TMI Blog2015 (7) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... year, particularly because assessee has primarily sold the shares which have been treated as investments in earlier year. It is pertinent to observe that Assessing Officer has also followed the reasoning for A.Ys 2006 & 2007-08 in arriving at his conclusion that the shares were held as business asset and not as investment which has not been accepted by Tribunal as noted earlier. However, one aspect which needs clarification is in regard to Ld. CIT(A)’s finding in earlier years that gain arising out of sale of shares within 30 days is to be treated as business income which finding has been confirmed by Tribunal in earlier years. However, in the current year there is no such finding by Ld. CIT(A). Therefore, sale from all shares held as investment is to be assessed as short term or long term capital gain - Decided against revenue. Whether assessee case is squarely falls under speculative transactions as defined in sub section (5) of Section 73? - Held that:- It is evident from the balance sheet that loans and advances granted by assessee aggregated to ₹ 292,189,865/-on which assessee earned interest amounting to ₹ 40,56,653/- which is the main source of Assessee’s in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Details in respect of Derivatives: Securities(Derivatives 2008-09 2007-08 No. of Shares Amount (Rs.) No. of Shares Amount (Rs.) Opening Stock Nil Nil Nil Nil Purchases 25,99,340 2,80,51,384 23,48,650 1,67,46,431 Sales/Transfer 26,17,676 2,82,28,191 23,48,650 1,27,21,481 Closing Stock 18,336 2.89.553 Nil Nil 3. The Assessing Officer noticed that assessee company had returned business income of ₹ 60,28,209/-, speculation loss of ₹ 159,905/-, long term capital loss of ₹ 4,86,31,790/- and short term capital loss of ₹ 31,33,251. The assessee had also returned income of ₹ 6,32,163/- as income from other sources and declared share in profit from partnership ₹ 91,55,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the order of the CIT(A), the Department is in appeal before us. And has raised following grounds of appeal. 1. On the facts and circumstances of the case and in law, Ld. CIT erred in directing that out of the entire business income of ₹ 3,25,77,623/- treated as such by the AO, only a sum of ₹ 60,28,209/- assessed as business income and the rest of ₹ 2,65,49,414/- by treated as income from Capital Gain. 2. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in directing that the income declared by the assessee company may not be treated as income from speculative transaction as per section 43(5) of the Act. 3. The appellant craves, leave or reserving the right to amend, modify, alter, add, or forego any Ground(s) of appeal at any time before or during the hearing of this appeal. 6. At the outset, Ld. Counsel for the assessee submitted that this issue is covered in favour of assessee by the decision of Tribunal vide ITA Nos. 2558/Del/2011 (A.Y 2006-07), ITA No. 2894/Del/2011 (A.Y 2007-08) and ITA 2662/Del/2012 (A.Y 2008-09) vide consolidated order dated 6th April 2015, a copy of which has been filed in the paper boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant and by my own efforts. I put my reliance on the judgment of honourable Delhi High Court in the case of CIT Vs. Rohit Anand reported at 327 ITR page 445, The Hon'ble Delhi High Court has held as under:- There is no doubt that even a single transaction can be in the nature of trade but the assessee has demonstrated that his intention was never to trade in shares. The intention is manifested by treatment given to such investment that the investment is out of own fund and not borrowed that the investment is not rotated frequently, that the total number of transactions are very few, that all the shares purchased are not sold and rather held for quite number of days. It is to be noted the Income Tax Act itself has provided that when the shares are held for a period of one year or more will be treated as long term capital asset contrary to other assets where the holding period to treat such asset a long term is more than 36 months. Thus, even after holding the shares for more than 12 months and showing such intention from the conduct, the Assessing Officer cannot replace his opinion for that of the assessee in holding that the shares are held as stock in trade and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 254-ITAT-MUM, wherein, Hon'ble ITA T vide order dated 30-4-2010 has decided the issue vide para 15 of the order as under:- We have given our serious considerations to the different precedents relied on by the AO in the assessment order but in our opinion, the principles laid down in those decisions cannot be applied to the assessee's case to say that the activity of the assessee buying and selling of the shares amount to Trading Activity. It is well settled principle as has held in the case of H. Holsck Larzen (supra) that whether the law and fact. In this case, we have perused the Balance Sheet filed by the assessee and as per the books of account the assessee has treated the entire investment in the shares as an investment only and not as a stock in trade. Another important aspect to be considered here is the assessee is not a share broker nor he is having a registration with any Stock Exchange. Moreover, some scripts are held for more than five years and it is not a case of the AO that there were any derivative transactions by the assessee nor is it a case of the AO that there were transactions without any delivery. In the present case, both the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed separate Dmat account for investment and for trading. In these circumstances, we note that assessee has distinctly maintained investment account and trading account. 4.7 After analyzing the issue and considering the various case laws as relied upon by the Id. AR, I find that holding period is the most appropriate factor to decide the issue, whether it should be treated as stock in trade treating it as a business .income or investment so as to treat it as capital gain. My view gets strength from the order of Hon'ble Ahmedabad Tribunal in the case of Shri Shugam Chand C. Shah Vs. ACIT, ITA NO.3554/Ahd/2008 vide order dated 29.l.2010 Hon'ble Tribunal has laid down the criteria of deciding the share to be taxed as capital gain or business income. Vide para 19 of the above said order the Hon'ble Tribunal has held as under:- Considering the totality and peculiarity of the facts of this case, we find that assessee is neither fully acting as a trader nor as fully investor. Demarcation is quite hazy; though in the books he is showing all the purchases as investment but frequency of transaction in several cases is so large and holding period in many cases i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys and gain out of it after proper verification and to allow the claim of appellant. In view of above discussion grounds No.2 to 5 are partly allowed. 