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2015 (3) TMI 705

Profit on sale of shares - short term and long term capital gain v/s business income - Held that:- The assessee made investment in shares with intention to earn dividend income on appreciation of price of shares. Therefore, it cannot be said that the assessee was doing business. 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 (2010 (1) TMI 7 - BOMBAY HIGH COURT), it is fairly applicable and the income has to be treated as short term capital gain.

Identically in the case of Nagindas P Seth (2011 (4) TMI 3 - ITAT MUMBAI ) 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, as well as stock-intrade separately. The decision in the case of Janak S Ranawala,(2006 (12) TMI 261 - ITAT MUMBAI ) further supports the case of he assessee. Likewise, the decision from Hon' .....

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ermined the total income at ₹ 88,85,670. 4. The assessee preferred appeals before the CIT (A). The assessee filed written submissions in support of his contentions as under: • The main ground in the appeal is against the treatment of short term and long term capital gain on the sale of shares as business income by the Assessing Officer. The appellant is only an investor in shares and not a trader. The appellant has sold the shares held by him both for long term and short term periods and has derived long term and short term capital gain. During the assessment year he also redeemed units of Mutual Funds held by him on short term basis and derived short term capital gain on the redemption of mutual funds. The following are the details of the capital gains income on the sale of shares and redemption of Mutual Fund units. The appellant has offered the same for tax in his tax return. a Short term capital gain on redemption of mutual funds 4,07,933 b. Long term capital gain on sale of shares 8,73,513 c. Short term capital gain on sale of shares 61,66,584 Total 74,48,030 • The assessing officer has assessed the capital gain (both long term and short term) on sale of shares .....

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deemat account by debiting the deemat account. The Assessing Officer in table-1 furnished incomplete particulars. The shares sold which are shown in table-1 have been held for a sizable number of days in the deemat account as per the details furnished below. Name of the Script No. of shares sold Date of sale Date when these shares are purchased No. of days held before sale HINDAL 700 02.08.2006 19.05.2006 75 ALECHE 2000 27.12.2006 19.10.2006 69 ALECHE 1000 29.12.2006 19.10.2006 67 AKRINIR 14 13.02.2007 01.04.2006 318 • In the same table-1 some shares are shown as purchased on various dates. These shares have been sold subsequently. Given below are the details of the sale of shares which were bought on the dates shown in table-1 Name of No. of Date of Date when No. of the script shares purchase these are days held purchased sold before sale Name of the Script No. of shares purchased Date of purchased Date when these shares are sold No. of days held before sale HINDAL 1000 02.08.2006 01.02.2007 183 ALECHE 793 27.12.2006 17.01.2007 21 ALECHE 3980 29.12.2006 17.01.2007 19 AKRINIR 86 13.02.2007 07.02.2007 7 • The Assessing Officer merely tried to tally the dates without realiz .....

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KEG/N 1000 15.01.2007 18 POWTRA 3000 15.01.2007 18 PR/GEM 1000 22.01.2007 25 SAGGEM 1000 08.01.2007 11 TOTAL 20000 Name of the Script No. of shares purchased 28.07.2006 Date of sale of these shares No. of days held before sale ALEGHE 9000 21.10.2006 36 RELlNO 1300 20.11.2006 40 TGS 1000 19.10.2006 34 TOTAL 11300 (iii) The transaction of 15. 1.2007 Name of the Script No. of shares purchased 15.01.2007 Date of sale of these shares No. of days held before sale BAJH/N 1000 19.02.2007 35 GAl/NO 2580 27.02.2007 43 GOOPOW 1000 31.01.2007 16 HGLlNF 1000 31.01.2007 16 H/NLEV 1000 07.05.2007 112 H/NZIN 500 07.05.2007 112 MAASOF 5000 06.02.2007 22 MUKANO 2000 06.02.2007 22 RANSUG 5000 20.02.2007 36 RPGTRA 1000 27.04.2007 102 TOTAL 20080 Name of the Script No. of shares purchased 15.01.2007 Date of sale of these shares No. of days held before sale ALEGHE 2969 22.11.2006 42 ANDBAN 5000 28.12.2006 18 ASHLEY 16000 28.12.2006 18 IFCI 10000 29.12.2006 19 SAGGEM 99 28.12.2006 18 SATGOM 1450 05.12.2006 40 TANSOL 33 25.04.2006 265 TCS 99 4.10.2006 86 TOTAL 40038 • It is clear from the above that the appellant had not been involved in day trading as claimed by the Assessing Officer. • A state .....

