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TMI Blog2014 (5) TMI 997X X X X Extracts X X X X X X X X Extracts X X X X ..... of Welspun Gujrat Stahi Rohren Ltd. practically on day to day basis. He, therefore, concluded that the assessee was engaged in the business activity of sale/purchase of shares and, accordingly, required the assessee to show cause as to why the income be not assessed as business income. The assessee's reply has been reproduced at page 2 of the assessment order in which assessee, inter-alia, pointed out that it was not engaged in any business activity. The said reply is reproduced here for ready reference: "The assessee is an HUF and is not engaged in any business activity. To constitute a business it must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transaction. Sole Trustee, Loka Shikshana Trust vs. CIT (1975) 101 ITR 234 (SC). Further we would like to invite your attention to the board circular 4/2007 dated 15th June, 2007 therein certain parameters have been laid down before arriving at whether assessee is carrying on business activity. These are: a) Substantial nature of Transaction. b) Magnitude of Sale & Purchase. c) Ratio between purchase and sale. It is apparent from the above that an ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the speculative has been provided in section 43(5) of the Income Tax Act and this section is under Chapter IV of the Income Tax Act, which is for computation of business income. Thus, income from speculative shares transactions was undoubtedly business income. He further pointed out that script on which speculative profit had been declared and the script on which short term capital gain had been declared was the script of the same company i.e. Welspun Gujrat Stahi Rohren Ltd. In view of these facts, he concluded that the short term capital gain declared by assessee on sale/purchases of Rs. 3965798/- was assessable as business income along with speculative profit from share Rs. 2,63,992/-. 4. Before ld. CIT(A) the assessee reiterated the submissions made before the AO and submitted that assessee had made only six purchases in one script and, therefore, these were not business transactions. The assessee further submitted that assessee had invested in various listed as well as unlisted companies since past 7-8 years. The balance sheets and capital accounts were filed before ld. CIT(A). It was submitted that assessee has regularly been the investor in shares of various listed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h that it records and display on the contract note itself time and quantity of shares as and when get liquidated, therefore, length of contract note runs into several pages. It is as per SEBI regulation, to maintain the transparency, brokers are required to show entry in detail for any transaction. Thus, he submitted that AO failed to appreciate the nature of transaction in substance and based his opinion purely on the form. It was further pointed out that there is no force in the AO's contention that the assessee had realised huge profit for coming to the conclusion that assessee was carrying on business activity. The assessee referred to following observations of AO: "This clearly shows that huge money has been put in the shares not for earning the dividend income which is Nil and the motive for purchase and sale of shares is clear from the huge profit of Rs. 39,65,798/- from sale purchase of shares. This clearly proves that the money has not been put in purchase sale of shares as an investor but as a prudent businessman." (para 1 of page no. 3 of the assessment order)." 7. With reference to these observations, the assessee pointed out that quantum of gain does not change the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature 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 not revenue receipt". As per the above circular, in order to determine whether securities held as investment or stock in trade all the 3 conditions referred in para 8 of the circular must be applied cumulatively not in isolation. In view of the facts and circumstances of the case enumerated, it is submitted that case of the assessee's fit in all four corners of the circular to qualify as investment activity. 4.6 Reliance is also placed to the decision given by the lordship in the case of * CIT vs. Rohit Anand 327 ITR 445 (HC, Delhi) * ACIT vs. Naishadh vs. Vachharajan ITA No. 6429/Mum./2009 Further the assessee, in the preceding years, is consistently declaring the gain/profit on the sale of the shares under the head "Capital Gain" either Long Term and Short Term as the case may be and the same has been accepted by the department. It is true that the rule of res judicata is not applicable to the Income Tax Proceedings, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n earlier years had been accepted by assessee. Further, the assessee had taken the delivery and made full payment for such investment. 11. Ld. Counsel filed before us copy of computation of total income for A.Y. 2006-07 to demonstrate that in earlier years also the income was returned as short term capital gain and the same had been accepted by the Revenue though u/s 143(1), in all the earlier years. 11.1 Ld. Counsel also relied on the decision of ITAT, Mumbai Bench in the case of ACIT vs. Nooshad V. Vacharajani, vide ITA No. 6429/Mum./2009 dated 25/02/2011. 11.2 We have considered the rival submissions and have perused the record of the case. 12. It is well settled law that primarily the intention of assessee is of paramount importance in determining whether the shares were held by it as investment or as stock in trade. All the attendant circumstances have to be taken into consideration to find out the true intention of assessee. The factors which are relevant in this regard are mainly as under: 1. Whether the shares were treated as investment in books of account, balance sheet, etc. or as stock in trade? 2. Whether in earlier years also the shares were held as investment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of purchase transactions were only six and the sale transactions were only eight. By no stretch of reasoning, this frequency can be said to be very frequent so as to lead to the conclusion that assessee was trading in shares. 15. Ld. DR submitted that assessee was entering into speculative transaction which clearly demonstrated that assessee was trading in shares. In our opinion merely because the assessment of speculation profit is as per the provision contained u/s 43(5) would not lead to ipso facto conclusion that assessee's intention was to trade in shares. Mere assessment under a particular head of income is no criteria for determining the overall intention of assessee. An investor also can enter into speculative transactions as there is no prohibition under the Act. Only the income is to be assessed as business income. Moreover, in any view of the matter, this aspect cannot form the basis for deciding the intention of assessee in respect of those shares where assessee has taken delivery of shares and then sold them within a short gap of time. We, therefore, do not find any reason to interfere with the order of ld. CIT(A). 16. In the result, the Department's appeal is dism ..... X X X X Extracts X X X X X X X X Extracts X X X X
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