TMI Blog2010 (11) TMI 987X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of trade in terms of the extended meaning of business in section 2(13) and as per test laid down in the case of I G Vekataswami Naidu Co. vs. CIT 35 ITR 594 (SC) and Smt. Indramani Bai vs. CIT 200 ITR 594 (SC), since the motive of purchasing the shares was sale thereof and not mere enjoying the fruits, i.e. dividend. 2. The main issue involved is whether profit earned on the sale of shares would be assessed as capital gains or would be assessed as business income. During the Asst. Year in question the assessee has declared profit of ₹ 59,68,498/- as long term capital gain and of ₹ 1,24,011/- as short term capital gains on sale of shares. When asked to furnish the details, the assessee pointed out that holding period of shares on which long term capital gain was declared is more than 12 months. Following profit was earned on shares held for different period as under :- Monthwise break up Above 12 less 15 months 1592503.75 Above 15 less 18 months 1868323.40 Above 18 to 21 months 1269210.75 Above 21 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment. This act on my part itself indicates that I have all along considered my broking activity as business activity and investment in shares as my personal investment for earning of dividends and to get capital appreciation. (k) I have disclosed dividend income to the extent arising from the broking activity as business income in spite of the fact that the same is exempt u/s 10 r.w.s. 115-O and claimed dividend income exempt only in respect of the shares which are forming part of my investment portfolio. 3. The AO, however, did not agree with the above contention and held that activities of the assessee gave rise to the business income. His reasoning are summarised as under :- (1) Assessee s main source of income is transaction in shares which is shown under the head capital gains even though it is claimed that assessee is a member of Baroda Stock Exchange and carrying on broking in shares. (2) Total number of 168 transactions in sale and purchases of shares have taken place during the year. (3) Sale consideration of shares and securities during this year is 1.58 crores which is a huge amount. (4) As per Board s Circular No.1827 following criteria are applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n trade and other shares investment. (ii) Income from shares held as stock in trade was offered to tax as business income and from those held as investment was offered as capital gain. (iii) Balance sheet of the assessee also showed shares/debentures as investment. (7) The Revenue did not bring any material on record to show that shares were held as stock in trade. 5. We have heard the parties and carefully perused the material on record. The main argument of ld. DR is that as per meaning of word business given in section 2(13) and as per test laid down in the case of I G Venkataswami Naidu Co. vs. CIT (supra) the motive for purchase of shares should be seen and this motive was the sale thereof and not merely enjoying the dividend. In our considered view what is to be further looked into is the intention of the assessee in acquiring shares as to whether they are acquired for dealing in shares or they are acquired for holding as investment. The Tribunal, Lucknow Bench in Sarnath Infrastructure Ltd. vs. ACIT (2009) 120 TTJ 216 (Lucknow) after considering following judgments :- Fidelity Advisor Series VIII, In re [2004] 192 CTR (AAR) 201 : [2004] 271 ITR 1 (AAR), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient of trade. (5) How the value of the items has been taken in the balance sheet ? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stockin- trade. (6) How the company (assessee) is authorized in memorandum of association/articles of association ? Whether for trade or for investment ? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity ? And vice versa. (7) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to Revenue to prove that apparent is not real. (8) The mere fact of credit of sale proceeds of shares (or for that matter any other item in question) in a particular account or not so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io were ₹ 31,80,423. It shows that turnover to stock ratio in investment portfolio is very low as compared to that in trading portfolio. 15. Further, there is no material to show that these shares in the investment portfolio were also traded in the same and like manner as those which were in stock-in-trade portfolio. The board of directors had passed resolutions for making investment whereas memorandum of association has only authorized to carry out trade in shares. It clearly shows intention of the assessee to maintain a separate investment portfolio. All the sales out of this portfolio are identifiable to purchases made in this portfolio. In our considered view the assessee has discharged its primary onus by showing that it is maintaining separate account for two portfolios and there is no intermingling. The onus now shifted on the Revenue to show that apparent is not real. There is no material brought in by the Revenue to show that separate accounts of two portfolios are only a smoke screen and there is no real distinction between two types of holdings. This could have been done by showing that there is intermingling of shares and transactions and the distinction sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes of business on the other hand. Question (a) above, does not raise any substantial question of law. Recently, the Ahmedabad Tribunal in the case of Shri Suganchand C. Shah vs. ACIT, Surat in ITA No. No.2554/Ahd/2008 for Asst. Year 2005-06 and others, held that delivery of shares is an important criteria in holding whether assessee has invested in shares. Where shares are delivered in the D mat account next day it can be held that it would be investment and not trading. If it is so held then all those traders in shares in whose D mat account shares are delivered can be said to have earned capital gains and not profits, therefore, only one criteria i.e. delivery of shares alone will not be sufficient to decide the issue whether assessee is trading its shares as investor or as trader. It was held in Shri Sugamchand C. Shah vs. ACIT (supra) as under:- 19. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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