TMI Blog2017 (4) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... raj Stainless Steel Ltd. was entered into in preceding financial year also and sale value was treated as business turnover and unsold shares were shown as stock in trade. Thus assessee is regularly in the business of purchase-sale of equity shares, share transactions entered during the year were in large number, funds were borrowed for the purpose of trading, no separate account has been maintained for the investment portfolio and all the transactions of purchase sale raised are only for one scrip namely Suraj Stainless Steel Ltd. In these facts and circumstances, assessee cannot take shelter of the CBDT Circular no. 4/2007 dated 15.06.2007. As far as the decision of co-ordinate bench in the case of Sugamchand C. Shah vs. ACIT (2010 (1) TMI 942 - ITAT, Ahmedabad) is concerned there have been various decisions thereafter by the Jurisdictional High Court wherein it has been held that transactions cannot be bifurcated by the period of holding and actual nature of transactions with surrounding circumstances are to be seen and therefore the directions of ld. CIT(A) given to Assessing Officer will not stand for. In the totality of facts we are of the considered opinion that the allege ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer observed that assessee had no investment in equity shares as on 31.03.2006 as well as 31.03.2007 except an unquoted investment of ₹ 35,15,954/- as on 31.03.2007. It was also observed that assessee has entered into more than 7000 transactions of purchase and sale of around 4lacs equity shares of Suraj Stainless Steel Ltd. These transactions were carried out regularly round the year. Assessee has shown the result of these transactions of purchase and sale of shares as short term capital gain whereas ld. Assessing Officer was of the view that such pattern of transactions by no stretch of imagination can be described as an investment activity and it surely comes under the trading activities liable to be assessed as business income. Ld. Assessing Officer also observed that funds were borrowed during the year for the purpose of purchase of shares of Suraj Stainless Steel Ltd. He accordingly held that the alleged profit of ₹ 1,13,05,165/- shown as short term capital gain should be treated as income from share trading taxable as business income by observing as follows: 3.6.8 In order to analyse the transaction of the assessee in light of the above observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has totally misquoted section 111A by stating that for the purpose of a transaction to fall within the provisions of that section, only two things are required i.e. (i) the transaction of sale is entered after 1/10/2004 and (ii) the transaction is chargeable to STT. Section 111 A starts as; 111A. (1) Where the total income of an assessee includes any income chargeable under the head Capital gains , arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund and- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter, the tax payable by the assessee on the total income shall be the aggregate of- .. Hence, the section is applicable only if the asset under transfer is a short term capital asset. Hence it is mandatory to first determine the character of the asset which is under transfer. If it is stock in trade, the provisions of section 111A are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading log shows transactions throughout the day. 3.6.10 In light of the above discussion, the claim of the assessee that its transactions vis-a-vis Suraj Stainless Steel are investment transactions, is found to be false and unacceptable. Hence, the activity is held as trading activity and the gain is treated as business income and not short term capital gain liable to concessional rate of tax as per section 111 A. 4. Aggrieved assessee went in appeal before the CIT(A) who after adjudication directed the Assessing Officer to verify each transactions on the basis of period of holding the equity shares sold by following the decision of Co-ordinate Bench in the case of Sugamchand C. Shah vs. ACIT [2010] 37 DTR (Ahd) (Trib) 345 wherein it was held that gain from sale of equity shares held for 30 days or less than a month are to be treated as business income and the others as short term capital gain. In deciding so, ld. CIT(A) observed as follows: 2.3 I have gone through the assessment order and the submissions of the A.R alongwith legal citations carefully. During assessment proceedings the A.O observed that the details of shares bought and sold by the appellant of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2.3.2 It is also noticed that all the observations of the A.O made in this regard in the assessment order has been satisfactorily replied by the ld. A.R. through various submissions reproduced supra. The above facts indicate that the appellant appears to be investor in shares and the sale and purchase of shares was only to protect the value of investment. The issue regarding the fact whether the assessee should be considered as investor or a trader in shares has been the subject matter of debate. 2.3.3 Several Courts have taken divergent views on the matter. 1. In the case of Raja Bahadur Visheshwara Singh V, CIT reported in 41 ITR 685 (SC) Hon'ble Supreme Court has held that when an owner of an ordinary investment chooses to realize it and obtained a higher price for it than he originally acquired it the enhanced price is not the profit assessable to income tax, but where what is done is not merely an exercise in order to effect change of investment but an act done in what is truly the carrying on business, the amount recovered as appreciation will be assessable as business profits. 2. In the case of Dalhusie investment Trust Co. V. CIT repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 ITR 706 (SC). 6. The Hon ble Bombay High Court in the case of CIT vs. Gopal Purohit 228 CTR 582 (Bom.) held as under:- The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purpose of business. The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares. The Tribunal held that the delivery based transactions in present case, should be treated as those in nature of investment transactions and the profit received therefrom should be treated as either as short term or, as the case may be, long term capital gain, depending upon the period of holding. The Tribunal has observed in its judgement that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping record and the presentation of shares as investment at the end of the year, in al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time is necessary, which we estimate at one month. Where shares are held for more than a month, they should be treated as investments and on their sale short term capital gain should be charged. When shares are held for less than a month, gain on them should be treated as profit from business. 2.3.5 The facts of the case under consideration is almost similar to the case decided by jurisdictional Tribunal, reproduced supra. Considering the discussion held above and specifically following the aforesaid binding decision of the Hon'ble Ahmedabad Tribunal hi the case of Sugamchand C. Shah, it is held that where the holding of the shares is for a period of less than one month i.e. 30 days the purchase and sale of shares is to be treated as business of the assessee and the resultant profit/loss is subject to tax as business income/loss. However, where the period of holding of the shares is more than one month, the transaction of shares is to be treated as investment and the assessee will be subjected to tax on short term capital gain or long term capital gain on the sales thereof according to the period of holding of such shares. During appellate proceedings the Ld. A.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without appreciating the fact that assessee was engaged in trading of shares and securities regularly. 7. On perusal of the assessment order, we notice that assessee company is engaged in the business of trading in securities. During the year assessee has shown the sale of securities as business receipts at ₹ 73,91,026/-. We also observe that assessee has entered into as many as 7000 transactions of purchase and sale of around 4lacs equity shares of a single company namely Suraj Stainless Steel Ltd. and the total value of shares sold is ₹ 8,58,03,298/-. We also find from the perusal of page 9 of assessment order depicting the transactions of purchase and sale carried on by the assessee in which even on a single day i.e. 14.11.2006 almost 63 transactions have been entered into of the same scrip. We also observe that the total share capital of the company was ₹ 2,42,000/- and the unsecured loan stood at ₹ 45lacs which proves the fact that assessee has borrowed funds for entering into the share transactions. We also find that assessee has not controverted the fact during the assessment proceedings that the purchase and sale transactions of the very same scr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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