TMI Blog2014 (9) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... is making repetitive purchases and sales of the same shares is a factor in favour of holding that the assessee is an investor - Revenue had accepted that the assessee was an investor whose income is chargeable under the head "capital gains" for a number of years – thus, the assessee is an investor and not a trader –Decided in favour of assessee. - ITA No. 563/Hyd/2012 - - - Dated:- 5-9-2014 - Shri B. Ramakotaiah And Smt. Asha Vijayaraghavan,JJ. For the Appellant : Sri S. Rama Rao For the Respondent : Sri Solgy Jose T. Kottaram ORDER Per Asha Vijayaraghavan, J.M.: This appeal by the assessee is directed against the order of the CIT(A)-IV, Hyderabad dated 31.01.2012 for assessment year 2008-09. 2. The facts of the case are that the assessee is an individual engaged in trading of shares besides having income from other sources. During the year under consideration he had admitted short term capital gains on purchase and sale of shares at ₹ 73,89,308 after claiming set off of loss in F O transactions of ₹ 2,15,485 and STT and DeMat charges at ₹ 1,25,649. From the details of share trading activities, the Assessing Officer observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ratio of purchases to sales, the nature of holding, the receipt of dividend or otherwise, the motive of profit would suggest the nature of transactions. 5. The Assessing Officer concluded that: (a) The assessee had a turnover of about 5.38 crores in more than 100 scrips, which is very huge for an individual investor. (b) The assessee is involved in the activity of trading in shares throughout the year continuously. (c) No books of accounts are maintained for the share trading activity. (d) Except in a few cases, all purchases were done in the year itself; (e) The assessee had received dividends on shares at ₹ 1.25 lakh which was very marginal, when compared to the turnover of ₹ 5.38 crores. (f) The assessee had financed the transactions with his own funds. 6. The Assessing Officer relied on the decision in the case of Eclat Constructions (P) Ltd. vs. CIT (172 ITR 84) (Patna) wherein it has been elaborately discussed about an adventure in the nature of trade . The Assessing Officer observed that the assessee was carrying on share trading business and had done huge number of transactions from which profit motive was clearly identifiable. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T vs. Rewa Shanker Kothari (283 ITR 338), Madras High Court decision in the case of CIT vs. Trishul Investments Pv. Ltd. (305 ITR 434), and the decisions in the cases of CIT vs. Girish Mohan Ganeriwala (260 ITR 417) (P H) and CIT vs. NSS Investments P. Ltd. (277 ITR 149). 8. The learned counsel for the assessee further submitted that as against the principles emerging from the above decisions, the Assessing Officer only observed that there were a large number of transactions and hence there was a business activity. He argued that the assessee had made an investment in the shares portfolio comprising of a number of shares and though a number of transactions are appearing in the share trading account, all of those relate to the holding of the said share portfolio. With regard to the observations of the Assessing Officer, the assessee had engaged in the activity throughout the year, the representative of the assessee submitted that once a person holds a portfolio of shares as investment, he has to observe whether the investments are reducing in their value or not and accordingly adjustments have to be made throughout. He averred that this would not change the nature of transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had insignificant stock of shares left in his hand at the year end and the ratio of purchase of shares to sales was around 1:1, with the closing stock being almost nil, out of the purchases during the year. The CIT(A) stated that the Hon'ble Calcutta ITAT in the case of ITO Vs. M/s. Veer Enterprises Ltd. (2011-TIOL- 233-ITAT-Cal dtd. 11.3.2011), have observed that in natural course of share trading business, there must be purchases during the year and the total turnover is much more to the total holding of the stock: The CIT(A) held that it is clear that in the case of the present assessee purchases much exceeded the holdings and that the investment stake of the assessee at the yearend was only a small fraction of the huge turnover attained by him on account of multiple purchases during the year itself. The CIT(A) pointed out that This also demonstrates that such huge turnover was achieved only on account of frequent buying and selling of a large number of scrips during the year, without employing commensurate capital of his own. 11. The CIT(A) relied upon the decision of Bangalore Bench of ITAT in the case of M.V. Chandrasekhar vs. DCIT (91 ITD 543) and observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the above principles. The learned counsel for the assessee, however, did not press the additional ground. Accordingly the additional ground is dismissed. 15. Before us the learned counsel for the assessee submitted that the issue involved in the appeal is whether the shares were held for a period of less than one year represent investments or represent stock-in-trade. He submitted that the gain derived by him from sale of shares is divided into the following three different items: 1. Gain on sale of long term capital assets - ₹ 3,66,623 2. Gain on sale of short term capital assets - ₹ 77,30,442 3. Loss in Futures Options transactions - ₹ 2,15,485 16. Insofar as the gain from long term capital assets is concerned, the Assessing Officer accepted that it relates to the activity of investment and not the activity of business. Insofar as the gain from short term capital assets is concerned, the Assessing Officer held that the said gain is taxable as business income. The Assessing officer accepted the loss from sale of shares in F 0 and allowed such loss from the business income so derived. 