TMI Blog2015 (10) TMI 2054X X X X Extracts X X X X X X X X Extracts X X X X ..... SHRI VIJAY PAL RAO, JUDICIAL MEMBER and SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER For The Appellant : Shri Rashmikant D Kundalia. For The Respondent : Shri G.M.Doss, CIT(DR) and Shri Randhir Kumar Gupta ORDER Per VIJAY PAL RAO, JM: This appeal by the assessee is directed against the order dated 28/06/2010 of the CIT(A)-30, Mumbai, for the assessment year 2006-07. 2. The assessee has raised the following grounds: 1. The learned C.I.T (A) has erred in law in confirming the treatment of short term capital gain as trading profits. 2. The learned CIT-A has erred in rejecting the Order for the preceding year by his predecessor without assigning any specific reason. 3. The learned CIT-A has erred in concluding that the facts of the appellant for the assessment year under appeal are different from those in the preceding previous year. 4.The learned CIT-A has erred in upholding the volume-baseddifferentiations, which are not ex-necessitate-legis. 5. The learned 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 ₹ 2,54,17,781/- including shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment year 2005-06, the Tribunal has decided the issue against the assessee in the appeal filed by the revenue, however, for the year under consideration, the facts are distinguishable and therefore STCG offered by the assessee should have been accepted by the authorities below. The learned authorised representative of the assessee has submitted that vide Finance Act,2004 new scheme of tax has been brought into statute wherein no tax is provided on LTCG from listed securities. It has also reduced the rate of tax to10% on STCG from listed securities. The definition of shortterm capital asset being a share as per the provisions of sec.2(42A) remains unchanged despite the new scheme of tax on the capital gain from listed securities. The holding period for STCG and LTCG remains the same. As per the provisions of the IT Act subsequent to amendment in tax on capital gains from listed securities nothing has been introduced regarding any volume, frequency etc., as a test, benchmark for treating the transaction as investment 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 differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increased from 800 points to 1000 points. Therefore, in a highly bullion market during the year it was natural for carrying out the bulk transactions and earning more STCG. He has further submitted that the assessee s main activity is providing consultancy services and has entrusted his portfolio to the manager/broker, the assessee has valued the investment at cost and shown the same as investment in the balance-sheet. There was no opening or closing stock as in the case of holding shares as stock-in-trade. Therefore, intention of the assessee at the time of purchase was only investment and not trading though the assessee has also carried out trading activity as well as future end option activity in separate portfolio and there is no bar for having two portfolios one for trading and another for investment. The assessee is keeping separate account for trading as well as investment activity. He has relied upon the judgment of the Hon ble jurisdictional High Court in the case of CIT vs. Gopal Purohit (228 CTR 582). Learned authorised representative of the assessee has submitted that the assessee is a management graduate in finance and runs his independent financial consultancy pract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee s own case for assessment year 2005-06. The Tribunal has given the finding for the assessment year 2005-06 after considering the nature of transaction, frequency, volume, sales, holding period of shares by the assessee. Therefore, in the absence of any material change in the facts and circumstances of the case for the year under consideration, the issue is covered by the decision of this Tribunal for the assessment year 2005-06. He has also relied upon the orders of the authorities below. 7. We have considered the rival submissions as well as the relevant material on record. At the outset, we note that an identical issue was considered by this Tribunal in assessee s own case for assessment year 2005-06 vide order dated 30/9/2010 in ITA No.5381/Mum/2009. The Tribunal has given its finding in paragraphs 13 14 as under: 13. We find that the assessee has to be treated on.ly as a trader, the total transactions being 461 in number. Further the decision of the Mumbai Bench of the ITAT in the case of Gopal Purohit 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that the share transactions were in the nature of business transactions, we are of the considered opinion that there is no question of deviating from the view taken by the coordinate Bench. We concur with the findings of AO and allow the Revenue s appeal. It is clear that the Tribunal has given finding on the basis of peculiar facts for the assessment year 2005-06 by considering the number of transactions