9911796707
TMI Blog2016 (5) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... grievance in its cross objection filed in the former case poses challenge to legality of section 153C proceedings. 3. Both parties express agreement that the sole substantive issue of treatment of asessee's share profit as short term capital gains or business income is common in the two assessment years. We proceed to treat the former assessment year 2008-09 involving Revenue's appeal IT(SS)A 531/Ahd/2011 and assessee's CO filed therein as lead cases. 4. We come to relevant facts. The assessee is a partnership firm trading in derivatives. It emerges that the department carried out a search in case of M/s. Garden Silk group of cases on 12-06-2008. This culminated in issuance of section 153C notice dated 31-12- 2008. The assessee filed return on 31-03-2009 stating income of Rs. 8,18,67,567/-. The same stood proceeded on 24-03-2010. The Assessing Officer took up scrutiny. He noticed in course thereof assessee's share transactions and relevant details as follows:- "The assessee has shown business income of Rs. 81874066/-. The assessee has also shown short term capital gain of Rs. 34064983/- on sale of shares and long term capital gain of Rs. 5369128/- on sale of shares. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins only since received as a part of capital investments. 7. This case file reveals that the Assessing Officer did not get impressed with assessee's multi-faceted submission narrated hereinabove. He quoted a catena of case laws on this issue first. He observed that assessee's motive in earning the impugned profits in view of the relevant holding period ranging from one month to three months was to earn trading returns. The Assessing Officer prepared a tabulation of holding period revealing 32, 42, 35 and 51 transactions in 1-30 days, 31-91 days, 91-180 days and 181-365 days respectively. He took note of frequency of sale of shares to be regular throughout the year. Relevant previous year involved 85 purchased transactions and 67 sale transactions. The Assessing Officer was of the opinion that facts of the instant case indicated the assessee to be involved in regular business of shares not giving rise to any need for funds as in case of an investor. He remarked that the assessee's intention pre-dominantly appeared to acquire controlling interest in the corresponding corporate entity. The Assessing Officer's view was that these short term trading profits were only an extended arm of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives, it is debarred from engaging in trading in shares and mutual funds. The partnership deed is a legal document and is binding on all the partners. There are four partners in the appellantfirm and the terms and conditions of the partnership deed are binding on them. If a partnership firm flouts mandatory provisions of the partnership deed which is a legal contractual agreement, the opposing partners can always challenge and all the legal consequences would follow. Further, a legal document has to be read as a whole and not in piecemeal and on selective basis. While the Assessing Officer accepts the authenticity of the one part of the partnership deed he has brushed aside another part which is not fair. 5.2 Another important feature which has to be noted here is that separate books of account have been maintained for the business activity and for the investment activity. Investment in shares, from the very beginning, has been reflected at cost price in the balance sheet under the head investment and was never reflected in trading and P&L account even if the market value of shares went followed by the appellant-firm for the past several years. The Assessing Officer has not reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused. The sole issue on merits is as to whether the assessee profits of Rs. 2,59,43,473/- are to be treated as short term capital gains arising from investments or business income. We have already narrated relevant facts in preceding paragraphs. There is no dispute that the assessee has not used any borrowed funds in its share transactions. Hon'ble jurisdictional high court in tax appeal 77 to 78 of 2010 CIT vs. Vaibhav J. Shah decided on 27-06-2012 holds that this issue has to be adjudicated in view of no. of shares sale/purchase transactions, volume, frequency, continuity and regularity followed by necessary inference to be drawn from magnitude of transactions and holding period etc. A perusal of the case file reveals that the assessee has always been treated as an investor and not a trader. Case records contained CIT(A)'s different orders; all dated 07-07-2011 in assessment years 2003-04 to 2007-08 treating assessee's short term capital gains/losses of Rs. 2,12,522/-, Rs. 1,45,680/-, Rs. 3,10,332/-, Rs. 9,63,528/- and Rs. 17,32,831/- not as business losses. The Revenue does not point out any exception in the impugned assessment year. It also does not indicate that the same ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
