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2016 (8) TMI 997 - ITAT AHMEDABAD

2016 (8) TMI 997 - ITAT AHMEDABAD - TMI - Nature of income - Addition on account of treating short term capital gain as business profit - Held that:- The distinction between the two types of transaction is not always easy to make. Whether the transaction is of one kind or the other depends on the question whether the excess is an enhancement of the value by realizing the security or a gain in an operation of profit making. The assessee might have invested capital in shares with an intention to r .....

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A.R. PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA Nos. 3370/Ahd/2010 & 383/Ahd/2013 are appeals by the Revenue preferred against two separate orders of the Ld. CIT(A)-VI, Ahmedabad dated 15.10.2010 & 23.11.2012 pertaining to A.Ys. 2006- 07 & 2008-09. 2. Since, one of the grievance of the revenue is common in both these appeals, these where heard together and are being disposed of by this common order for the sake of convenience. ITA No. 3370/Ahd/2010 for A.Y. 2006-07 3. The sole gri .....

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, the A.O. noticed that the assessee has shown short term capital gain at ₹ 70,29,388/- and long term capital gain at ₹ 32,42,293/-. The assessee was asked to furnish the relevant details pertaining to the capital gains. Assessee filed details scrip-wise and the same is extracted by the A.O from pages 2 to 4 of the assessment order. 6. After perusing the details filed by the assessee and observing that the assessee has entered into numerous transactions in shares/mutual funds during .....

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rther pointed out that the opening balance of investment in shares was at ₹ 2,43,54,972/- while the closing balance was ₹ 3,42,02,153/-. It was brought to the notice of the A.O. that the main surplus is on account of Portfolio Management Scheme wherein funds have been given and gain has realized. 8. The detailed submission did not find any favour with the A.O. The A.O. was of the firm belief that considering the magnitude of transactions entered into by the assessee during the year c .....

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of the assessee and found that in all these years, the shares were treated as investment. The ld. CIT(A) further observed that in the immediate preceding year, Assessing Officer vide order dated 17.10.2007 accepted the surplus on sale of shares under the head capital gains. The ld. CIT(A) was convinced with the facts of the case that the assessee was only an investor and directed the A.O. to treat the gain under the head capital gains. 11. Aggrieved by this, the revenue is before us. 12. The D. .....

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ital gain or as business income has been a debatable issue and there are conflicting decisions of the Tribunal on this issue. Each case is therefore, to be based on its own factual situation. In the balance sheet, the assessee has shown shares under the head 'investment'. These investment shares have been valued at cost. The Hon'ble Supreme Court in the case of CIT Associated Industrial Development Co Pvt. Ltd. 82 ITR 586, which decision has also been considered by the CBDT in its Ci .....

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rther thrown light on this controversial issue in its Circular No. 6/2016 dated 29.02.2016 and the same reads as under:- Sub: Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business Income - Instructions in order to reduce litigation - reg.- Sub-section (14) of Section 2 of the income-tax Act, 1961 ('Act') defines the term "capital asset" to include property of any kind held by an assessee, whether or not connected with his business or profes .....

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er the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stock-in-trade. The Central Board of Direct Taxes ('CBDT') has also, through Instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations. 3. Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the .....

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he matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following- a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be tre .....

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d to adopt a different/contrary stand in this regard in subsequent years; c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT. 4. It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term .....

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oned circular of the Board, in our considered opinion, the intention of the assessee at the time of the purchase of shares is paramount. If the assessee has clear intention of being an investor and showing the shares as investment, we do not find any reason to disturb the intention of the assessee. The assessee under consideration is investor and, therefore, any gain arising out the transfer of shares should be treated as capital gains be it short term or long term. 17. We also find that the ass .....

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d hold it apart from the stock-in-trade of his business. There is no presumption that such an .acquisition, even if it is an accretion to the stock-in-trade of the business, is an acquisition for the purpose of his business: in each case the question is one of intention to be gathered from the evidence of conduct and dealings by the acquirer with the commodity." In Associated Industrial Development (supra), the Supreme Court observed as follows: - "....it was open to the assessee to co .....

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ipt is taxable. Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment." 18. The Hon'ble Supreme Court in another case in P.M. Moh .....

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The assessee might have invested capital in shares with an intention to resale these if in future their sale brings in a higher price. Such an investment though motivated by a possibility of enhancement value, did not necessarily render the investment a transaction in the nature of trade. 19. It is also an admitted fact that in the preceding years, the share transactions have been considered under the head capital gains. 20. Considering the facts in totality, we do not find any reason to interf .....

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d also availed loans of ₹ 1.64 Crores for the same. The facts of the case clearly indicate that the intention of the assessee was to earn profit from trading in shares. 2. The CIT(A) has erred in law and on fact in not treating the amount received from Mas Chemicals Inds. P Ltd. as deemed dividend u/s 2(22)(e) despite the fact that Samurai Holdings held 95.45% and 80% of beneficial ownership respectively in both the payer and payee companies. 22. The facts and issues involved in the first .....

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most important fact is to be considered in relation to this issue is that the assessee is not a shareholder of M/s. Mas Chemicals Industries Pvt. Ltd. One Samurai Holdings holds 95.45% of the voting power in the company M/s. Mas Chemicals Industries Pvt. Ltd. and the said Samurai Holdings is also beneficially entitled to 80% of the income of the assessee company on the basis of these facts, the A.O. formed a belief that provisions of Section 2(22)(e) of the Act squarely apply on the facts of th .....

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