TMI Blog2022 (10) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances would only be realization of capital and would not stamp the transaction with a business character. If the above legal principles are applied to the facts of the case on hand, the only irresistible conclusion is to approve the view of the CIT(A) who had considered all the relevant materials and details which were placed by the assessee. The learned tribunal had failed to note that the assessee had maintained a separate account for investment, which fact was very material to consider the nature of transactions effected by the assessee during the relevant period. Thus, for the above reasons, we are of the considered view that the learned tribunal erred in reversing the order passed by the CIT(A) - substantial questions of law are answered in favour of the assessee. - ITA/48/2009 - - - Dated:- 30-9-2022 - HON BLE MR. JUSTICE T.S. SIVAGNANAM AND HON BLE MR. JUSTICE SUPRATIM BHATTACHARYA Appearance:- Mr. J.P. Khaitan, Sr. Adv. Mr. Agnibesh Sengupta, Adv. Mr. Saptarshi Kar, Adv.. .For the Appellant. Mr. Om Narayan Rai, Adv. ..For the Respondent. JUDGMENT (Judgment of the Court was delivered by T.S.SIVAGNANAM, J.) 1. This appeal filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, short term capital gains amounting to Rs. 29,28,799/- arising from the shares purchased as investments during the previous year ended March 31, 2005 was treated as business income. The assessing officer held that such shares were acquired by the assessee with the intention of earning quick profit and the transactions relating thereto were adventure in the nature of trade. Accordingly, the short term capital gains of Rs. 29,28,799/- was subjected to tax as business income at the rate of 35%. 4. Aggrieved by the order of assessment dated December 31, 2007, the assessee preferred appeal before the Commissioner of Income Tax Appeals VI, Kolkata CIT(A). The said appeal was allowed by the order dated March 20, 2008. The revenue preferred appeal before the tribunal which was allowed by the impugned order. 5. Mr. J.P. Khaitan, learned senior advocate submitted that the tribunal failed to take into consideration the relevant facts, more particularly that the shares held by the assessee as investments were valued at cost whereas the shares held as stock-in-trade were valued at cost or market value whichever was lower. Further, the tribunal ought to have considered that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support of his contention, leaned senior advocate placed reliance on the decision in the case of Commissioner of Income Tax-VII Versus Avinash Jain (2013) 214 Taxman 260 (Del), Commissioner of Income Tax Versus Merlin Holding Private Limited (2015) 375 ITR 118 (Cal), Commissioner of Income Tax-2 Versus IHP Finvest Limited (2016) 236 Taxman 64 (Bom) and Jet Age Securities Private Limited Versus Commissioner of Income Tax, Kolkata- III in ITA No. 79 of 2010 dated 15.09.2022. 6. Mr. Om Narayan Rai, learned senior standing counsel while seeking to sustain the order passed by the learned tribunal submitted that most of the shares were purchased and sold in the financial year relevant to the assessment year under consideration. This aspect has been very clearly brought out by the assessing officer in the assessment order dated December 31, 2007 by mentioning the relevant details in a tabular form and after noting the facts, the assessing officer has rightly held that the transactions were intended for the purpose of business and it is incorrect to state that the shares were purchased for the purpose of investment. Further it is submitted that the shares were not acquired from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining whether in a given case the shares are held by the assessee as investment and giving rise to capital gains or as stock-in-trade giving rise to business profits. The assessing officers were 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. In the said circular, the CBDT took note of the decision of the AAR and culled out 3 principles which were answered in the following terms:- The Authority for Advance Rulings (AAR) (288 ITR 641), referring to the decisions of the Supreme Court in several cases, has culled out the following principles:- (i) Where a company purchase 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 transactions; (ii) The substantial nature of transactions, the manner of maintaining books of account, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts and ascertaining the ratio between purchases and sales. With regard to the third principle, it was pointed out that where the object of investment in shares of the companies is to derive income by way of dividend etc. the transactions of purchases and sale of shares would yield capital gains and not business profits. The above circular was taken note of in Avinash Jain and it was held that the intent and purport of the circular is to demonstrate that a tax payer could have two portfolios, namely an investment portfolio and a trading portfolio, the assessee could own shares for the purpose of investment and/or for the purposes of trading. In the former case whenever the shares are sold and gains are made the gains would be capital gains and not profits of any business venture and in the latter case any gains would amount to profit in business. In Merlin