TMI Blog2013 (8) TMI 412X X X X Extracts X X X X X X X X Extracts X X X X ..... passed the resolution for investment in the month of January, some of the shares were old shares on which short term capital gain has been declared, they were appearing in the opening stock as investment. Thus cumulative setting of all these factors suggest that assessee had made investment in the shares – Decided in against the Revenue. Allowance of security transaction tax – Held that:- Deduction of security transaction tax is not admissible to the assessee, once its claim of short term capital gain is accepted – Decided against the Revenue. Disallowability of deduction under section 14A of the Income Tax Act – Held that:- If it is not possible for the AO to pin point any specific expenditure from the accounts relatable to earning of exempt income then he would look into surrounding circumstances – AO is directed to re-adjudicate this issue, keeping in view the judgment of Hon'ble Delhi High court in the case of Maxopp Investment Ltd. Vs. CIT [347 ITR page 272]. - I.T.A. No. 2185/Del/2010, C.O. No. 200/Del/2012 - - - Dated:- 8-8-2013 - Shri Rajpal Yadav And Shri T. S. Kapoor,JJ. For the Petitioner : Shri Sameer Sharma, Sr. DR. For the Respondent : Shri. R. K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the head Capital Gain. Secondly, as per the same circular, the most important criteria defined is to examine and ascertain the intention of the assessee while doing these transactions. In the present case, for the transactions claimed in the nature of investments, the intention of the assessee is manifest and apparent from the following facts:- a) One of the objects listed in the Memorandum allows company to make investments. b) The assessee has at the time of purchase of shares have duly recorded / classified the same under the head investment / stock in trader. The decision is duly supported by Board Resolution authorizing one of the Directors to buy / sell the share(s) and entries in the books of accounts are made accordingly i.e. investment account dr/cr. The entries in respect of all investment purchase / sell have been made in the investment register in accordance with companies Act, 1956. c) Further, it is to note that the tax benefits on long term capital gain on shares and lower rate of tax on short term capital gain of shares has become effective w.e.f. 01.10.2004. However, the assessee has been classifying purchases into investments / stock in trade for last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Dated 15.10.2002) * Addl CIT Vs. Motile Oswal (ITA No.3861/Mum/2001 Dated 28.08.2006) * Arjun Kapur Vs. DCIT (1999) 70 ITD 161 * Bombay Gymkhana Vs. ITO 2008/115 TTJ 639 (Mumbai) * CIT Vs. Ess Jay Enterprises (P) Ltd. 173 Taxman 1 (Del.)" 8. The ld. CIT (A) has allowed the appeal of assessee and directed the AO to treat the short term capital gain claimed by the assessee as short term capital gain. The finding of ld. CIT (A) read as under: "4.7 I have considered the arguments of the appellant and the assessment order carefully. The CBDT Circular clearly recognizes the two kinds of transactions and the possibility of a taxpayer to have two portfolios, i.e. an investment portfolio comprising securities which are to be treated as capital assets and a trading portfolio comprising stock-in-trade which are to be treated as trading assets and where an assessee has both, he may have income under both heads. The Circular also lists the three principles to determine the nature of the transaction on the basis of a decision of the Authority for Advance Rulings (288 ITR 641) which are as under: (i) Where a company purchases and sells shares, it must be shown that they were held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubted the claim of the assessee, because w.e.f. 1st October 2004, the rate of tax on STG has been reduced substantially, therefore, every assessee had made an endeavour to claim as much as possible short term capital gain instead of showing business income on sale of shares. He pointed out that AO has made reference towards the pattern of last three year's investment, and observed that it was on the lower side. Thus on an analysis these factors, AO has treated the short term capital gain claimed by the assessee as business income. 10. On the other hand ld. counsel for the assessee submitted that no doubt, the question whether assessee had made an investment in shares or trading in shares?, is a factual issue which is to be answered after considering the facts of that case. In order to demonstrate that assessee had made investment, it had produced number of details before the AO. He pointed out that the Board vide its Circular No. 4/2007 as specifically laid down that an assessee can maintain two portfolios i.e. one for trading and the other for investment. It is not the 1st year when assessee has made investment. It has been maintaining investment account from the last many year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the rival contention and gone through the record carefully. There is no dispute with regard to the facts that assessee is a company, it has provided in its memorandum of understanding to carry out trading as well as investment activity in shares. The assessee has been maintaining an investment registered separately. The Board of Directors has resolved to make investment in shares, the resolutions are placed on pages no. 17 to 18 of the paper book. Thus the pertinent question before us is, how to discern the intention of the assessee, whether it has made investment or just on account of change of law, it is trying to convert its stock-in-trade as investment. There was a lot of debate. On the issue; whether an assessee has made investment in shares or it was an adventure in the nature of trade. The dispute traveled up to the Hon'ble Supreme Court on a number of occasion, Hon'ble Delhi High Court in the case of CIT Vinay Mittal rendered in ITA No. 1172/2011, has referred the tests laid down by the Hon'ble Gujarat High court in the case of Pari Mangal Das Vs. CIT reported in 6 CTR page 647. These tests have been reproduced by the Hon'ble Gujarat High Court in the case of CIT Vs. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 pur- chase 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 is 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. (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4)Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value. Former will indicate an intention of trade and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, it would reveal that assessee has not converted its stock-in-trade into investment, just after the announcement of change in the tax rate on short term capital gain. It has been independently making purchases, which are shown as investment in the investment registered. It has took the delivery of shares, this aspect was specifically pleaded before the CIT (A) and it has been accepted. It has not used borrowed funds for making investment. The AO has not pointed out this aspect in the assessment order also. The shares have been valued at cost at the end of the year, while closing the accounts. The Board had passed the resolution for investment in the month of January, some of the shares were old shares on which short term capital gain has been declared, they were appearing in the opening stock as investment. Thus cumulative setting of all these factors suggest that assessee had made investment in the shares. Its pattern of investment did not go under any major changes in terms of percentage between investment and trading. 15. In ground no. 3, revenue has pleaded that CIT (A) has deleted an addition of Rs.75,346/-. We find that assessee did not press this issue before ld. CIT (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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