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Shri Suresh Babulal Shah (HUF) , C/o Khandelwal Jain and Associates Versus The Dy. Commissioner of Income Tax, Circle 1 (1) , Pune

2016 (10) TMI 194 - ITAT PUNE

Transaction of shares - whether the impugned transactions of purchase of shares and sale thereof tantamounts to an investment activity or a trading activity? - Held that:- The CBDT Circular No.6/2016 dated 29.02.2016 clarifies that once a particular stands has been taken by the assessee to such purchases in a particular assessment year it shall remain applicable in subsequent assessment years also and the taxpayers shall not be allowed to adopt divergent stand in different assessment years. Clea .....

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r were also sold and gain arising therefrom formed part of the impugned capital gains arising in this year. We, thus, find no reason to impugne the declared intention of the assessee that the share were acquired as capital asset. In the aforesaid view of the matter, we find considerable merit in the arguments raised on behalf of the assessee. Hence, in our view, the assessee is entitled to treat the gains arising on purchase and sale of shares in the impugned assessment year as short term capita .....

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43(3) of the Income-tax Act, 1961 (in short the Act ). 2. In this appeal, the assessee has raised the following Grounds of Appeal :- 1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held that, the short term capital gain derived on the sale of shares of ₹ 13,59,670/- should have been tax as short term capital gain only & not as income from business treated by the Authorities below. Just in proper relief be granted to the appellant .....

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as selected for scrutiny and assessment order under section 143(3) of the Act was passed assessing the total income at the same amount. However, the Assessing Officer treated the income declared under the head short term capital gains of ₹ 13,59,669/- as business income . The Assessing Officer noted that in view of the volume, frequency, continuity and regularity of the purchase and sale transactions of shares, the assessee was not justified in treating the gains arising on sale of shares .....

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e the Tribunal. 6. The Ld. Authorized Representative (AR) for the assessee Shri R. G. Nahar submitted that the Assessing Officer has wrongly held the purchase and sale of shares by the assessee HUF to be a trading or business activity as against the investment activity claimed by the assessee. The Ld. AR referred to the submissions made before the Assessing Officer and submitted that various shares held by the assessee are reflected in the Balance Sheet under the head investment and not as curre .....

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count of the assessee and held for reasonable/substantial period of time before those were disposed off. Similarly, when the shares were sold, the actual delivery thereof was given. He pointed out that the assessee has not incurred any expenditure on stock which is ordinarily required in a systematic or organized course of activity. The investment made in the various shares is limited to just 16 scrips amounting to ₹ 3,11,831/- as on 31st March, 2008. He next pointed out that Security Tran .....

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securities listed in recognized stock exchange vide section 2(42A) as well as long term capital assets as defined in section 2(29A) of the Act. Similarly, section 111A and 112 lays down the procedure for computation of tax short term capital gain and long term capital gain respectively. The Ld. AR observed that capital gain of ₹ 13,59,669/- is meager and was claimed in accordance with provisions of section 111A of the Act. The assessee satisfies all the conditions stated in the said secti .....

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trading activity per se. The Ld. AR stressed that the shares were always acquired by way of investments and therefore the profits derived from the sale of such shares will have to be treated as long term/short term capital gain . He also adverted our attention to a CBDT Circular No.6/2016 dated 29.02.2016 where the controversy in treating the purchase as capital asset or a trading asset has been somewhat addressed. He referred to a decision of the Co-ordinate Bench of the Tribunal in the case of .....

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res bears trappings of business or adventure in the nature of trade or commerce, etc. and thus gain arising therefore is required to be taxed as business transaction as per section 2(13) of the Act. He, therefore, pleaded that no interference with the order of the CIT(A) is called for. 8. We have carefully considered the rival submissions and orders of the authorities below. The assessee has declared gain arising on purchase and sale of shares to the tune of ₹ 13,59,669/- as short term cap .....

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e of shares is nothing but a business activity and therefore taxable under the head business income . By doing so, the Revenue has sought to forfeit the concessional tax treatment available to the assessee where income is chargeable under the head capital gains . 9. The controversy, in essence, is in a narrow compass i.e. whether the impugned transactions of purchase of shares and sale thereof tantamounts to an investment activity or a trading activity. In order to address the aforesaid controve .....

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investments . It is also borne out from the record that several transactions giving rise to gain are acquired by way of initial public offering which were re-sold after the same were listed in the stock exchange. We also notice that the assessee was holding barely 16 scrips at the end of the financial year 2007-08 relevant to assessment year 2008-09. This kind of factual data does not support the case of the Revenue that the assessee was indulging in any sort of systematic or organized business .....

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al assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in-trade/ trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in-trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past. 2. Over the years, the courts have laid down different param .....

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ing such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars .....

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d securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subseq .....

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actions. 5. It is reiterated that the above principles have been formulated with the sole object of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. 12. With a view to dilute controversy continuously cropping up on the subject, the CBDT has unraveled the guidelines in this reg .....

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