Holding Private Limited, the question was whether frequency of the transactions could be sole determinative factor to ascertain the intention of the assessee as to whether the same was an investment or stock-in-trade. The said question was answered by pointing out that frequency alone cannot show that the intention was not to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not an adventure in the nature of trade, the problem must be approached in the light of the intention of the assessee having regard to the legal requirements which was associated with a concept of trade or business. It was further held that the question whether the assessee s transactions amounted to dealing in shares and properties or investment was a mixed question of law and fact and the legal effect of the facts formed by the tribunal on which the assessee could be treated as a dealer or as investor was a question of law. In Janaki Ram Bahadur Ram Versus Commissioner of Income Tax (1965) 57 ITR 21 (SC) the Hon ble Supreme Court observed that the profit motive in entering the transaction was not decisive, for accretion to capital did not become taxable income merely because the asset was acquired in the expectation that it might be sold at a profit. Further it was observed that if a transaction was related to the business which was normally carried on by the assessee, do not directly partake, an intention to launch upon the adventure in the nature of trade might readily to be inferred. In P.M. Mohammad Meerakhan, it was reiterated that it is not possible to evolve a sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein which will determine the character of the transaction. Further the distinction between the two types of transactions is not always easy to make. 13. Bearing the above legal principles in mind, we proceed to examine the facts of the case. It is not in dispute that the assessee maintains two accounts, one for its investment portfolio and the other for stock-in-trade. From the computation of income as done by the assessing officer in his order dated December 31, 2007, it is seen that the income from investment earned by the assessee during the relevant assessment year was Rs. 6,61,40,926/-. Out of the said investment income, the assessing officer treated the short term capital gains of Rs. 29,28,799/- as business income. Considering the total investment income to that of the short term capital gains which was treated as business income, it is only about 4.4 % of the total investment income. The question would be whether this could have been treated as business income. The assessing officer picked up 25 transactions and listed the same in a tabulated format giving the names of the shares, the number of shares, the date of purchase, the date of sale, the number of shares sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the assessing officer stating that the assessee retained the scripts only for a few days and therefore the intention of the assessee was to earn quick profit. The learned tribunal failed to take note of the fact that the assessee had maintained two separate accounts and the assessee deployed its own surplus funds and the shares were duly showed as investment in their D-Mat account. As held by the Hon ble Supreme Court that it is not possible to evolve a single legal test or formula which could be applied in determining whether a transaction was an adventure in the nature of trade or not, it was necessary for the learned tribunal to examine all the relevant materials and facts which were placed by the assessee. As pointed out earlier, the short term capital gains which was treated as business income was only about 4.4% of the total investment income of Rs. 6,61,40,926/- and out of the said income substantial income has been treated as either short term profit or long term profit, in other words about Rs. 6.30 crores has been accepted by the assessing officer to be an investment income. Therefore, in our view the learned tribunal had committed an error in reversing the order pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat one of the relevant tests in determining whether or not the shares/security are capital asset or whether it is in the nature of fixed assets or constituted as stock-in-trade of the assessee s business, fixed Asset is what the owner turns to provide keeping the asset in his own possession, stock-in-trade is what he makes profit by parting with it and letting it change master. After noting several other decisions it was held in determining the question whether after acquiring the shares, the assessee dealt with it as an investor or carried on business with it treating it as stock-in-trade or as a trading asset what is relevant is that, if the case falls within the former category receipts by way of sale of such shares will be capital receipts but if it falls within the latter the receipts will be trading receipts and profits therefrom is business income and in deciding this question the object with which such operation are carried on assumes importance. In Union of India Versus Azadi Bachao Andolan, (2003) 263 ITR 706 (SC), it was pointed out that to decide as to whether the sale of shares amounted to capital gains or business income would require examination of facts. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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