TMI Blog2014 (9) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... bar O R D E R PER R.C.SHARMA (A.M.) : These are the cross appeals filed by the assessee as well as Revenue against the order of CIT(A), dated 30-12-2010 for the assessment year 2007-08, in the matter of order passed under Section 143(3) of the I.T. Act. 2. The assessee in its appeal i.e. ITA No.1609/Mum/2011 has raised the only grievance with regard to treatment of capital gain of ₹ 9,39,223/- as business income. 3. The Revenue in its appeal i.e. ITA No.2012/Mum/2011, is also aggrieved by the action of the CIT(A) for treating the profit on sale of shares held for more than 60 days as capital gains and for accepting long term capital gains of ₹ 7,54,337/-. 4. Rival contentions have been heard and record perused. Facts in brief are that the assessee has shown short term capital gains of ₹ 16,25,734/- and long term capital gains of ₹ 7,54,337/-. On perusal of details of short term capital gains filed by assessee, the AO noted that during the relevant previous year the assessee has carried out 143 transactions of purchase and sale of shares on which net short term capital gains of ₹ 16,25,734/- and long term capital gains of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. 6. Against the above order of CIT(A), both the assessee and Revenue are in appeals before us. 7. Learned AR contended that assessee was consistently holding and treating the shares as Investor and the same was also accepted by the department while framing assessment under scrutiny for earlier assessment years 2003-04 2005-06. Our attention was also invited to the assessment year under scrutiny so placed on record. Learned AR further submitted that in the assessment year 2006-07 when the capital gain so declared was treated by AO as business income, the CIT(A) held that profit on sale of shares was capital gain and the Tribunal vide its order dated 18-4-2012 held that assessee was an Investor and not a person dealing shares, therefore, profit on sale of shares were liable to be taxed as short term capital gain rather than business profit. 8. On the other hand, learned DR relied on the order of the lower authorities and contended that the CIT(A) was not justified in treating part of investment in shares held for more than 60 days as capital gains rather than business income. 9. We have considered rival contentions, carefully gone through the orders of the authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative and ld. CIT DR and in the context of factual matrix of the case. We had also deliberated on the case laws referred to by lower authorities in their respective orders. The question as to whether the assessee has earned capital gain or business profits on the shares sold by him depend on the facts and circumstances of each case. Such decision is to be arrived at by taking into account the intention of the assessee while purchasing the shares, as to whether the same was acquired for holding as investment or for doing business therein. The treatment given by the assessee in its books of account is also one of the decisive factors to find out whether the shares were held as investment or stock in trade. If the shares are bought with the intention of earning capital gains thereon and also dividend income by keeping the same as investment, the gain arising there from is required to be treated as capital gains. On the other hand, if the shares are purchased with the intention to earn profit thereon and the same is treated as stock in trade in the books of account, the profit arising out of sale of such shares are liable to be treated as business income. Volume and frequency of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Merely because the assessee liquidates its investment within a short span of time, which had given better overall earning to the assessee, would not lead to the conclusion that the assessee had no intention to keep on the funds as investor in equity shares, but was actually intended to trade in shares. 10. Here, it is pertinent to mention the intention of Government for introducing the security transaction tax and exempt the long term capital gain earned from sale of shares and levying 10 % tax on short term capital gain and earned on sale of shares. It is noted that under the old provisions of the Income-tax Act, profits or gains arising to an investor from the transfer of securities were charged to tax either as long term capital gains or short term capital gains depending on the period of holding of the said securities; Short term capital gains arising from transfer of securities were taxed at the applicable rates (normal rate) and Long-term capital gains were taxed @ 20%, after adjusting for inflation by indexing the cost of acquisition. For listed securities, the taxpayer had an option to pay tax on long-term capital gains @ 10% but without indexation. For Foreign Instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising of securities which are to be treated as capital assets and the other 'Trading portfolio' comprising of stock in trade which are to be treated as trading assets. In view of these facts, profit arose on shares in respect of delivery based transaction are liable to be taxed as capital gain and not as business income. 11. If the conclusion drawn in the impugned order, observations made from the assessment order, assertions made by respective counsel and the material available on record are kept in juxtaposition and analyzed, we find that the assessee had been consistently investing in shares and income arising from delivery based transaction of sale and purchase of shares had been shown as capital gains i.e. LTCG and STCG depending upon period of holding. Analysis of balance sheet of assessee reflects of holding of shares as investment. In the case of Gopal Purohit, 228 CTR 528 (Bom), SLP was filed by the Department against the decision of Bombay High Court and the same was dismissed by Hon'ble Apex Court vide order dated 15.11.2010. In the speech by Hon'ble Finance Minister regarding Direct Tax Cases (Union Budget 2004-05), especially clause 111, the inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial change in facts, meaning thereby, there must be material change in the facts. The Indore Bench of the Tribunal in the case of ACIT vs Om Prakash Suri (supra) held as under:- 3. We have considered the submissions put forth by the learned Senior DR and also perused the material available on record. Brief facts are that in the past the assessee was engaged in road building contractor and was deriving income from contract receipts as well as from sale of gitti and during the impugned year, ventured into investment in share market. The income arising from F O transactions and daily trading in shares (without physical delivery) reflected as speculative business whereas the income on delivery based transactions of sale and purchase of shares, income was shown from capital gains. The learned AO considered the income which was based on purchase and sale of shares as business income on the grounds as narrated in the assessment order as well as at pages 3 and 4 of the appellate order. Broadly, the learned AO was of the view that the intention of the assessee since beginning was sale of shares as trading activities, as evident from audited profit and loss account by not showing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain on which the applicable tax is @ 10% only. In view of this uncontroverted fact, there is no merit in the appeal of the revenue and the same is dismissed. Order pronounced in open Court on 4th August, 2010. 13. The aforesaid decision was affirmed by the Hon'ble Madhya Pradesh High Court reported in (2012) 19 ITJ 326 M.P. The Mumbai Bench of the Tribunal in the case of Shantilal M Jain vs ACIT vide order dated 27-04-2011 (ITA No. 269/Mum/2010) held that despite large volume of shares transactions, the Assessing Officer cannot ignore the rule of consistency to treat the gains on sale of shares as STCG. In that case, the assessee was engaged in the business of trading of investment in shares and securities offered ₹ 1.54 crores as short term capital gain and ₹ 2.91 crores from long term capital gain. The long term capital gain was accepted whereas short term capital gain was held to be business profit. Since in earlier assessment years the claim of the assessee was consistently accepted as short term capital gain, it was held that the rule of consistency as propounded by Hon'ble Bombay High Court in the case of Gopal Purohit (supra), it is fairly applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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