4. Now, the revenue is in appeal by taking the following ground on this issue:- On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in holding that out of the income of ₹ 38,72,78,020/- from transactions in shares and securities held by the A.O. as business income, lonely an amount of ₹ 19,30,207/- would comprise business income and the remaining ₹ 38,53,47,813/- would comprise capital gains. 5. Assessee has also filed cross objection by taking the following ground on this issue :- That the learned CIT (Appeals) has erred in holding that interest earned by the assessee company is income from other sources and not income from business. 6. While pleading on behalf of the revenue the ld. DR relied on the order of the Assessing Officer and submitted that whether a particular holding of shares is by way of investment or part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds it and it is on the assessee to produce nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as trading asset. The assessee was having two portfolios and has income under both the heads, i.e., capital gains as well as business income. The ld. AR also submitted that Hon ble Supreme Court in the case of Dalhausie Investment Trust Company Ltd. vs. CIT - 68 ITR 486 has held that principal consideration in determining whether income from sale of shares is revenue income or capital gain is to find out what was the purpose of purchase of these shares and, if the purpose was investment, the fact that in varying the investment, the sale of those shares resulted in a profit will not make revenue income. It was also submitted before us that what is the intention of the assessee at the time of purchase of shares is very relevant factor in determining whether it was an investment in shares or the shares were held as trading assets. This can be found from the treatment given to such purchases in the books of accounts. In assessee s case, these purchases were held as investment in the previous year as well as during the year and in the subsequent years. Secondly, these purchases were not made from the borrowed funds on which interest was to be payable. Normally, when the purchases are m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court has held that although even a single transaction can be in the nature of trade, however, where the assessee has demonstrated that his intention was never to trade in shares. Then, revenue cannot change the position otherwise. The investments have been made by the assessee out of his own fund and the shares were held quite for a long period. The Income-tax Act itself provides that when the shares are held for a period of more than a year or more will be treated as long term capital asset, contrary to the fact that other assets to be called as long term asset have to be held for more than 36 months. These shares were being treated as investment in earlier years and this fact has been accepted by the Assessing Officer. Substantial dividend income was being earned on these investments. All these facts show that facts of the assessee are similar to the facts of case of CIT vs. Rohit Anand, cited supra. The assessee is holding the shares by taking the delivery by making full payment on such investments. All these circumstances suggest that realization of these investments shall give a rise to the capital gains and it cannot be termed as trading of shares. Similarly, the ITAT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestments in earlier year. It is pertinent to observe that Assessing Officer has also followed the reasoning for A.Ys 2006 2007-08 in arriving at his conclusion that the shares were held as business asset and not as investment which has not been accepted by Tribunal as noted earlier. However, one aspect which needs clarification is in regard to Ld. CIT(A) s finding in earlier years that gain arising out of sale of shares within 30 days is to be treated as business income which finding has been confirmed by Tribunal in earlier years. However, in the current year there is no such finding by Ld. CIT(A). Therefore, sale from all shares held as investment is to be assessed as short term or long term capital gain. Accordingly Ground No. 1 raised by the Revenue is dismissed. 9. Apropos Ground No. 2, the Assessing Officer has inter alia observed as under. Without prejudice to the above, the facts and circumstances of the assessee case is squarely falls under speculative transactions as defined in sub section (5) of Section 43. ON perusal of broker notes it suggests that transactions are speculative in nature. In this regard, a few samples of brokers notes are reproduced as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness in view of exception provided in Explanation 73 itself. Ground No. 6 is allowed. 11. Since we have dismissed the ground of the revenue on the chargeability of the tax as trading profit against the capital gain declared by the assessee, therefore, we are also not inclined to accept this ground of revenue s appeal and the same is dismissed. 11. It is evident from the balance sheet that loans and advances granted by assessee aggregated to ₹ 292,189,865/-on which assessee earned interest amounting to ₹ 40,56,653/- which is the main source of Assessee s income. Thus, the principal business of the assessee was granting of loans and advances. Further, we find from the computation contained at pages 126 that the gross total income consists mainly of income which is chargeable under the head capital gains and income from other sources. Therefore, respectfully following the decision of Tribunal for earlier years, we uphold the order of Ld. CIT(A) in holding that the assessee s income was not assessable as speculation profit either. 12. In the result, the Revenue s appeal is dismissed. The order is pronounced in the open court on 30th of June 2015. - - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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