TMI Blog2014 (2) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 42 - ITAT MUMBAI] - Despite large volume of shares transactions, the Assessing Officer cannot ignore the rule of consistency to treat the gains on sale of shares as STCG - The assessee made investment in shares with intention to earn dividend income on appreciation of price of shares - It cannot be said that the assessee was doing business - The assessee has hold the shares in his books as investor, was not having office or administrative set up, no interest was paid on the funds and there was not a single instance where the assessee squared up the transactions on the same without taking the delivery of shares. As per the Board Circular No. 4.2007 dated 15- 06-2007 - It is possible for a tax payer to have two portfolios namely, an Investment Portfolio, comprising of Securities, which are to be treated as capital assets and ‘Trading Portfolio’ comprising of stock in trade which are to be treated as trade assets - No single principle would be decisive and the fact has to be considered in entirety - Decided against Revenue. - ITA No.454/Ind/2013 - - - Dated:- 30-1-2014 - Shri Joginder Singh And Shri R. C. Sharma,JJ. For the Appellant : Shri Srikant Namdeo For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle is decisive. The ld. Sr. D.R. placed reliance upon the following decisions. (a) Rajabahadur Visheshwara Singh Others vs ld. CIT (1961), 41 ITR 685 (SC). (b) Fidility Nort Star Ors (2007) 207 CTR (AAR) 297. (c) CIT vs Holcklarsen (160 ITR 67 (SC) (d) DCIT vs Smt. Deepaben, Amitbhai Shaha, 99 ITD 219 (Ahd.) (e) CIT vs Associated Industrial Development Co. Ltd. 82 ITR 586 (SC) 2.1 On the other hand, learned Counsel for the assessee contended that the assessee is 89 years old person and for earlier years most of the assessment were framed u/s 143(3) of the Act, accepting the claim of the assessee. On the issue of contention of the Sr. DR that there were large frequency in trading / business activity, our attention was invited to page 50 of the paper book explaining that there are only 258 transactions (page 54 of the paper book). On the plea of multiple transactions, it was explained that due to E filing of Return, these transactions were automatically splitted up. Reliance was placed upon the decision of the tribunal in ACIT vs Om Prakash Suri (2010) 16 ITJ 185 (Indore) which was affirmed by the Hon'ble Jurisdictional High Court reported in (2012) 19 ITJ 326 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or business income has n fact arisen after the amendment brought with Finance Act, 2004 by insertion of provisions of Section 111a an 10(38) as regards to levy of transaction tax and exemption/ concession on capital gains arising from securities entered in a recognized stock exchange. With a view to simplify the tax regime on securities transactions, a tax at the rate of 0.015 per cent (see: change in rates on securities transactions, by Finance Acts, at appropriate head) is levied on the value of all the transactions of purchase of securities that take place in a recognized stock exchange in India. This tax is collected by the stock exchange from the purchaser of such securities and paid to the exchequer. The Provisions relating to the securities transaction tax are contained in chapter VII of the Finance (No.2) Bill, 2004, and came into effect from 01-10-2004. Further clause (38) has been inserted in Section 10 of the Income-tax Act, so as to provide exemption from long term capital gain arising out of securities sold on the stock exchange. A new Section 111A has also ben inserted and Section 115AD is amended, so as to provide that short term capital gains arising from sale of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee s ground stands allowed. If the conclusion draw in the impugned order, observation made from the assessment order, assertions made by the ld. respective counsel and the materials available on record are kept in juxtaposition and analyse, we find that the assessee had been consistently trading in shares for the last about 25 years and the income arising from F O transactions and daily trading in shares had been reflected consistently as speculative business (without physical delivery) and in the case of deliver based transaction of sale and purchases of shares had been sown as capital gains i.e. LTCG ad STCG, depending upon the period of holding. If the balance sheet of the assessee is analysed, it reflects holidng of shares as investment (one portfolio). I is further noted that the Department consistently had been accepting the claim of the assessee from long term capital gain, therefore, no U Turn is expected for short term capital gain. During heard, the ld. Sr. DR contended that borrowed funds were used for purchase of shares which was strongly objected to by the learned Counsel for the assessee by submitting that no interest was paid on the borrowed funds. This assertio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purohit, 