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2016 (5) TMI 21 - DELHI HIGH COURT

2016 (5) TMI 21 - DELHI HIGH COURT - TMI - Income earned from the shares - “Short Term Capital Gains” OR “Income from Business and Profession” - Held that:- Merely because 41 shares/securities were bought and sold could not per se lead to the conclusion that the earnings therefrom were not Short Term Capital Gains but business income. The mere percentage of the investment from the available surplus funds of the Assessee could not be by itself be determinative of the issue. One important factor w .....

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a Short Term Capital Gains does not suffer from any legal infirmity - Decided against revenue - ITA 829/2015, ITA 908/2015, ITA 886/2015 - Dated:- 26-4-2016 - S. Muralidhar And Vibhu Bakhru, JJ. For the Appellant : Mr. Ashok K. Manchanda, Senior Standing counsel with Ms. Vibhooti Malhotra, Advocate For the Respondent : Dr. Rakesh Gupta and Mr. Somi Agarwal and Ms. Monika Ghai, Advocates ORDER 1. These three appeals by the Revenue are directed against the impugned common order dated 12th December .....

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from Business and Profession ? 3. The Assessee Company was incorporated on 19th October 2004. In the first AY i.e. 2005-06 it declared income from the investment in shares as Short Term Capital Gains . It, however, did not commence its main business activity i.e. business in real estate. 4. The Assessee filed its return of income for AY 2006-07 on 23rd November 2006 and for AY 2007-08 on 31st March 2008 declaring a total income of ₹ 1,75,51,496 and ₹ 5,97,49,161 respectively. The re .....

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t continuous. It was observed that none of the shares were held for more than one year and, therefore, it revealed the intention of the Assessee not to hold it as investment and to earn dividends but to earn profits by sale and purchase of shares. For AY 2006-07, the AO held that since the Assessee had claimed ₹ 2308 as speculation loss, it reveals the intention of the Assessee to trade in shares. The other factor which weighed with the AO was that no separate books of account were maintai .....

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of 30 days from the date of purchase was treated as business income. Also the amount earned as surplus after a period of 30 days was treated as Short Term Capital Gains. Aggrieved by the above orders of the CIT (A) both the Assessee and the Revenue filed the appeals before the ITAT. 6. The findings of the ITAT, inter alia, were that the shares and securities were classified as investments in the balance sheet and the investments were not made out of any borrowed funds. It further noted that gai .....

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urchase of shares. Likewise for AY 2007-08, 86.58% was utilised in similar fashion. Secondly, without commencing any business in terms of the main objective i.e. real estate business, the Assessee had increases its authorised share capital and claimed the preliminary expenses in that connection as revenue expenses in terms of Section 35D of the Act. This by itself according to him belied the claim of the Assessee that only surplus funds were invested in the sale and purchase transactions of shar .....

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se of Fidelity Northstar Fund (2007) 288 ITR 641 (AAR). He also referred to the Central Board of Direct Taxes ( CBDT ) guidelines issued on 13th December 2005. 8. There are certain factual aspects which have to be first considered before the above submissions of Mr. Manchanda can be examined. This has been adverted to by the ITAT in the impugned order. For the AY 2006-07, the sum of ₹ 1,75,51,496 was earned by the Assessee out of 41 shares/securities which could be classified as under: (i) .....

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cluding G. Venkateswami Naidu, Co. v. CIT (1959) 35 ITR 594 (SC) and CIT v. Sutlej Cotton Mills Supply Agency Ltd (1975) 100 ITR 706 (SC), Commissioner of Inland Revenue v. Fraser (1942) 24 TC 498, Raja Bahadur Kamakhya Narain Singh v. CIT (1970) 77 ITR 253 (SC) and Karam Chand Thapar & Bros. (P) Ltd. v. CIT (Central) (1971) 82 ITR 899 (SC). 10. The ITAT also referred to the decision of the Lucknow Bench of the ITAT in Sarnath Infrastructure P.Ltd. v. ACIT, (2009) 313 ITR (AT) 13 (Lucknow) w .....

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ay indicate investments. 11. The CBDT guidelines dated 13th December 2005 also summarises these very principles and emphasises that there cannot be any one particular factor which can be taken into consideration for determining the question whether the shares have been held as investment or the intention of the Assessee is to trade in shares and to earn profits. Among the factors highlighted by the CBDT are the scale of the activity and whether transactions were entered continuously and regularl .....

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