TMI Blog2010 (12) TMI 1262X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in ignoring the fact that these services are essential in nature as they can only be availed by members of Stock Exchange. (iii) On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in ignoring the facts that use of technology and algorithmic based programs have converted an erstwhile physical market into a digitally operated market. (iv) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in ignoring the fact that the services rendered by the brokers are not standard services that has been developed to cater to the needs of the broker community to facilitate trading. (v) On the facts and in the circumstances of the case and in law the Ld.CIT(A) has overlooked the fact that the brokers have in subsequent years themselves started deducting the TDS on such payments and there is no reason to vive a different treatment in this year. 2. On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in treating ₹ 47,23,828/- as Capital Gain as against business income treated by the A.O. since the assessee is trader and not investor without appreciating multiplicity of transactions. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the assessee to deduct tax at source. Consequently, the provisions of section 40(a)(ia) were also not attracted and therefore the disallowance made was deleted . In view of the above decision of the Tribunal, we decide this issue in favour of the assessee and against the revenue. 5. The second ground is that the learned CIT(A) erred in treating ₹ 47,23,828/- as capital gains as against business income treated by the AO as the assessee is a trader. Brief facts apropos the issue are that the assessee in the relevant assessment year carried on the business as share broker of National Stock Exchange and carried on the business in the name and style of M/s. Gaurav Trading Co. The A.O. noticed that assessee had returned short term capital gains of ₹ 47,23,8928/-. He noted that the assessee had purchased shares during the year amounting to ₹ 4.21 crore. He noted that in the immediately preceding year the assessee had purchased shares of ₹ 3.49 crores and sold shares worth 1.81 crores. Thus, he concluded that the purchase to sale ratio during the year was considerably higher than the ratio during the immediately preceding year. He further noted that durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready discussed above. (C) Further there is no discernible reason of purchase and sale. That is the assessee acquired share to have substantial stakes in the company or sold them because he was in dire need of money. No such reason exists. The sale and purchase has been determined by the volatility at the markets, which is against the basic feature of an investor who is recognized by the discipline he displays in the market and is not easily swayed by the movements of the market. (D) Finally the frequency and continuity in the nature of similar transactions is definitely indicative of his intent i.e. to trade. (iv) Further during the assessment proceedings in the A.Y. 2004-05 the income from short term capital gain was treated as business income and the assessee has not preferred an appeal against the decision. He, accordingly, treated the sum of ₹ 47,23,828/- as business income of the assessee. 6. Before the learned CIT(A) the conclusion of A.O. was assailed firstly on the ground that in most of the scrips held in the field of the investment activity, the period of holding by the assessee had been several months and years and not few days only as concluded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that magnitude and frequency of transactions and the ratio of sales to purchases is an important factor for deciding whether the assessee was dealer in shares and security or not. Learned DR relied on various case laws referred to by the AO in para 7.1 of his order. 8. Learned counsel for the assessee submitted that the A.O. has relied only on two factors viz. frequency of transaction and borrowing made by the assessee. He pointed out that the assessee is primarily carrying on three activities which are as under: (1) Regular brokerage business; (2) Trading in shares and (3) Investor in shares. He pointed out that for all these three activities assessee has maintained separate books of account. Further he submitted that the A.O. has not pointed out even a single instance regarding borrowed funds being used for investing in shares. He further pointed out that AO has not considered the position of opening stock and closing stock. 9. The learned counsel for the assessee referred to CBDT s Circular No. 4/2007 dated 15.6.2007 wherein it has been, inter alia, observed as under: 4. The Central Board of Direct Taxes (CBDT) through Instruction No. 1827 dated Augu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses its capital. He pointed out that in the case of trading transaction turnover is more and that is not so in the case of investment. He pointed out that in the present case, bulk of shares were sold after six months, number of scrips were only 14 in which assessee had made investments and, therefore, the learned CIT(A) rightly accepted the assessee s contention. He submitted that the decision of the I.T.A.T in the case of Gopal Purohit v. JCIT, ITA No.4854/Mum/2008, for the assessment year 2005-06 (122 TTJ (Mum) 87dated 10.2.2009 has been confirmed by the Hon ble Bombay High Court wherein also the assessee s claim of short term capital gains was accepted by Tribunal. 10. We have considered the rival submissions and have perused the records of the case. Before we consider the merits of the case, we may first deal with the reliance placed by the Ld. Counsel on the decision in the case of Gopal Purohit v. JCIT (surpa). In this case the facts as fund by the Tribunal were that assessee was engaged in the activity of sale and purchase of shares for quite long time. It was also noted that non-delivery based transaction had been treated by the assessee as business activity and delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence of investment being the sole intention. In such circumstances, frequency of transactions will have to be considered to arrive at proper conclusion regarding the true intention of the assessee. However, if the assessee, on the other hand, borrows funds for making investment in shares then definitely it is a very important indicator of its intention to trade in shares. In the present case, we find that the A.O. merely proceeded on the assumption that borrowed funds had been utilized for buying shares on the ground that funds were common and could not be segregated. Before the CIT(A) it was categorically pointed out that no part of the assessee s interest bearing funds were utilized for acquisition of shares on investment account. This plea has been accepted by the CIT(A) and the Department has not brought on record anything to controvert the same. Further, in the CBDT Circular No. 4/2007 dated 15.6.2007, the CBDT has emphasized that it is possible for a tax payer to have two portfolios, i.e. an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in trade which are to be treated as trading assets. F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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