TMI Blog2017 (10) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 1,71,62,647/- as on 31.03.2009 but up to the impugned year, the assessee has sold all the shares. On perusal of the computation filed by the assessee and the capital account, the assessee has not received any dividend during the year. The assessee has received only dividend of ₹ 350/- in F.Y. 31.03.2009. In view of the characteristics of share transactions undertaken by the assessee, we do not find any justification to discard the findings reached by the authorities below on this issue. See MANOJ KUMAR SAMDARIA Versus COMMISSIONER OF INCOME TAX-I [2014 (5) TMI 229 - DELHI HIGH COURT] - Decided against Assessee. Non accepting Jobbing Losses as Business Loss/Short Term Capital Gains - Held that:- Assessing Officer has noted that there is net speculation loss on jobbing transactions of ₹ 2,13,007/- which has not been allowed to the assessee for carry forwarding in the next year because the assessee has filed the return on 20.03.2011 and the ld. CIT(A) has upheld the action of the Assessing Officer which, in our opinion, does not call for any interference. The return of income has been filed belatedly. Therefore, the loss cannot be carried forward as per provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the case. 7) The action of the Ld. CIT(A) in confirming the action of the AO in not accepting returned income is illegal, arbitrary, unwarranted and uncalled for and against the facts and circumstances of the case. 2. The brief facts of the case are that the assessee is a lawyer by profession. During the year he derived income from profession and also earned income from short-term capital gain and income from other sources. In the assessment proceedings, the AO observed that the assessee has shown short-term capital gains of ₹ 32,96,534/-. The AO asked for the details of the purchase and sales of shares. In response, the assessee filed a summary statement of shares issued by M/s. K.K. Securities Ltd. and M/s. Singhal Capital Services Ltd., through which the assessee made transactions of purchase and sale of shares. He further submitted the turnover of purchase and sales on the basis of turnover made by brokers on behalf of the assessee. It included the turnover of sale which the broker had not paid to the assessee but had utilized the sale proceeds for purchase of other shares. The assessee did not file details of date-wise trading account summ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns done through M/s. Singhal Capital Services Ltd. Therefore, net normal business profit on delivery based trade is taken at Rs,37,1 1,501/- and net speculation business loss on jobbing transactions is taken at ₹ 2,13,007/-. Since the assessee has filed his return of income belatedly on 20.03.2011, loss on speculation business of ₹ 2,13,007/- is not allowed to be carried forward to subsequent years. 3. The Assessing Officer has further made adhoc disallowance of ₹ 1,23,775/- and ₹ 20,749/- on account of unvouched expenses debited to the profit and loss account and depreciation on vehicles respectively. 4. Aggrieved by the above additions, the assessee appealed before the first appellate authority. The assessee made detailed written submissions before the first appellate authority and the ld. CIT(A) after considering the order of the Assessing Officer and submissions of the assessee, confirmed the addition of ₹ 37,11,501/- and did not allow the carry forward of losses. The ld. CIT(A) has partly allowed the addition of ₹ 1,23,775/- and ₹ 20,739/-. Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT on the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. Some of the shares of Axis Bank were purchased in the previous year, out of which some were sold and balance has been shown as on 31.03.2009. On examination of the tables reproduced above, we observe that the assessee has made purchase of shares 57 times and sale of shares 59 times. There are several instances when the assessee has purchased the shares and sold them either the same day or after a few days. In most of the cases, the assessee has done intraday transactions. From the balance sheet filed by the assessee for the impugned year placed at paper book page-33, we find that the shares held by the assessee are reflected as under : Sl. No. Name of the Company Value as on 31.03.09 Value as on 31.03.10 1. Abhishek Ind. (100) 1000 1000 2. Bhageeratha Engg.(100) 1000 1000 3. CCAP Ltd. (100) 1000 1000 4. Shoppers Inv. Finance Ltd.(100) 1000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in stock exchange and traded in by the assessee, which were classified as investment in their books of account, were their investment or their stock-in-trade ? The AO treated short term capital gains of ₹ 65,45,321/-, on sale of such shares as business income while the ld. CIT(A) following the view taken in. M/s Gopal Purohit (supra) accepted the claim of the assessee, reflecting the income under the head 'short term capital gains'. The assessee is in the business of exporting jewellery and handicrafts goods and is stated to be trading in shares for the preceding three or four years. The assessee claimed that in the earlier years their claim as an investor has been accepted by the AO in assessment completed u/s 143(1) of the Act while in the preceding AY2006-07,assessment was completed u/s 143(3) of the Act. However, there is nothing to suggest that the claim of the assessee as investor or trader in shares was examined by the AO nor any material has been placed before us that the AO raised any query on this aspect in the preceding assessment year. Even otherwise, no attempt was made by the ld. AR on behalf of the assessee before us to establish that facts and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aggregate of the amount of income tax calculated, on such short term capital gains, at the rate of fifteen per cent. 5.2. If the shares purchased by the assessee are held to be capital assets, short term capital gain on sale of such shares could fall within the ambit of Section 111A of the Act, and such capital gains would be subject to tax at a lower rate. If the shares are held by the assessee as stock in trade, profit on the sale of such shares would constitute business income, and be subject to tax at a higher rate. As mentioned above, Section 2(14) (i) of the Act defines a capital asset as not including stock in trade. If the assessee held the shares as stock in trade , and not as investment, then such shares would stand excluded from the definition of short term capital asset , and the profit earned on the sale of such shares would not be exigible to tax as short term capital gain , but as profits and gains from business . 