17. The assessee is in appeal against the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort Term Capital Gain and Long Term Capital Gain. The shares were held for substantial periods on many occasions as detailed above. h) None of the shares were sold prior to their purchase and such share transactions are segregated. i) All the shares were purchased, taken possession of; were sold and possession was handed over. This fact was accepted by the Assessing officer with regard to LTCG. j) The shares were handed over after effecting the sales. Therefore, physical delivery of shares were effected both at the time of purchase and at the time of sale through Demat account. k) The purpose of the sale of shares is to protect the capital and it is only exchange from one capital asset to another capital asset for the purpose of protecting the capital invested and the intention of the assessee is only to make investment in the shares and retain such investment without loss of capital. 19. The AR submitted that the decision of the Mumbai Bench of ITAT in the case of GopaI Purohit vs. JCIT reported in 122 TIJ 87 wherein it is held that (a) it is with regard to the fact that whether the transaction is investment or a trade is to be considered with reference to the Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orated as under: (i) The Substantial nature of transactions - the volume of the transactions carried out, the period within which the volumes were done, the continuity or lack of it etc., would determine the substantial nature of transactions. (ii) The manner of maintaining books of accounts - Whether the assessee maintained books of accounts or not, whether the shares were valued as stock-in-trade or as investments will throw light on this aspect. (iii) Magnitude of purchases to sales - the ratio of purchases to sales, the nature of holding, the receipt of dividends or otherwise, the motive of profit would suggest the nature of transactions. Considering the above principles, the following conclusions are drawn: (i) The assesses total investment is ₹ 73.89 lakhs but he has a turnover of about ₹ 5.38 Crores in more than 100 scrips, which is very huge for an individual investor. This also shows high frequency of transactions. (ii) The assessee is involved in the activity of trading in shares throughout the year continuously. But as per his paper book page No. 13 14 and written submission page no. 2 3 most of the shares were held for less then 30 days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was registered as NBFC with the RBI and the assessee had never claimed set off of the losses arising from sale of investments against other incomes. (There is no such situation in the case of the assessee). e) Merely because of large frequency and volume of transactions, a conclusion that an assessee is a trader cannot be drawn. (This observation holds good in the case of the assessee). f) The fact that the assessee is monitoring the stock markets and buying at dips and selling at highs with an intention to make profit from these transactions is not conclusive of the fact that the assessee is a trader because even an investor would not buy or sell blindly and take the risk of suffering losses.(As submitted, the assessee changes the shares contained in the investment portfolio so that the capital is preserved). g) The assessee has an administrative set up and incurs considerable administrative cost also is not a factor to hold that the assessee is a trader.(The assessee is in a better situation. No such establishment exists). h) The fact that the assessee is making repetitive purchases and sales of the same shares is a factor in favour of holding that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for a longer period and the majority of Short Term Capital Gain has been earned thereon. Therefore, we agree with Ld. CIT(A) that the fact that some shares have been held for less than 30 days, will not make the assessee, a trader in shares. We observe from the table at Pg. No. 10 of the Order of the Ld. CIT(A), that the assessee has been regularly earning Long Term Capital Gain as well as Short Term Capital Gain in the preceding AYs on sale of shares and the same has been accepted by the Department not only u/s. 143(1) but also in the assessments competed u/s. 143(3) of the Act, as is observed from the fact sheet placed before us by the Ld. AR at the time of hearing. The Ld. DR has not disputed the fact that the assessee has earned substantial dividend of ₹ 9,25,018/- during the year. The Hon'ble Apex Court has held in the case of CIT Vs. H. Holck Larsen (160 ITR 67) that it is relevant to see the intention of the assessee as to whether the activity amounts to trading activity or investment activity and for which one could not look the end of the transaction but at the first purchase to judge each case. Since we have mentioned that the assessee at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction, which are being assessed as 'Income from Capital Gains' in the past several years. 9. Considering the facts of the case and the cases cited (supra), we are of the considered view that Ld. CIT(A) has rightly held that the assessee has treated the shares as investment and not Stock in Trade. Therefore, we agree with the Ld. CIT(A) that the volume of transactions, frequency of transaction and period of holding etc., would not alter the nature of transaction from investment to trading and the share profit shows by the assessee in the AY under consideration of ₹ 29,04,561/- is assessable as 'Short Term Capital Gain' and not as 'Business Income'. Hence, we uphold the order of the Ld. CIT(A) by rejecting the Grounds of Appeal taken by the Department. 28. Further, the decision of the Hon'ble High Court of Andhra Pradesh in the case of Spectra Shares Scrips Pvt. Ltd., is similar to the facts of the assessee's case. Hence considering the totality of the facts, we allow assessee's appeal. 29. In the result, assessee's appeal is allowed. Pronounced in the open court on 5th September, 2014. - - TaxTMI - TMITax - Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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