TMI Blog2014 (1) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessee on sale/purchase of shares and securities through PMS is to be assessed under the head "capital gains" and not as business income of the assessee – Decided in favour of assessee. Sale of shares - Income from business or income from capital gains - Held that:- Each case depends on its own facts and circumstances - There are various factors such frequency, volume, and entries in the books of account, nature of fund used, holding period etc which are relevant in deciding true nature of transaction and no single factor is conclusive – Following Raja Bahadur Visheshwara Singh. V/s CIT [1960 (12) TMI 12 - SUPREME Court] - The treatment in the books of 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 profit and not capital gains – Whether a particular holding is by way of investment or form part of stock-in- trade is a matter within the knowledge of the assessee and it is for the assessee to produce evidence from the records as to whether he maintained any distinction between shares which are held as investment and those h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in circumstances of the case, the aforesaid sum ought to be assessed as "Capital Gains". 2. Learned CIT(A) has erred in confirming the action of the AO in assessing short term capital gains of Rs.36,08,276/- long term capital gain of Rs.2,98,36,506/- earned by the appellant on sale of shares and securities carried out independently under the head "Income from Business or Profession". On the facts and in the circumstances of the case, the aforesaid sum ought to be assessed as Capital Gains. 3. While confirming the action of the AO in treating the income in respect of amount invested under the PMS Scheme as Business Income, Learned CIT(A) has erred in holding/observing that: a. The portfolio manager is keeping the record of the assessee in his books of accounts as stock in trade. b. Transaction in F O Scheme is shown by the assessee as investment. c. Investment in surplus funds by PMS Manager in liquid fund results in activity of PMS being treated as "business activity" Confirmation of the action of the AO on the basis of above observation being contrary to facts of the case ought to be deleted. 4. While confirming the action of the AO in treating the income in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties submitted that the facts and issues involved in both these appeals of above named assessees are common; save and except the amount involved; and accordingly the detailed submissions were made by representatives of both the parties in ITA No. 1575/M/2012 in the case of Shri Nalin Pravin Shah. It was submitted that whatever view is taken in this appeal will ipso fact apply to the case of other assessee viz Shri Manan Nalin Shah in ITA No.1594/Mum/2012. 4. In view of above, we discuss the facts in detail relating to ITA No.1575/Mum/2012. 5. The assessee is a partner in firm of Indenting Agent and Director in pharmaceutical companies and is also deriving income from dealing in shares and mutual funds. The assessee filed return declaring total income of Rs.1,50,04,404/-. The assessee has shown business income, income from other sources, long term capital gains (LTCG) and short term capital gains (STCG) on shares and securities both through Portfolio Management Services (hereinafter referred to as PMS) and through transactions done himself. The assessee declared the following incomes under the head capital gains : "A" (i) LTCG } Rs.2,98,36,506/- } on Direct sale (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not an investor. He submitted that the order of the ld. CIT(A) be confirmed. 8. We have carefully considered the submissions of the ld. Representatives of the parties and the orders of authorities below as well as earlier orders of the Tribunal dated 6.7.2012 (supra) and the order dated 23.1.2013 (supra). We consider it prudent to reproduce para 5 of the order of Tribunal dated 23.1.2013 which reads as under : "5. We have perused the records and considered the matter carefully. The identical dispute raised in these appeals is regarding the nature of income earned by the assessees from purchase and sale of shares through PMS . All these assessees have been making investments in shares and units of mutual funds for the last several years which had been declared as investment in the books and income from which was being declared as capital gain and was also being accepted by the department. From assessment year 2003-04 all these assessees started making investment through PMS by placing certain funds with the PMS Managers. In assessment year 2003-04, the AO had assessed the income as business income which had been upheld by the CIT(A). In further appeal, the Tribunal in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s brought out to our notice by ld. DR in respect of assessment year under consideration, we agree with the ld. AR that the issue is covered in favour of the assessee by the decision of the earlier orders. Respectfully following the orders of the Tribunal for the earlier assessment years (supra), we hold that STCG Rs.83,14,515/- earned by assessee and LTCG of Rs.70,39,652/- earned by assessee on sale/purchase of shares and securities through PMS is to be assessed under the head "capital gains" and not as business income of the assessee. Hence, we allow ground Nos.1 and 3 of the appeal taken by the assessee by reversing the orders of authorities below. 9. In respect of Ground Nos.2 and 4 of the appeal the issue is as to whether STCG of Rs.36,08,276/- and LTCG of Rs.2,98,36,506/- is to be assessed under the head "capital gains" or under the head "Income from Business or Profession". 