TMI Blog2023 (9) TMI 1313X X X X Extracts X X X X X X X X Extracts X X X X ..... other, as stock in trade of shares. Resolution of the Board of Directors mentioned elsewhere squarely lays down the intention of the assessee that since the holding in shares were of several years, therefore, the same should be held as investment. The intention of the assessee can also be gathered from the Balance sheet and Financial Statement of Accounts. Shares held by the assessee as investment are chargeable to tax under the head Capital Gains and shares held by the assessee as stock in trade are chargeable to tax as Business Income . Based upon the CBDT Circular, when the ld. CIT(A) accepted the long term capital gain, then we fail to understand why the ld. CIT(A) hesitated in not accepting the short term capital gain on the same set of facts. On a specific query from the Bench, in respect of the stand taken in subsequent years, the ld. counsel for the assessee pointed out that profits on sale of shares in subsequent years have been accepted as capital gains. This is also in line with the aforementioned CBDT Circular. As relying on SUKARMA FINANCE LIMITED [ 2015 (5) TMI 225 - DELHI HIGH COURT] and M/S EXPRESS SECURITIES PVT. LTD. [ 2013 (10) TMI 1182 - DELHI H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee were dismissed by the Assessing Officer who was of the firm belief that profits arising from transfer of securities shall be taxable under the head Profits and Gains of Business or Profession only and completed assessment by treating the gains as profits of business. 7. The assessee challenged the assessment before the ld. CIT(A) and reiterated its claim that stock in trade was converted into investment in respect of those shares which were purchased long time back. It was also pointed out that since the conversion, the assessee has been holding shares as investment in subsequent years also. 8. After considering the facts and submissions and other related facts, the ld. CIT(A) accepted that the assessee had taken actual delivery of all shares which were purchased by it. Drawing support from the CBDT Circular No. 6/2016, the ld. CIT(A) accepted the contention of the assessee to the extent of LTCGs of Rs. 5,04,52,174/- and held the same as LTCGs. However, in respect of STCGs, the ld. CIT(A) was of the opinion that the CBDT Circular is only in respect of LTCGs and accordingly, treated Rs. 3,70,97,670/- as Business Income. 9. The Revenue and assessee are in appeal be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts, let us now consider the CBDT Circular No. 6/2016 which is as under: Circular No.6/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 29th of February, 2016 Sub: Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business Income - Instructions in order to reduce litigation - reg.- Sub-section (14) of Section 2 of the Income-tax Act, 1961 ('Act') defines the term capital asset to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in-trade/ trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in-trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past. 2. Over the years, the courts have laid down different param ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction itself is questionable, such as bogus claims of Long Term Capital Gain / Short Term Capital Loss or any other sham transactions. 5. It is reiterated that the above principles have been formulated with t he sale objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. (Rohit Garg) Deputy Secretary Government of India F.No.225/12/2016-ITA-11 14. A perusal of the aforementioned Circular clearly shows that the Board was concerned with the Courts having laid down different parameters to distinguish the shares held as investment from the shares held as stock-in-trade. Board was also concerned with the disputes continuing even after the decision of the High Courts. Board also recognized the fact that it is very difficult for tax payers to prove the intention in acquiring such shares and accepted that no universal principle in absolute terms can be laid down to decide the character of income from sale of shares and securities. 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer that they were maintaining two sets of portfolio, i.e., investment and trading portfolio and the shares, which were sold and subject-matter of long-term capital gains, were held in the investment portfolio. This factual position was not disputed. Held 6. The commissioner [Appeals] has observed that in the balance sheet as on 31st March, 2005 the shares were shown under the head inventories and in the subsequent balance sheet as on 31st arch, 2006 shares were again shown under the head investment at book/fair value on 1st April, 2004 . Thu , the assessee converted the aforesaid stock-in-trade of Rs. 3,18,38,8501- to the head investment at boo fair value on 1st April, 2004 and the said disclosure was made in the balance sheets as on 31 st March 2005 and 31st March, 2006. In the first year, the Assessing Officer did not disturb the aforesaid conversion and accepted the same. The Commissioner (Appeals) noticed that for the Assessment Year 2005-06 assessment was concluded under Section 143(3) vide order dated 27th November, 2007 but the Assessing Officer did not object to the said conversion. These shares were subsequently sold as detailed in paragraph 2.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity was not only incidental in nature but the stock was converted into investment to take advantage of concessional tax rate. It is also pertinent to recall the that in his audit report the auditor has also described the business of the assessee company as share trading and not an investor. Therefore, in the light of above discussion there is no doubt that the profits earned by the assessee in the year were to be assessed as business income and nor short term capital gain. Accordingly, I treat the income of Rs. 41,46,235/- shown by the assessee as short term capital gain as business income. I am satisfied that by showing business income to the extent of Rs. 41,46,235/- as short term capital gain the assessee has furnished inaccurate particulars of his income for which penalty proceedings u/s 271 (1)( c) are initiated separately. Held as under: 5. We are of the opinion that in the given facts of the case, the mere circumstance that for the previous year, a part of the stock in trade was converted into investments would not have been conclusive as to whether the realization out of purchase and sale of shares was by way of income from business. The AO had accepted the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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