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TMI Blog2014 (9) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 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 Rs. 16,25,734/- and long term capital gains of Rs. 7,54,337/- was declared. The AO observed that assessee has purchased shares with intention to resale at a profit. He further observed that major profit was derived through share transactions where purchase and sales taken place within a period of three months. Accordingly, the AO concluded that assessee was engaged in business of purchase and sale of shares. Thus, both long term capital gains and short term capital gains so declared was treated as business income. 5. By the impugned order, the CIT(A) held that profit earned by the assessee by selling shares held for more than 60 days were liable to capital gains. He also agreed with the assessee's treatment of long term capital gains offered by him. However, in respect of shares sold after holding for less than 60 days, the CIT(A) held the same as business income after having the following observations :- "2.3 I have considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 authorities below and found that assessee has been consistently treated as Investor by the department itself while framing scrutiny assessment u/s.143(3) for A.Y.2003-04 & 2005-06. The capital gain so offered was accepted by the department. The Tribunal has also decided the exactly similar issue in assessee's own case in the immediately preceding assessment year 2006-07 in favour of the assessee after having the following observations :- "6. We have 'heard both the parties and perused the available records. While deciding the issue of. Income from business of share trading Income from other sources no arithmetical formula can be applied. That was the precise reason for the CBDT to issue circular on 15-06-2007 (Circular 4 of 2007) in this regard. It has to be decided considering various surrounding circumstances. If totality of the transaction is looked into, it becomes clear that assessee was an investor no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 transaction is also one of the guiding factors to find out whether the assessee is engaged in the business of purchase and sale of shares or making investment to have capital gains thereon. In the instant cases before us, we found that the assessee has invested in shares of Indian Companies since last 5 - 6 years, which is clear from the statement of shareholding of the assessee. Thus, the fact of the assessee investing in shares for the last several years is not in dispute. There is also no dispute to the fact that the assessee has treated the equity shares of Indian Companies as investment i.e. capital asset all along. The assessee has also valued the shares at cost thus given a particular treatment to the shares held as investment, therefore, without brining on record contrary material, the AO cannot change the intention and manner of investment being made by the assessee. Had the assessee valued the shares at cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Institutional Investors (FIIs), the long-term capital gains and short-term capital gains were taxed at the rate of 10% (without indexation) and 30% respectively. In case of a trader in securities, however, the gains were taxed as any other normal business income. Thus tax liability on the income from purchase & sale of shares as regards to the STCG & business income was at par. However, the issue of treatment of income from share transaction as capital gain or business income has in-fact arisen after the amendment brought with Finance Act - 2004 by insertion of provisions of section 111A and 10(38) as regards to levy of Transaction tax and exemption / concession on capital gain arising from securities entered in a recognized stock exchange. With a view to simplify the tax regime on securities transactions, a tax at the rate of 0.015 per cent. (see: change in rates on securities transactions, by Finance Acts, at appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 intention of Government for introducing the security transaction tax and exempting the long term capital gain or from sale of share and levying 10% tax on short term capital gain or from sale of shares also supports the case of assessee. The idea behind introduction of security transaction tax is to end the litigation on the issue, whether the profit earned from delivery based sale of shares is capital gains for business profit. 12. Even the Hon'ble Apex Court in the case of K.P. Verghese vs TO, 131 ITR 597 (SC) observed as under:- "The task of interpretation of a statutory enactment is not mechanical task. It is more than a mere reading of mathematical formulae because few word possesses the precision of mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment 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 the same as short term capital gain and also in Form 3CD the assessee has mentioned the nature of business as trading/dealing in shares/securities and mutual funds. The frequency of transactions was also considered, consequently he treated the amount of Rs. 49,81,915/- as business income from share trading. However, before the learned Commissioner of Income Tax (Appeals) the basis of additions was explained as evident from para 3.1.1 onwards. The crux of claim of the assessee is that in the audited accounts, the sale of shares amounting to Rs. 9.43 crores in which delivery had been taken, STT was paid and the shares were sold after holding for a few days/few weeks. The mutual funds of Rs. 2.91 lacs were sold and were treated as income from short term capital gains. Before the learned Commissioner of Income Tax (Appeals) the assessee also filed a detailed note on the purchase process for delivery base shares, details of dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 applicable and the income has to be treated as short term capital gain. Identically in the case of Nagindas P Seth (ITA No.961/Mum/2010) it was held that despite large number of transactions in shares, the profit can be assessed as capital gains under the facts of the case. The case of the assessee is further fortified by these decisions more specifically when the assessee was hold the shares in his books as investor, as well as tock-in-trade separately. The decision in the case of Janak S Ranawala, 11 SOT 627 (Mum.) further supports the case of the assessee. Likewise, the decision from Hon'ble Madras High Court in CIT vs N.S.S. Investment Pvt Ltd. 227 ITR 149 (Mad), CIT vs. Associated Industrial Development Company, 82 ITR 526 (SC) supports the case of the assessee. In the present appeal, we note that the assessee made investment in shares with intention to earn dividend income on appreciation of price of shares. Therefore, it cannot be said that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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