9.1 Facts relating to Ground No.2 and 4 are that the assessee filed the return of income showing interalia the income under the head "Capital Gain" on account of shares transaction of Rs.2,98,36,506/- as LTCG and Rs.36,08,276/- as STCG. The AO considered the said dealings of the assessee in shares in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He has stated that the shares of these companies were capital assets in past but during the year the same got converted into stock-in-trade. He has further stated that dividend earned by assessee is of Rs.2,22,897/- which gives a yield of 0.8% per annum on the amount involved of Rs.2.25 crores. The ld. CIT(A) has stated that it is a fact that the assessee has not borrowed funds for dealing in shares, but that by itself will not change the inference that the assessee was in the business of dealing in shares and mutual funds. The ld. CIT(A) has stated that considering the fact that there were high frequency of transaction of buying and selling, purchase-sale turnover ratio and the value of the volumes transacted showed that the assessee did not intend to acquire shares to keep as investments for the purpose of earning dividend and appreciation in value of shares. The assessee was carrying on activity in a systematic manner of purchase and sale of shares and mutual fund which partake the character of business. The ld. CIT(A) has also referred the decisions of Smt.Harsha N Mehta V/s DCIT (2011) 43 SOT 332 (Mum), Sadhana Nabera (2010) 41 DTR 393, Immortal Financial Services (P) Ltd V/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred the decision of the Hon'ble Apex Court in the case of CIT V/s Holck Larsen (160 ITR 67) (SC) and submitted that accretion to capital did not become income merely because the original capital was invested in the hope and expectations that it would rise in value. Ld. AR submitted that ld. CIT(A) has only referred the cases in his order and the ratio laid down therein but has not stated as to how those cases are relevant to the case of the assessee. He submitted that the ld. CIT(A) has not considered the period of holding and merely stated volume and high frequency of sale and purchase of shares because he knew that the holding period supports the case of the assessee. 13. Ld. AR submitted that the distinction between the trade and investment is not profit motive. What distinguishes the acquisition of stock- in- trade from the acquisition of a capital asset is whether an asset is acquired with an intention of being turned into profit or with an intention to hold it and nurse it till such time targeted profit is reached or otherwise it becomes prudent to liquidate it. He submitted that the AO quotes only para 8 of CBDT circular No.4 of 2007 and the ld. CIT(A) has based his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ratio 0.66' 14. Ld. AR submitted that the assessee has been carrying out investment activities in shares for last several years. He submitted that for all the assessment years the treatment given by assessee in the books of account and return of income to declare LTCG and STCG in respect of sales and purchases made by assessee himself had been accepted by the department for assessment years 2003-04, 2004-05, 2005-06 and 2006-07 in the assessment order passed u/s 143(3) of the Act. Ld. AR submitted that the copy of assessment orders for the earlier assessment years are placed in the paper book at pages 78 to 79 for assessment year 2003-04 at pages 80 to 94 for assessment year 2004-05 at pages 95 to 104 for assessment year 2005-06 and at pages 105 to 114 for assessment year 2006-07. He submitted that the facts in the assessment year under consider are similar but the AO took contrary view ignoring the information and facts of the case of the assessee arbitrarily. He submitted that there is neither fresh material in possession of AO nor there is any change in the law or facts. Therefore it was incumbent upon the AO to respect wisdom of its predecessor who made assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment or form part of stock-in- trade is a matter within the knowledge of the assessee and it is for the assessee to produce evidence from the records as to whether he maintained any distinction between shares which are held as investment and those held as stock-in-trade. Therefore, the important factor is the intention of the assessee at the time of purchase, which has to be gathered from the actual conduct of the assessee while dealing with the shares subsequently and not only on the basis of entry in the books of account. In this view, we are supported by the decision of Hon'ble Supreme Court in the case of CIT vs. Madangopal Radhey Lal, 73 ITR 652(SC). Therefore, to decide the nature of transaction as to whether it is in the nature of trade or an investment, no single fact has any decisive significance and the question has to be answered depending on the collective effect of all relevant material brought on record as held by Hon'ble Apex Court in the case of Janki Ram Bahadur Ram V/s CIT, 57 ITR 21 (SC). 17. We are also conscious of the fact that an investor makes purchases with long term goal of earning income from the investment and he is not tempted to sell the shares on ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, we observe that in respect of LTCG claimed by assessee, the maximum amount of LTCG, is on account of sale of shares of Financial Technologies and Henkel Spic which were acquired in 2003. We observe from para 6.1 of the order of ld. CIT(A) that he has doubted the LTCG and considered it as business income on the ground that the assessee had sold the shares of said company on a number of dates. We are of the considered view that the finding of the ld. CIT(A) has no merits and particularly when we observe from the period of holding of shares, which we have mentioned hereinabove in para 13 of this order. The LTCG had accrued to the assessee, where the period of holding is more than 24 months and therefore, the order of ld. CIT(A) to treat the said LTCG accrued to the assessee as business income is not supported by facts particularly when there is no purchase of shares by assessee in the assessment year under consideration and said shares were held by assessee for a period of more than 24 months and had already been considered in the preceding assessment year as investment in the assessment completed u/s 143(3) of the Act. Hence, the order of ld. CIT(A) to consider the gain of Rs.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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