228 CTR 528 (Bom.) and the SLP filed by the Department against this decision was also dismissed by Hon'ble Apex Court vide order dated 15-11-2010. Other judicial decisions have also been cited by the ld. CIT(A). It is also noted that the ld. CIT(A) has followed the decision for assessment year 2002-03 in the case of the assessee itself which has been accepted by the Department. Therefore, in the absence of any contrary materials, the Department is not expected to take a contrary stand. In its speech by the Hon'ble Finance Minister regarding direct tax cases (Union Budget 2004-05), specifically clause 111 (page 69 of the paper book), the intention of the Govt. for introducing the Security Transaction Tax and exempting the long term capital gain earned from sale of shares and leaving 10% tax on short term capital gain, earned from sale of shares, also supports the case of the assessee . The idea behind introduction of Security Transaction Tax is to end the litigation on the issue whether profit earned from this delivery base sale of shares is a capital gain or a business profit. Even the Hon'ble Apex Court in the case of K.P. Verghese vs TO, 131 ITR 597 (SC) observed as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractor and was deriving income from contract receipts as well as from sale of gitti and during the impugned year, ventured into investment in share market. The income arising from F O transactions and daily trading in shares (without physical delivery) reflected as speculative business whereas the income on delivery based transactions of sale and purchase of shares, income was shown from capital gains. The learned AO considered the income which was based on purchase and sale of shares as business income on the grounds as narrated in the assessment order as well asat pages 3 and 4 of the appellate order. Broadly, the learned AO was of the view that the intention of the assessee since beginning was sale of shares as trading activities, as evident from audited profit and loss account by not showing the same as short term capital gain and also in Form 3CD the assessee has mentioned the nature of business as trading/dealing in shares/securities and mutual funds. The frequency of transactions was also considered, consequently he treated the amount of Rs.49,81,915/- as business income from share trading. However, before the learned Commissioner of Income Tax (Appeals) the basis of ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T vide order dated 27-04-2011 (ITA No. 269/Mum/2010) held that despite large volume of shares transactions, the Assessing Officer cannot ignore the rule of consistency to treat the gains on sale of shares as STCG. In that case, the assessee was engaged in the business of trading of investment in shares and securities offered Rs. 1.54 crores as short term capital gain and Rs. 2.91 crores from long term capital gain. The long term capital gain was accepted whereas short term capital gain was held to be business profit. Since in earlier assessment years the claim of the assessee was consistently accepted as short term capital gain, it was held that the rule of consistency as propounded by Hon'ble Bombay High Court in the case of Gopal Purohit (supra), it is fairly applicable and the income has to be treated as short term capital gain. Identically in the case of Nagindas P Seth (ITA No.961/Mum/2010) it was held that despite large number of transactions in shares, the profit can be assessed as capital gains under the facts of the case. The case of the assessee is further fortified by these decisions more specifically when the assessee was hold the shares in his books as investor, was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be considered in entirety. This proposition has been confirmed by the Hon'ble Jurisdictional High Court in the case of Shri Om Prakash Suri (surpa). The totality of facts plainly indicate that the ld. first appellate authority rightly directed the Assessing Officer to treat the short term capital gain as earned from investment in shares. Instruction No.1827 dated31st August, 1989 was supplemented by CBDT circular no. F.No.149/287/2005-TPL [reported in 210 CTR 29 (St.)], advising the Assessing Officers that the principles contained in the circular should guide them in determining whether, in given cases, the shares are held by the assessee as investment (and therefore, giving rise to capital gains) or stock-in-trade (and therefore, giving rise to business profit) by further opining that no single principle would be decisive and total effect of all the principles should be considered. If the number of transactions are analysed, we note that, in a computer based trading system/ e-filing, the figures, being split up, give misleading high figures, reflecting the individual component of the transaction but really, if these figures are synchronised then clear picture oozes out. Since t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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