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COMMISSIONER OF INCOME-TAX-1 Versus M/s TEJAS SECURITIES

2017 (2) TMI 494 - GUJARAT HIGH COURT

Income from shares transaction - capital gain or business income - frequency of transaction - Held that:- CIT(A) has considered in detail the duration of the transactions, holding period etc. and has specifically held that the transactions cannot be said to be frequent transactions of purchase and sale with a view to earn quick profit. The learned CIT(A) as well as the learned tribunal has taken note of the fact that the profit was earned by the assessee only in one scrip. The learned CIT(A) and .....

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well as the learned tribunal have committed any error in directing the Assessing Officer to treat amount for the Assessment Year 2008-09 as short term capital gain and consequently to levy the tax under Section 111A of the Act. - TAX APPEAL NO. 35 of 2017 With TAX APPEAL NO. 34 of 2017 - Dated:- 2-2-2017 - MR. M.R. SHAH AND MR. B.N. KARIA, JJ. FOR THE APPELLANT : MR SUDHIR M MEHTA, ADVOCATE FOR THE OPPONENT : MR SN SOPARKAR, SENIOR ADVOCATE with MR B S SOPARKAR, CAVEATOR ORAL JUDGMENT (PER : HON .....

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.531 & 532/Ahd/2011 for the Assessment Years 2008-09 to 2009-10 by which the learned tribunal has dismissed the said Appeals preferred by the revenue and has confirmed the order passed by the learned CIT(A) directing the Assessing Officer to treat the amount earned on sale of shares as short term capital gain and not business income and consequently to levy tax under Section 111A of the Income Tax Act (hereinafter referred to as the Act ), revenue has preferred the present Appeals with the f .....

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giving decision on the basis that department accepted the order of learned CIT(A) in earlier years, while department had just not gone in appeal as tax effect was below the prescribed monetary limits? (C) Whether ITAT was justified in giving its finding by misinterpreting the numbers of days when transactions has been done to numbers of transactions, which make its order perverse? [3.0] For the sake of convenience the facts in Tax Appeal No.35/2017, arising out of IT(SS) Nos.531/Ahd/2011 for the .....

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and framed scrutiny assessment under Section 143(3) read with Section 153C of the Act and determined the total income at ₹ 11,59,62,307/-. Feeling aggrieved and dissatisfied with the order passed by the Assessing Officer making the addition of ₹ 2,59,43,473/- on account of short term capital gain on the shares treating the same as business income, the assessee preferred Appeal before the learned CIT(A). By a speaking and reasoned order, the learned CIT(A) directed to delete the addi .....

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sequently to levy tax under Section 111A of the Act, revenue preferred Appeal before the learned tribunal. By the impugned judgment and order, the learned tribunal has dismissed the said Appeal and has confirmed the order passed by the learned CIT(A). Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned tribunal for the Assessment Year 2008-09, revenue has preferred Tax Appeal No.35/2017 with the aforesaid proposed questions of law. [3.1] Similar order ca .....

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res and the duration of purchase and sale were very short, the learned tribunal ought to have held that the income derived by the assessee on shares was required to be treated as business income. It is further submitted by Shri Sudhir Mehta, learned Counsel appearing on behalf of the revenue that considering the aforesaid circumstances, in fact the CBDT issued instructions No.1827 dated 31/08/1989 for the Officers and Circular No.4/2007 dated 15/06/2007 for the Officers and taxpayers. It is subm .....

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ances responsible for the sale of shares 5. the presence of a clearly discernible motive for purchase of shares 6. the relation of the share transactions to the normal business of the assessee 7. treatment of shares and profit /loss on their sale in the accounts of assessee 8. the source of funds out of which the shares were acquired - borrowed or owned 9. in the case of company, existence of objects clause permitting it to trade in shares 10. the manner of acquisition of shares 11. the infrastr .....

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. It is submitted that while passing the impugned judgment and order and treating the amount of ₹ 2,59,43,473/- as short term capital gain, the learned tribunal has not properly appreciated and considered the above factors. [5.2] Shri Sudhir Mehta, learned Counsel appearing on behalf of the revenue has taken us to number of statements of purchase transactions during the year under consideration as well as the statements of sale transactions during the year under consideration in support of .....

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present Appeals. Shri Sudhir Mehta, learned Counsel appearing on behalf of the revenue has also relied upon the admission order in Tax Appeal No.251/2016 and has submitted that on similar questions Appeal has been admitted. [6.0] The present Appeals are vehemently opposed by Shri S.N. Soparkar, learned Senior Counsel appearing on behalf of the assessee. It is submitted that by giving cogent reasons both the learned CIT(A) and the learned tribunal have concurrently held that the activities of the .....

