TMI Blog2012 (4) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... r)/2010 - - - Dated:- 11-4-2012 - SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER For the Appellant Sh. Ajay Vohra P.N. Arora, Advocates For the Respondent : Sh. Tarsem Lal, DR ORDER PER BENCH This appeal of the assessee arises from the order of the CIT(A), Bathinda, dated 18.05.2010 for the assessment year 2006-07. 2. The assessee has raised following grounds of appeal: 1(a) On the fact and in the circumstances of the case and in law the CIT(A) erred in confirming the order passed u/s 143(3) of the Income Tax Act, 1961 by the ACIT, Cir.1, Jammu treating short term capital gains of ₹ 1,80,75,100/- as income from Business and levying the tax @ 30% instead of 10%. (b) The CIT(A) has further erred in ignoring the facts and legal position which has been submitted by the assessee company/ AR of the assessee company in that regard. 2(a) On the fact and in the circumstances of the case and in law the CIT(A) further erred in confirming the order passed u/s 143(3) of the Income Tax Act, 1961 by the ACIT, Cir.1, Jammu treating long term capital gains of ₹ 17,03,733/- as income from Business and levying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 306, extract of judgment attached. In view of latest judgment pronouncements the income from purchase and sale of shares has rightly been shown as capital gains. 3.1. The AO by mentioning the position of long term assets, short term capital assets and charging of trading under different sections referred the decision of the Authority of Advance Ruling reported in 288 ITR 641, where the following principles have been culled out: (i) Where a company purchases and sells shares, it must be shown that they were held as stock in trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction. (ii) The substantial nature of transaction, the manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions. (iii) Ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the objection of the investment in shares of a company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had declared the purchase an sale of the shares as an investment which has been accepted by the department. Therefore, on principle of consistency, which has been followed by the assessee since the assessment year 2001-02 till the impugned assessment year. The matter has been put in dispute by the department for the impugned assessment year and two preceding assessment years as mentioned hereinabove. Mr. Ajay Vohra further argued that surplus on share of shares has to be assessed as capital gains or as business income depends upon the facts and circumstances in each case separately. One has to make analysis of the cumulative facts. In the present case, the Ld. counsel for the assessee, Mr. Ajay Vohra argued that as mentioned hereinabove, shares have been held as investment which has been valued at cost and not as cost or market price whichever is less as alleged by the A.O. There is no evidence on record brought out any of the authorities below that the investments declared by the assessee in the balance sheet as at the end of each year starting from 31st March, 2001 till the ending of 31st March, 2006 has been valued at cost or market price whichever is less. Since the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 1,84,17,990.02 100% 5.1. From the perusal of the same, Mr. Ajay Vohora invited our attention that the assessee is not a trader who had held the shares reasonably for a long time. He invited our attention to the paper book vol. III which was placed on record. At page 616 where the assessee had earned short term capital gins of ₹ 1,80,75,100/- during the year and out of which ₹ 1,54,56,896/- has been earned out of 30 scripts only and money of the said scripts has been held as on the Ist day of the previous year. Therefore, it shows that the assessee is not trader of the shares and all the scripts were held as part of investment portfolio. 5.2. Mr. Ajay Vohra on arguments on law point argued if the intention of the assessee is to hold the asset as an investment then it has to be assessed as a capital gain and if the intention is to trade then it will be assessed as business income. Though the law has been changed under section 10(38) of the Act from the assessment year 2004-05 but the assessee is holding the investment since 2001-02 and the assessee is consistently showing the holding of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between those shares which are its stock-in-trade and those which are held by way of investment. 6. In the case of Commissioner of Income Tax, Bombay vs. H. Holck Larsen (160 ITR 67), the Supreme Court observed: The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the nature of investment was a question of law. This was a mixed question of law and fact. 7. The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the assessing officers. 