TMI Blog2012 (7) TMI 1071X X X X Extracts X X X X X X X X Extracts X X X X ..... public issues. 3. To carry on the business of dealers in shares, stocks, debentures, debenture stock, bonds, obligations, units, securities and other business investments and all other business subject to Securities Contracts Regulation Act, 1956 and SEBI Act, .. 4. To acquire hold and deal in Investment, shares, stocks, debentures, debenture stock, bonds certificates, obligations or securities of any government, Local exchange or otherwise and to subscribe for the same or to guarantee the subscription thereof and to exercise and enforce all rights and powers conferred by or incidental to the ownership thereof. 5. To provide consultancy and management consultancy services in all type of financial matters to all type of companies corporations whether Government or non-Government or any other persons or organisation and help them in raising the money and finances whether from public at large or private placement by issue of shares, debentures, bonds or any other security in form of broker, manager, consultant and advisor. 6. To provide the consultancy and merchant banking services to all type of persons and organisation whether in India or outside India, subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend which have been claimed as exempt. The AO is of the opinion that the assessee is exclusively trading in shares and securities on a regular basis. The AO also has observed that the source of the income shown is not in the nature of investment but on account of large scale trading in shares and securities. On the other hand, the appellant has drawn a distinction between shares held as investment and shares held as stock in trade relying on the CBDT Instruction No.1827. Firstly, it has been stated by the appellant that shares are valued on their cost price and not on the basis of cost price or market price whichever is lower, which significant itself that the assessee treat investments as capital assets. Secondly, the appellant has stated that they are not indulging in intra-day trading in any share. Thirdly, it has been contended that the assessee is deriving substantial income by way of dividend which shows that the assessee treats its investments as capital assets and not as stock in trade. Further, the appellant has contended that they have held the shares for considerable period of time before selling the same. The appellant has stated that complete details of purchase, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares and mutual funds as investment. In addition, the appellant has stated that the books of accounts of the appellant have been subjected to tax audit u/s 44AB of the IT Act and this report also confirms that the principles have been consistently followed by the appellant with no change from the preceding years, which have been accepted by the department. Keeping in view the assessment order and the submissions of the appellant, as discussed above, and also keeping in view that the appellant has earned a total capital gain of Rs.l.76 crores approx. as capital gain out of which an amount of Rs.l.09 crores was long term capital gain, it is held that the contention of the appellant is not without merits. The AO was not correct in treating the short term capital gain shown by the appellant as business income of the appellant. Held accordingly. 6. While pleading on behalf of the revenue, the ld. DR submitted that the company was incorporated in 1994 and as per the Memorandum of Association of the company, the main objects of the company were to act as stock and share brokers and to take membership of Stock Exchange. During the year, the assessee company has dealt in various scr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 2001. It has been clearly stated in assessment order for Assessment Year 2004-05. Thereafter, the assessee was mainly deriving the income from capital gain, interest and dividend. The Assessing Officer in Assessment Year 2004-05 has accepted this fact while making order u/s 143(3) of the Act and held that the assessee was not engaged in any business activity. The expenses debited in the profit and loss account were disallowed for Assessment Year 2004-05. Ld. AR submitted that although the assessee company main objects was to trade in the shares, however, during the year the assessee has not done so. Assessee held shares as investment and not as stock-in-trade. The assessee has valued his investment in shares on the cost basis rather than cost or market value whichever is less. The assessee has reflected these stocks as investment in the balance sheet rather than stock in trade. Assessee had made investment and it was done for capital appreciation and to earn dividend. The average holding of these shares were quite long, therefore, it cannot be said that assessee has entered into transactions of trading shows the motive of earning profit. The Ld. AR also submitted that assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated as capital gain. Whether the shares were held by the assessee as an investment or stock-in-trade was a matter of fact and there was no perversity in the view taken by the Tribunal that the shares were held as an investment. 4. Gupal Purohit v JCIT (2009) 29 SOT 117 (MUM) Whether delivery based transactions should be treated as of nature of investment transactions and profit there from should be treated as short-term capital gain or long term capital gain depending upon period of holding - Held, Yes- Whether, therefore, AO was not justified in treating profits arising from such transactions as income from business or profession- Held, Yes Also confirmed by HIGH COURT OF BOMBAY in CIT v Gupal Purohit [2010] 188 TAXMAN 140 (80M.) 5. CIT v. ESS JAY ENTERPRISES (P.) LTD. (2007)165 TAXMAN 0465 (DEL) Section 45 of the Income-tax Act, 1961 - Capital gains - Chargeable as Assessment years 1996-97 and 1997-98 - Whether where assessee had shown its shareholding in 'J' as an investment and not as a stock-in-trade of business, and there was nothing to show that shares were converted into stock-in-trade, assessee's income from sale of shares was to be assessed as cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the sides. We have also gone through the case laws relied upon by both the sides and also the relevant instructions issued by CBDT on this issue. There is a distinction between shares held as investment and shares held as stock-in-trade. Firstly, to ascertain the real character of the holding of shares, se have seen how these shares have been dealt in the books of account of the assessee. No doubt, in this case, these shares have been valued at cost. These have not been valued on the basis of cost price or market price, whichever is less, which is normally done in the case of the stock-in-trade. Assessee had shown these shares as investment in books of account. We would also like to state that the assessee was a company registered for trading in shares which is clear from the Memorandum of Articles of the Association wherein the main objects of the company is to act as stock and share brokers and take the membership of the stock exchanges. This fact is also clear from the order of the Assessing Officer passed for the year 2004-05 u/s 143(3) that the assessee s National Stock Exchange ticket was surrendered in May, 2001. Assessee had shown shares in investment and valued these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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