TMI Blog2012 (4) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... as be taken into consideration to decide whether the Fains are to be treated as such or as Business. (3) On the fact and in the circumstances of the case and in law the Ld. CIT (A) has erred in ignoring the fact that the assessee has entered into 5500 odd transactions of purchase and sale of shares during the current year. (4) On the fact and in the circumstances of the case and in law the Ld. CIT(A) has also erred in treating business income as Long Term Capital Gain without appreciating the fact that the shares are held by the assessee as his stock in trade rather than as investment. (5) On the fact and in the circumstances of the case and in law the Ld. CIT A) has erred in holding that the assessee s use of own funds for purchase of shares would imply that the shares are procured for the purpose of investment, thereby ignoring the fact that the assessee being a high net worth individual may not require loan funds? (6) On the fact and in the circumstances of the case and in law the Ld. CIT(A) has erred in treating business income as Short Term Capital Gain without appreciating the fact that the assessee s intention/ motive while investing is not apprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asking her why the capital gain declared should not be treated as a business income? The assessee filed the reply justifying her stand stating that merely on the basis of the volume of transactions no conclusion can be drawn that the assessee s activity are business activity. The A.O. has also discussed with the test for coming to the conclusion that capital gain long-term as well as short-term declared by the assessee has to be treated as a business income. The operative part of the test for coming to the conclusion is as under: TEST 1: 1. Whether the transaction were alike to her usual trade or business or were incidental to it. FACTS OF THE CASE: In the computation of income, the head wise income shown by the assessee is as follows: House Property ₹ 1,79,186 Business Income ₹ 5,35,930 Long Term Capital Gain ₹ 82,45,830 Short Term Capital Gain ₹ 58,81,660 Income from Other Sources (Including speculation gain of ₹ 3,54,104/-) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction each entered by assessee is 50,650. Therefore, this aspect clearly proves the fact that commodity purchased is in a very large quantity and it clearly eliminates the possibility of the investment portfolio not only for this year, but for the earlier years also. TEST 3 : 3. Total effect of the transaction, intention and conduct of the assessee needs to be analyzed in the given circumstances and facts of the case. If the outcome is the profit motive, then transaction is a business transaction. FACTS OF THE CASE :As discussed in test 2, it is very clear that total effect of the transaction is in the nature of the trade and intention and conduct of the assessee clearly goes in the direction of having a profit motive for entertaining the transaction. The transaction is being entertained on day to day basis, holding period is not very large and there is no reason of the sale except to have the profit. TEST-4 : 4. The characterization of securities in the books of the assessee and Balance Sheet as stock in trade or investment. This aspect, though relevant, is not conclusive. The shares held as investment may be treated as stock in trade because o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sale was effected only for the profit motive. There is no reason or necessity to book the profit. The purpose is clearly to earn quick profit and assessee was unable to furnish any evidence which may suggest the factors for booking the profit other than to have quick profit. TEST 8 : 8. Most important is as to the volume, frequency, continuity and regularity of the transactions of purchase and sale. If there is repetitive and continuity, coupled with the magnitude of the transaction, bearing reasonable proportion, to the strength of holding, then an inference can readily be drawn that the activity is in the nature of business. FACTS OF THE CASE : As discussed in the foregoing paragraphs of this order and in test 2 that volume, frequency, continuity and regularity of the transaction is an integral part of the assessee s trading activity. The same shares are repeatedly purchased and sold with high magnitude and the holding period of those shares are not very high and proportion of the sale is very high in comparison to the holding of the shares. TEST 9 : 9. Time devoted to the activity and the extent to which it is the means of livelihood. FACTS O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that so far as transactions involving non-delivery i.e. speculative transactions, the same are to be treated as part of the speculation business and same should be taxed accordingly. The Ld. CIT (A) directed the A.O. to verify and quantify the profit / loss in non-delivery based transaction and charged it as business income or loss. The Ld. CIT (A) also relied on the decision of the jurisdictional High Court in the case of CIT V/s Gopal Purohit (2011) 336 ITR 287 (Bom). Now, the revenue is in appeal before us. 5. We have heard the rival submissions of the parties and perused the records. The Ld. D.R. vehemently assailed the order of the Ld. CIT (A) and submitted that the Ld. CIT (A) has not at all appreciated the facts and arrived at a wrong conclusion. Per contra, the Ld. Counsel submits that in case of the husband of the assessee, on the identical set of facts, an identical issue it has been considered and decided by the Tribunal and it is held that the capital gain short-term and longterm declared by the said assessee cannot be treated as a trading activity . The Ld. Counsel filed a copy of the Tribunal order in the case of ACIT Mumbai vs. Mr. Rajpal Sethi in ITA 4325/M/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atpal Singh Sethi (supra) the Tribunal has held as under: 3. We have heard the rival submissions and perused the relevant material on record. It is noticed that the assessee has been accepted as investor in shares and securities as per titles given in the assessment order. From the arguments advanced by both the sides it is observed that for the assessment year 2004- 05, the case of the assessee was selected for scrutiny. A copy of the assessment order for the said assessment year is available on page 55 onwards of the paper book. The stand taken by the assessee in respect of profit from sale of shares as falling under the head Capital gains was not disputed and accepted as such. While holding the profit from sale of shares as business income in the instant year, the Assessing Officer on page 10 of the assessment order has also taken into consideration the facts for the assessment year 2004-05 by holding that the number of transactions were voluminous in that year as well, similar to the situation in the current assessment year. Thus it becomes patent that in assessment year 2004-05 the Assessing Officer himself, in the scrutiny assessment, took income from shares as falling ..... X X X X Extracts X X X X X X X X Extracts X X X X
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