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assessee was never considered and treated as business, and therefore, as such, no substantial question of law arise in the present Appeals. Shri S.N. Soparkar, learned Senior Counsel appearing on behalf of the assessee has relied upon the decision of the Division Bench of this Court in the case of Commissioner of Income-tax, Ahmedabad - III Vs. Nita M. Patel reported in [2-14] 42 taxmann.com 125 (Gujarat). Making the above submissions and relying upon the above decision, it is requested to dism .....

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the revenue? [7.1] From the order passed by the Assessing Officer, it appears that the Assessing Officer has treated the aforesaid amount as business income considering the number of sales and purchase transactions during the year under consideration and the holding period. On appeal, the learned CIT(A) by giving cogent reasons and considering the entire material on record has allowed the Appeals preferred by the assessee and has deleted the addition made by the Assessing Officer treating the a .....

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onsidered and determined on the basis of the factual position which emerges from the records and from the discussion given above. In the written submissions the appellant has commented on the various grounds indicated by the Assessing Officer for treating the short term capital gain as business income. The most important point which can be said to be relevant for deciding the issue is the motive and intention of the appellant at the time of purchase of shares. The Assessing Officer has mentioned .....

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ord, it is clear that on sale of such shares which have been held by the appellant - firm for various periods ranging from 1 day to 180 days, the appellant has incurred loss of around ₹ 1.27 crores. There could have been no motive to incur such loss by way of short term capital loss and get a set off against short term capital gain which would save tax @ 10%. The appellant could have very well shown the above loss as business loss and could have set off this loss against other business inc .....

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partnership firm flouts mandatory provisions of the partnership deed which is a legal contractual agreement, the opposing partners can always challenge and all the legal consequences would follow. Further, a legal document has to be read as a whole and not in piecemeal and on selective basis. While the Assessing Officer accepts the authenticity of the one part of the partnership deed he has brushed aside another part which is not fair. 5.2. Another important feature which has to be noted here i .....

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as not disturbed the quantum of the income. He has only treated the short term capital gain as business income. Another important point is that the appellant has been following the same system of accounting much prior to the insertion of Section 111A in the I.T. Act with effect from 01/04/2005. This shows that there was no motive or intention on the part of the appellant to take any undue advantage of the newly inserted provision to reduce its tax liability. 5.3. I also find that the transaction .....

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days to 334 days and were sold on 4th March, 2008 on one day. Obviously, this was done by the appellant having regard to the market trend. It is also significant to note that the shares of this Company were accumulated without any sales having taken place before purchases of total accumulated shares of particular script. Thereafter, the shares were held for sufficiently long period of time. In my view there can be no assumption that the motive was to trade in shares of this company. I also find .....

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pplied to the particular facts and circumstances of a given case. In any case, even this circular is not adverse to the assessee firm considering the purchase and sales of shares, the period of shareholding, delivery of shares, payment for purchase of shares, registry of shares in its name etc. 5.5 Another important feature is that the appellant has not utilized any borrowed funds for purchases of shares and only surplus funds have been invested. 5.6 I also find that the shares which have been p .....

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atives and not actual purchases or sales took place. In F & O transactions even at the time of entering into a contract there is no intention on the part of the concerned parties to purchase or sell shares and transactions are ultimately settled without actual purchases and sales and without the delivery of shares. [7.2] The aforesaid findings and the orders passed by the learned CIT(A) has been confirmed by the learned tribunal by making the relevant observations in paragraph nos.9 and 10 a .....

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27/06/2012 holds that this issue has to be adjudicated in view of no. of shares sale /purchase transactions, volume, frequency, continuity and regularity followed by necessary inference to be drawn from magnitude of transactions and holding period etc. A perusal of the case file reveals that the assessee has always been treated as an investor and not a trader. Case records contained CIT(A) s different orders; all dated 07/07/2011 in Assessment Years 2003-04 to 2007-08 treating assessee s short .....

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business shall not include trading in equity shares and mutual funds units as under:- The business of the partnership shall not include trading in equity shares and units issued by mutual funds. The partnership, can however, invest the funds of the partnership into equity shares through the primary or secondary market or through any portfolio management schemes recognized by the Securities and Exchange Board of India and/or in units of mutual funds and such equity shares /units shall constitute .....

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the scrip involving all shares on 04/03/2008. The same makes it clear that the assessee s holding period of these shares ranging from 8 to 11 months during which not even a single share was sold. If we exclude this scrip, what is left is net result of loss of ₹ 36 lacs approximately. We confronted the Revenue with all this factual evidence. It fails to controvert the lower appellate authorities findings that the assessee has always been treating its shares and mutual funds in question as .....

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htly treated assessee s profits of ₹ 2,59,43,473/- a short term capital gain and not business income. We reject Revenue s contentions seeking to revive Assessing Officer s finding hereinabove. Its ITA 531/Ahd/2011 fails. Our these findings on merits render assessee s CO. No.205/Ahd/2011 as to have become infructuous accordingly [8.0] We are in complete agreement with the view taken by the learned CIT(A) confirmed by the learned tribunal. The learned CIT(A) has considered in detail the dura .....

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