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TMI Blog2015 (10) TMI 2054X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT-A has erred in upholding ex-facie fallacious assessment. " 3. The assessee filed its return of income on 30/10/2006 disclosing total income of Rs. 2,54,17,781/- including short-term capital gains (STCG) from purchase and sale of shares to the tune of Rs. 2,34,38,613/-. The assessee is a proprietor of M/s.V.J. Investments and also received income from future and options to the extent of Rs. 11,72,043/- as well as speculation profit on sale of shares to the extent of Rs. 6,23,123/-. The assessee has also shown income from consultancy to the extent of Rs. 1,49,297/- against the total receipts of Rs. 3,91,165/-. The AO noted that the main income declared by the assessee is on account of STCG in relation to the activity of purchase and sale of securities. The AO noted that for the assessment year 2005-06, the so-called STCG was treated as business income in view of the collections declared periodically, frequency and multiplicity of transactions of purchase and sale of shares and securities. The AO held that the assessee's main activity is dealing in shares by way of speculation future end option and trading in shares. Accordingly, STCG declared by the assessee on purchase a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment or trading. Even otherwise, STT has been introduced just a volume based tax on purchase or sale of equity share. Therefore, STT has ruled out any difference for the purpose of treatment of transaction as investment or trading. The benefit which is provided for capital gains on listed securities is also compensated by STT and in case of trading rebate is provided as per sec.88E. Therefore, STCG enjoying concessional rate of tax has been denied the benefit of rebate under section 88E of the Act. The learned authorised representative of the assessee has referred to the Finance Minister's Budget speech in respect of the amendment brought into statute and introduction of STT which demonstrated the object and purpose of the new scheme of tax of capital gains on listed securities. Thus, after introduction of STT, it is easy to administer the tax and it has an advantage of eliminating tax avoidance on the transaction of purchase and sale of listed securities. In a natural corollary, therefore, ought not to be an attempt to deem or view certain STCG returned by the assessee to be an exercise in tax avoidance of tax on capital gain from listed securities by introduction of STT. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorised representative of the assessee has submitted that the assessee is a management graduate in finance and runs his independent financial consultancy practice for the last three years. The assessee depends on his consultancy practice for his livelihood and entrusted his share portfolio to independent portfolio manager/broker though the assessee is keeping an eye on capital appreciation being a retail investor as against high net work investor or institutional investor. As a prudent investor, assessee does not keep his investment in a few baskets and therefore, assessee has invested his fund in a diversified portfolio. The assessee has used his own funds and no borrowings have been made for the purpose of purchase of shares. The entire loan availed by the assessee is for the purchase of motor car and there is no other loan. Therefore, authorities below have assumed wrong facts regarding the use of borrowed funds though there may be outstanding dues to the portfolio manager/broker but there is no loan for the purpose of investment in shares. Thus, learned authorised representative of the assessee has submitted that the intention of the assessee was investment and not to earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 122 TTJ 97 where in respect of share transactions the ITAT accepted as investment and also on the principle of consistency in the matter of assessment. The Tribunal found that the said assessee has consistently been investing in shares and ratio of sales to investment was very less. In the above referred case, there was long term capital gain of Rs. 1.12 crores which was claimed exempt and long term capital gain taxable at 10% to the tune of Rs. 60 lakhs in addition to profit from trading in shares taxable at 10% and short term capital gain at 10% of 57.31 lakhs. In that case, the assessee was investing for a long period and offering the long term capital gain which is more than short term capital gain and share holdings varied from one year to 5 years. No such facts exist in the present case. In view of the facts of the present case, we are of the opinion that the decision in the case of Gopal Purohit, upheld by the Hon'ble Bombay High Court does not apply at all. Similarly, the decision of the ITAT in the case of Janak S.Rangwalla vs. ACIT 11 SOT 627 (Mum) relied on by the ld.CIT(A) are not applicable to the facts of the present case. 14. In the case of ACIT Vs Shri V. Nages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -06. However, the CIT(A) did not accept this contention of the assessee and held in paragraph 7.7 of the impugned order as under: "7.7 The contention of the appellant on the other hand is that in the preceding year, the learned CIT(A)-XIX had allowed his appeal by holding that he is an investor and not trader does not hold much of ground in the backdrop of different set of facts. In any case, principle of Res judicata does not apply to the income-tax