Similarly, 1800 bonus shares of Federal Bank Limited received on 30.11.2004 were sold on 06.06.2006. Similar is the position with respect to other shares also. Therefore, I am in agreement with the Ld. Counsel for the appellant that the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, in my view, the AO was not justified in holding the surplus of Rs. 1199534/- as business income. Accordingly, he is directed to treat the surplus of Rs. 1195521/- as long term capital gains. 4.3 Since the main issue has been decided in favour the appellant and the surplus of Rs. 1195521/- has been held to be long term capital gains, the ground no. 17 relating to set off of loss of Rs. 572283/- has become infructuous and the same is being dismissed. 5. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT (Appeals). The ld. DR supported the order of AO. 6. We have heard the ld. DR and gone through the facts of the case . The issue before us is as to whether sale of shares is to be assessed as business income or income from capital gain .As is apparent from the aforesaid facts, the AO treated the entire gain on sale of shares ,be that short term capital loss on sale of shares for Rs. 26,30,542/- as detailed on page 4-5 of the assessment order or long term capital gain on sale of shares of 25,25,610/-. The ld. CIT(A) found that the assessee was maintaining two separate portfolios, one, in the name of his proprietorship concern, M/s. Bajaj In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to determine whether one was a dealer in shares or an investor, the real question was not whether the transaction of buying and selling the shares lacks the element of trading, but whether the later stages of the whole operation show that the first step - the purchase of the shares - was not taken as, or in the course of, a trading transaction. The totality of all the facts will have to be borne in mind and the correct legal principles applied to these. If all the relevant factors have been taken into consideration and there has been no misapplication of the principles of law, then the conclusion arrived at by the Tribunal cannot be interfered with because the inference is a question of law, if such an inference was a possible one, subject, however, that all the relevant factors have been duly weighed and considered by the Tribunal, the inference reached by the Tribunal should not be interfered with." 6.2 In the case of Sarnath Infrastructure Pvt. Ltd.,122 TTJ 216, the Lucknow Bench of the ITAT have culled out various principles which may be applied to determine whether the transaction of purchase and sale of share is in the nature of trade or investment. The relevant observati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e records or otherwise, between two types of holdings: if the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to revenue to prove that apparent is not real. (8) The mere fact of credit of sale proceeds of shares (or for that matter any other item in question) in a particular account or much frequency of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment. (9) One has to find out what are the legal requisites for dealing as a trader in the items in question and 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 15-6-2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate account for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the Assessing Officers. 8. The Authority for Advance Rulings (AAR) [2007] 288 ITR 641, referring to the decisions of the Supreme Court in several cases, has culled out the following principles (page 651) : (i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction ; (ii) the substantial nature of transactions, the manner of maintaining books of account, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions ; (iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade ; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The Assessing Officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade. 12. These instructions shall supplement the earlier Instruction No. 1827 dated August 31, 1989. [F. No. 149/287/2005-TPL]" 6.4 The ITAT, Mumbai Bench in the case of Janak S. Rangwala, 11 SOT 627 held as under: "The mere volume of transaction transacted by the assessee would not alter the nature of transaction. It is an established principle that income is to be computed with regard to the transaction. The transaction in whole has to be taken into consideration and the magnitude of the transaction does nor after the nature of transaction. Though the principle of res judicata does not apply to the Income-tax proceedings as each year is an independent year of the assessment but in order to maintain consistency, it is a judicially accepted principle that same view should be adopted for the subsequent years unl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors and circumstances that determines the character of the transaction. Each case has to be determined on the total impression created on the mind of the court by all the facts and circumstances disclosed in a particular case. One of the principal tests is whether the transaction is related to the business normally carried on by an assessee. The nature of the commodity would also be a relevant factor. It is equally well settled that, merely because the original purchase was made with the intention to resell, if an enhanced price could be obtained, that by itself is not enough to infer that an assessee is carrying on business. However, though profit motive in entering into a transaction is not decisive, if the facts and circumstances indicate that the purchase of the asset was made solely and exclusively with an intention to resell the asset at a profit, it would be a strong factor for inferring that the transaction was in the nature of business. In the case of Pari Mangaldas Girdhardas v. CIT [1977] CTR 647 (Guj), after analysing various decisions of the apex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has been returning profit and loss in the trading account as business income and the surplus arising on account of purchase and sale of shares in his own account as short term/long term capital gain/loss for a number of years and this practice has been accepted by the AO all along. In respect of the purchase and sale of shares made by the assessee in his personal capacity in the code allotted in his personal name, Security Transactions Tax has been paid by the assessee and is being taken into consideration while working out the short term/long term capital gain/loss. These facts have not been disputed before us. In nutshell , the claim of the assessee regarding income from sale of shares in the personal account has all along been accepted under the head shortterm/ long-term capital gains . The mere volume of transactions transacted by the assessee would not alter the nature of transaction. Though the principles of res judicata do not apply to the Income-tax proceedings as each year is an independent year of the assessment but in order to maintain consistency, it is a judicially accepted principle that same view should be adopted for the subsequent years, unless there is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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