5.3 In determining the issue as to whether, after acquiring the shares, the assessee dealt with it as an investor, or carried on business with it, treating it as its stock-intrade or as a trading asset, what is relevant is that, if the case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have been sold and shares of the value of ₹ 4.9 crore were purchased. The fact that few shares were held for only a day or two reflects the dominant or even sole intention to resell, which is a relevant factor and raises a strong presumption, but by itself is not conclusive proof, of trade. The intention to resell would, in conjunction with the conduct of the assessee and other circumstances, point to the business character of the transactions. [CIT v. Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC) and Venkataswami Naidu Co. v. CIT [1959] 35 ITR 594 (SC)].Where a purchase is made with the intention of resale, it depends upon the conduct of the assessee and the circumstances of the case whether the venture is on capital account or in the nature of trade. A transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale. Whether shares of a company held by a person constitute his capital or his stock-in-trade is not a pure question of law but essentially one of fact. [CIT v. Ram Kumar Aggarwal Bros. [1994] 205 ITR 251/[1993] 71 Taxman 510 (SC).The various authorities have laid down certain guidelines on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... association ? Whether for trade or for investment ? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity ? And vice versa. (7) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept to the records or otherwise, between two types of holdings: if the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to revenue to prove that apparent is not real. (8) The mere fact of credit of sale proceeds of shares (or for that matter any other item in question) in a particular account or much frequency of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment. (9) One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee is complying with them. Whether it is the argument of the assessee that it is violating those legal requirements, if it is claimed that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uce evidence from his records as to whether he has maintained any distinction between those shares which are his stock-in-trade and those which are held by way of investment. 6. In the case of CIT v. H. Holck Larsen [1986] 160 ITR 67, the Supreme Court observed (page 87) : The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the nature of investment was a question of law. This is a mixed question of law and fact. 7. The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the Assessing Officers. 8. The Authority for Advance Rulings (AAR) [2007] 288 ITR 641, referring to the decisions of the Supreme Court in several cases, has culled out the following principles (page 651) : (i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction ; (ii) the substantial nature of transactions, the manner of maintaining books of account, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to emphasise 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-intrade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income. 11. The Assessing Officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The Assessing Officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade. 12. These instructions shall supplement the earlier Instruction No. 1827 dated August 31, 1989. [F. No. 149/287/2005-TPL] 5.5 We may point out that the Hon'ble Gujrat High Court in CIT v. Rewashanker A. Kothari [2006] 283 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in cases of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorises such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transactions of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is in the nature of business. 5.6 In the instant case, the assessee has been habitually trading in quoted shares and the frequency of such purchases and disposal as also the fact that with the investment of 'Rs. 1 crore in shares, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly dealt in purchase and sales of shares. Profit motive is also clearly evident in making the transaction. In Gopal Purohit (supra), the assessee has been continually holding the shares as investment from year to year. This is not the situation in the instant case. In the case of CIT v. Associated Industrial Development Co. (P.) Ltd., [1971] 82 ITR 586, the Hon'ble Supreme Court held as under: Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and he should, in normal circumstances, be in a position to produce evidence from his records as to whether he has maintained any distinction between those shares which are his stock-in-trade and those which are held by way of investment. 5.7 In the case of CIT v. H. Holck Larsen [1986] 160 ITR 67/ 26 Taxman 305, the Hon'ble Supreme Court has held as under: In order to determine whether one was a dealer in shares or an investor, the real question was not whether the transaction of buying and selling the shares lacks the element of trading, but whether the later stages of the whole opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and sales, which is a normal feature of any trading activity. Therefore, reliance placed by the ld. AR on the decision in the case of Gopal Purohit (supra) is totally misplaced. 6. In view of the foregoing,we are of the opinion that the character of a transaction cannot be determined solely on the application of any abstract test or rule and the cumulative factors affecting the transactions have to be seen. Habitual dealing in a particular item is indicative of the assessee's intention of trading. Merely for taking benefit of provisions of sec. 111A of the Act applicable from the AY 2005-06, the assessee can not be categorised as an investor, especially when the aforesaid facts speak otherwise and lead us to the conclusion that the assessee is indulging in activities of a trader in shares. As observed in Sutlej Cotton Mills Supply Agency Ltd. (supra), it is a matter of first impression with the Court whether a particular transaction is in the nature of trade or not. ; it is not even the assessee's case that they had held all the shares for a long duration. The facts and circumstances of the case before us, when viewed in the light of principles laid down in the var ..... X X X X Extracts X X X X X X X X Extracts X X X X
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