proceedings and each assessment year is a separate and self contained assessment year. Therefore, the plea of the appellant that he should be allowed a relief on the same lines as he was allowed in the AY 2005-06 does not hold good. The submissions made by the appellant vide letter dt.20/08/2009 a reference of which has already been made in the preceding paras are not convincing and tenable. " 8. Thus it is manifest from the impugned order that the CIT(A) did not accept the order for the assessment year 2005-06 as operating res judicata or precedent on the ground that the said order was in the backdrop of different set of facts. The order of the AO has got merged with the impugned order of the CIT(A) and the revenue has not challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a purchase on 18/4/2005 and so on. Thus as per details given by the AO, assessee has carried out repetitive transactions only in one scrip i.e. Jindal Photo. Further, as it is apparent from details of transactions that the AO has considered a single transaction of purchase or sale in one scrip on a single day as multiple transaction because the purchase or sale order of a large quantity of shares has been executed in the multiple small quantities and therefore, one single transaction is reflected as multiple transaction in the same scrip whereas the transaction of a large quantity of same scrip on a single day is one transaction though it may have been executed on the floor of the stock exchange in the multiple small quantity as per the demand or supply as the case may be. This aspect has also led to a misleading figure of total number of transactions carried out by the assessee during the year under consideration. The total transactions as considered by the AO for the year under consideration are artificially inflated figures because of the reason that a single transaction of purchase or sale of a large quantity of particular scrip has been executed by a number of small quantitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,78,298 34,02,836 99 Total 11,20,59,536 13,88,51,099 2,67,28,942 1578 Brokerage, STT, etc not considered in P/S Average Holding Period 143 1 Avon Organic Ltd. 2,07,83,846 1,60,39,559 (50,70,553) 159 2 Kopran Ltd. 3,01,06,732 2,85,22,786 (20,56,565) 241 Total material loss 5,08,90,578 4,45,62,345 (71,27,118) Average Holding period 400 200 Brokerage, STT, etc not considered in P/S Thus it is clear that almost the entire STCG earned by the assessee is from 11 scrips in comparison to 24 scrips for the assessment year 2005-06. This is a substantive difference in the facts regarding the pattern of purchase and sale of shares for the year under consideration. Further, the average holding period of these 11 scrips is 143 days in comparison to 69 days for the assessment year 2005-06. This also demonstrates a major change in the fact and pattern of investment in shares by the assessee during the year under consideration. The assessee has incurred loss of Rs. 71,27,118/- on two scrips and the average holding period of the same is 200 days. Therefore, major revenue from the investment portfolio comes only fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mize tax avoidance on the income arising from transaction of purchase and sale of listed securities. There was another object to be achieved by the introduction of this new scheme of tax that is to promote more and more transactions in the capital market and in the listed securities through stock exchange. Therefore, once the legislature has the object to promote more and more transactions in the capital market and particularly in the listed securities on the stock exchange by giving tax concession on the income arising from the said transaction and levying STT instead of levying full tax on the income, then volume of transactions in the listed securities has to be viewed in the light of the scheme and the object of amended provisions of the Act promoting such transactions. 11. There is no quarrel that there cannot be a single criteria or straightjacket formula to determine the nature of transaction of purchase and sale of shares whether investment or trading. There are various factors to be taken into consideration in order to determine the real nature of transaction and the intention of the assessee while carrying out such transaction. In the case in hand, various facts and fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bearing in determining the nature of transaction under the investment portfolio. We further note that except in one scrip, there are no repetitive transactions carried out by the assessee. Therefore, in the overall facts and circumstances of the case, we find that the transactions carried out by the assessee in the investment portfolio cannot be given a colour of trading. 13. The Hon'ble Delhi High Court in the case of Radial International (supra) while dealing with an identical issue, has observed in paragraph 15 to 20 as under: 15. It was also held in P.M. Mohammed Meerakhan v CIT-Kerala, (1969)2SCC25 = (1969) 73 ITR 735 (SC) : "...it is not possible to evolve any single legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not. The answer to the question must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction.." 16. Therefore, it is legally untenable to focus singularly on the intention or motive of the assessee without looking at the substantial nature of the transactions, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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