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t all or was ignored though was relevant for consideration. He merely went by the number of transactions to support his conclusion that the income should be treated as business income. • The Assessing Officer has also ignored the following important aspects which have a vital bearing for the purpose of consideration of the surplus on the sale of shares as long term and short term capital gain. • The appellant has received a sum of ₹ 4, 43, 857/- as dividend in respect of various shares and mutual funds held by him during the year. This was declared in the tax return and a statement showing details was also furnished. The said statement showing list of dividend is again enclosed. The appellant s intention to hold shares was also to earn dividends. As at the end of the year, the appellant is holding shares and mutual funds of value ₹ 2,88,62,302l-. • The reasons for selling the shares within the same year is only because of the taxation rate for the shares held for a short term period is concessional rate at 10%. • The appellant has also derived long term capital gain from the sale of shares held by him for periods in excess of one year. Particulars of .....

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ll. • There is no infrastructure employed in the form of employees, regular office establishment etc. The appellant did not indulge in any kind of advertising or canvassing or made any declaration at any point of time that he is a trader in shares. • No loans were borrowed for the purpose of acquiring the shares. There was no payment of interest by the appellant. All the shares were purchased out of own funds available with the appellant for investment. • The appellant is not a trader of shares. He is employed as CEO / MO of a private sector company. He is an engineer by profession and qualification. The appellant is not an agriculturist and sugar cane grower as mentioned in para 3 of page 3 of the assessment order. • . The appellant has not acquired Pennar Industries shares from ICICI bank. The appellant did not make any such submission. Shares of Pennar Industries were with the appellant since long time. The appellant is also a Director of Pennar Industries Limited for last 10 years. • All the shares sold falling under long term capital gain are relating to only one company viz. Pennar Profiles Limited which the appellant was the Managing Director for a p .....

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ed as salaries employee. As seen from the return of income filed by the assessee, his salary income was ₹ 13,38,600, income from house property was ₹ 3,88,668, income from short term capital gains (which was assessed as business income) was ₹ 61,66,584 and long term capital gains was ₹ 4,07,933. From the above the assessee s main source of income was from short term capital gains which were assessed as business income. Thus the column was correctly filed. Further, the assessee in his submissions before the CIT (A) mentioned that there are wrong statements made in the assessment order at Para No.3 of Page 3, Para No.4 at Page 4, Para 2 at Page No.5 and at Para 2 at Page 6. As verified from records, it was submitted that these are typing mistake while cut pasting the data from a similar assessment order. These are not wrong statements but these are mistakes in typing the order. The data do not pertain to the assessee. However, the above mentioned wrong details have no bearing on the assessment made. As mentioned above, though assessee has salary income, the assessee s main source of income was from dealing in shares. The assessee has classified them as short t .....

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rly brought out by the AO to give it a character of adventure or business activity . 9. The ld Counsel reiterated the submissions made before the CIT (A). The ld DR relied on the decision of Smt. Sadhana Nabera vs. ACIT (ITA No.2586/Mum/2009) dated 26th March, 2010in support of his contentions. 10. We have heard the submissions of both the parties and perused the material on record. The decision in case of DCIT Vs. E-cap Partners, [2014] 45 taxmann.com 342 (Mum.) with regard to the treatment of capital gains visà- vis business income, the coordinate bench held as under: We have deliberated upon various case laws cited by the Id. Authorized Representative and Id. CIT DR and in the context of factual matrix of the case. We had also deliberated on the case laws referred to by lower authorities in their respective orders. The question as to whether the assessee has earned capital gain or business profits on the shares sold by him depend on the facts and circumstances of each case. Such decision is to be arrived at by taking into account the intention of the assessee while purchasing the shares, as to whether the same was acquired for holding as investment or for doing business t .....

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e time, it is well settled that principle of consistency under the same facts and circumstances is the fundamental of judicial principle, which cannot be brushed aside without proper reasoning. In this regard, reliance can be placed on the decision in case of S.M.K. Shares and Stock Broking Private Limited, I.T.A. No. 799/Mum/09 order dated 24.n.201O. In this proposition, the decision of Hon ble Supreme Court in the case of Gopal Purohit, 228 CTR 582, is very much relevant and important. Merely because the assessee liquidates its investment within a short span of time, which had given better overall earning to the assessee, would not lead to the conclusion that the assessee had no intention to keep on the funds as investor in equity shares, but was actually intended to trade in shares. 11. Further, the Mumbai Bench of the Tribunal in the case of Shantilal M Jam vs ACIT vide order dated 27-04-2011 (ITA No. 269/Mum/201O) 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 o .....

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