as 461. The Tribunal also relied upon the decision in the case of ACIT vs. V.Nagesh (supra) on the point that the case and issue has to be decided on the basis of the facts of each case and no single decisive test or straightjacket formula can be devised for getting quick answer to such questions. It is pertinent to note that for the assessment year 2005-06, the CIT(A) has decided the issue in favour of the assessee and the assessee, while challenging the order of the AO for the assessment year under consideration contended before the CIT(A) that the case of the assessee is covered by the order of the CIT(A) for the assessment year 2005-06. However, the CIT(A) did not accept this contention of the assessee and held in paragraph 7.7 of the impugned order as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/05 25/04/05 25457 27403 1946 10 Agrotech Foods 750 15/4/05 25/04/05 54551 58618 4067 10 Agrotech Foods 1000 15/4/05 26/04/05 72735 76776 4051 11 Agrotech Foods 400 15/4/05 26/04/05 29094 30882 1788 11 Agrotech Foods 1000 22/04/05 26/04/05 75890 77206 1316 4 Jindal Photo 7603 7/4/05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 quantities as per availability of demand and supply on the stock exchange. Thus, a single transaction of purchase and sale has been fragmented into different transactions, though totalquantity of purchase or sale remains same but the number of transactions are reflected as multiple. The AO s finding is influenced by this inflated number of transaction which is not correct number of transactions and are much less than the transaction appears so. We further note that the AO as well as the CIT(A) has also ignored the fact that the assessee has carried out these transactions through portfolio manager/agent and not by himself and therefore, the nature of transaction and the intention of the assessee has to be looked into after considering this fact that these transactions are carried out through portfolio manager/agent. There is no dispute that the assessee is holding the shares as investment in the balance sheet and valued the same at cost as against cost/realization whichever is less in case of stock-in-tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 Multi Arc Ltd 36,75,462 70,78,298 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , I propose to reduce the rate of tax to a flat rate of 10 per cent. My calculation shows that the new tax regime will be a win-win situation for all concerned . By introduction of this new tax scheme for capital gain from listed securities, the Legislature has taken due care to get compensatory tax recovery by levying STT on sale and purchase of the securities on stock exchange irrespective of the outcome of the sale and purchase in the hands of the buyer and the seller. Therefore, the tax concession and exemption provided on LTCG and STCG on listed securities was considered to be made up from the STT. Therefore, the object of the new tax scheme is to minimize 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the risk and erosion of capital base, it is a prudent decision to diversify the portfolio by investing in the multiple scrips. Further carrying out the trading and speculative transaction under a separate portfolio will not change the character and the nature of the transaction held in the investment portfolio. The Hon ble jurisdictional High Court in the case of CIT vs. Gopal Purohit (supra) has held that the assessee can have two portfolios one in trading and another investment. Even otherwise, there is no bar on a trader or dealer of shares having investment in shares. Therefore, the trading carryied out by the assessee in a separate portfolio will not have any impact or 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suaded by the argument of the Revenue that an average of 4-5 transactions were made daily, and that only eight transactions resulted in a holding period longer than one year. This is because the number of transactions per day, as determined by an average, cannot be an accurate reflection of the holding period/frequency of transactions. Moreover, even if only a small number of transactions resulted in a holding for a period longer than a year, the number becomes irrelevant when it is clear that a significant volume of shares was sold/purchased in those transactions. Thus it is clear that for the purpose of evaluating the nature of transaction and intention of the assessee, predominant facts are to be taken into account. It is pertinent to note that when the assessee has given a treatment of these shares held under the investment portfolio in the books of account as investment, then, in absence of any thing contrary brought on record to disprove the primary evidence to reflect the intention of the assessee in carrying out the transaction the nature transaction being investment cannot be treated as trading. In view of the above facts and circumstances of the case, we hold that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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