8. The Authority for Advance Rulings (AAR) (288 ITR 641), referring to the decisions of the Supreme Court in several cases, has culled out the following principles: (i) Where a company purchases and sells, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction; (ii) the substantial nature of transactions, the manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales and the ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital assets and a trading portfolio comprising of stock in trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e. capital gains as well as business income. 11. Assessing Officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment ( and therefore giving rise to capital gains) or as stock-in-trade ( and therefore giving rise to business profits). The assessing officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade. 12. These instructions shall supplement the earlier Instruction No.1827 dated August 31, 1989. 5.3. Mr. Ajay Vohra also relied upon the decisions of various courts of law as under: i) Amit Jain vs. ACIT, ITA No.309/Del/2010 dated 30/06/2011 available at PB 682 to 692. ii) Gopal Purohit vs. Jt. CIT (2009) 122 TTJ (Mumbai) 87, available at pages 628 to 639 of the paper book. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he department and if in the subsequent assessment years any such claim of the assessee is rejected under section 143(3), the rule of consistency does not apply. Mr. Tarsem Lal, the Ld. DR, in his written submissions relied upon the judgment of the Hon ble Supreme Court in the case of CIT vs. Oswal Agro Mills Ltd. reported in 313 ITR 24, CIT vs. Smt. Swapna Roy reported in 331 ITR 367 (All) and Catholic Syrian Bank Ltd. vs. CIT dated 17.02.2012 in Civil Appeal No.1143 of 2011 (SC) in this regard. As regards the proof of assessee doing the trading in shares, Mr. Tarsem Lal submitted in the written submissions that auditor s in the Tax Audit Report had mentioned about the general trading, about opening and closing stock and also mentioned about the payment relating to section 40A(3). The shares have been purchased and sold on the same day and frequency of the sale and purchase is quite big. The assessee has made the claim of the expenses in the computation of income. The assessee had claimed the fringe benefit tax, and auction charges. There are instances of lumpsum purchases and piecemeal sales and also vice versa.The Ld. DR relied upon the decision of the Hon ble Supreme Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regards the Rule of consistency, the ground emanate from the assessment record and assessment record of one year is telescoped to another year. The assessments of various years have been processed under section 143(1) and same had attained finality, if not reopened. The change in facts is to be brought on record by the Ld. DR. This principle has been clearly laid down by the Hon ble Supreme Court, in the case of Radha Soami Satsang vs. CIT 193 ITR 321 (SC). As regards the Securities Transactions tax, the same has to be paid on every transaction and no separate Rule is laid down for the trader or the investor. The Service Tax is charged by the broker and the assessee is not a broker. As regards the expenses claimed which are specific expenses relating to the investment of the shares. Even the claim of the expenses will not determine the intention of the assessee in the present case, as not the investor. As regards the audit fee, the assessee being a Company has to get its accounts audited and accordingly fee has been paid to the Auditor s. As regards tax audit under section 44AB of the Act, the assessee was not aware of the technicalities of the provisions of the Act. Moreover, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has been declaring holding of shares as investment since assessment year 2001-02 till the impugned year. Nothing has been brought on record that the assessee had been valuing the holding of shares as at the end of each year on FIFO method. At the same time, as per the balance sheet as on 31st March, 2006, it is evident that the assessee had valued investment at cost and declared the same as investment. Therefore, the treatment given in the books of account by the assessee is investment and not as stock-in-trade. There is no borrowings taken by the assessee and this fact has not been shown by any of the authorities below. Therefore, it cannot be said that the shares have been purchased from borrowed funds. As regards the frequency of purchase and sale of shares, there is no doubt that there are certain shares which have been purchased and sold on the same day or within next few days. As pointed out by the Ld. counsel for the assessee, Mr. Ajay Vohra, these transactions are 7.52% of the total transactions, which has also been pointed out by the Ld. DR, Mr. Tarsem Lal. On facts, there is no dispute to either of the party. The shares have been held for more than 30 number of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
