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2014 (4) TMI 972

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....eal: "Did the ITAT fall into error in endorsing the decision of the CIT (A) that the sum of Rs.8,78,16,545/- represented short term capital gain (for 2007-08) as claimed by the assessee and that it was not business income?" 2. The assessee in this case is an individual; in the income tax returns, he reported a net taxable income of Rs.9,34,80,539/-. The returned income comprised of the income derived by him from his business of trading in books in the name and style of M/s Variety Book Depot as also income derived by the assessee in his individual capacity from house property, income from other sources as well as short term capital gains. The assessee continued to derive income from similar sources as was done by him inthe earlier years. ....

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.... the explanation that the amount was short term capital gains. The revenue's appeal to the ITAT was dismissed; that Tribunal affirmed the views and findings of the Appellate Commissioner. 4. It is argued by the revenue that having regard to the settled law, which mandates that all relevant criteria have to be taken note of while deciding if any amount claimed as capital gains, is in fact that or business income, the CIT (A) and ITAT fell into error in application of those tests to the facts of this case. It was argued that during the Assessment Year, the gross total income reported was Rs.9,35,80.539/-, which consists of STCG of Rs.8,78,16,545/-. It was argued that transactions in shares do not constitute peripheral activity but the main a....

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....694/-. This amount has been taxed as business income. The bulk of profit is on sale of bonus shares of Unitech Ltd. The assessee had been holding 15000 shares in this company in respect of which 1,80,000 bonus shares were allotted in this year. All the shares were sold in this very year. The AO accepted that gain on original holding of 15000 shares amounted to LTCG. However, profit on sale of 1,80,000 bonus shares was been held as business income. The conduct of the assessee will show that shares had been held as investment. 4.1 it is further submitted that the assessee employed his own funds in acquisition of the shares, which will be seen from the ba1ancesheet as on 31.03.2006. This is also clear from the balance sheet as on 31.03.2007. ....

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....ds of this proprietary concern have been used for undertaking transactions in shares; (iii) admittedly, the assessee has a long experience and knowledge of equity market operations; a fact exploited even by Quantum Securities (P) Ltd. in its website (iv) the assessee has undertaken a large number of transactions of purchase and sale of shares, which show that the transactions are undertaken systematically with a view to earn profit.; and (v) even the bonus shares of Unitech Ltd. received in this year were sold in this very year showing that there was no intention to hold on them as investment for any length of time. 9. As mentioned earlier, the bulk of profit is on sale of 15000 equity shares and 1,80,000 bonus shares of Unitech Ltd. Th....

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....pital gains on account of sale of such assets, has been spelt out and reiterated in a number of decisions. These include Raja BahadurVisheshwar Singh v. CIT, (1961) 41 ITR 685 (SC); Commissioner of Income Tax, U.P v. MadanGopalRadheyLal, [1969] 73 ITR 652 (SC); Commissioner of Income Tax v Associated Industrial Development Company 82 ITR 586 (SC); P.M. Mohammed Meerakhan v. Commissioner of Incometax, Kerala, 73 ITR 735 (S.C.) andCommissioner of Income Tax v NSS Investments Ltd 2007 (277) ITR 149 (Mad). It was in the light of these decisions that the CBDT Circular No. 4/2007, was issued, indicating the principles applicable in this regard. These criteria are: (1) Intention of the assessee at the time of purchase of the shares. This can be fo....

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.... is less, it will indicate that items were treated as stock-in-trade. (6) Finally, it would be relevant to consider how the assessee is authorized in its Memorandum / Articles. 8. It has also been held that if the business activity of the assessee is trading in shares, there can be a presumption that the amount claimed was derived through trade; the assessee in such cases has to establish that the amount was indeed invested and the proceeds of sale were of a capital asset. Furthermore, keeping a separate investment account would also be a relevant indicia. 9. As is evident from the previous factual analysis in this case, the assessee had purchased the Unitech shares in the previous year; it had been shown as investment and that treatment....