DCIT 8(3), MUMBAI V. SECURITIES CAPITAL INVESTMENT INDIA LTD, MUMBAI

ITA 211/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49269 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 03-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SATBIR SINGH
• Assessee Lawyers: S C TIWARI
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER. I.T.A. NO. 211/MUM/2010 ASSESSMENT YEAR : 2006-07. DY. COMMISSIONER OF INCOME-TAX, SE CURITIES CAPITAL INVESTMENT 8(3), MUMBAI. VS. INDIA LTD., 112-B, ANDHERI INDUSTRIAL ESTA TE. OFF. VEERA DESAI ROAD, ANDHERI (W), MUMBAI 400 053. PAN AAACS8124N APPELLANT. RESPONDENT. APPELLANT BY : SHRI M. SATBIR SINGH. RESPONDENT BY: SHRI S.C. TIWARI. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED CIT(APPEALS)-18, MUMBAI DATED 19-10-2009 WHEREBY HE DIRECTED THE AO TO TREAT THE INCOME EARNED BY THE ASSESSEE FROM TRANSACTIONS IN SHARES AS CAPITAL GAINS. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF INVESTMENT ADVISORY SERVICES AND SHARE TRADING. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 23 RD NOV., 2006 DECLARING TOTAL INCOME OF RS.1,99,85,156/-. DURING THE YEAR UNDER C ONSIDERATION, THE ASSESSEE HAD EARNED A PROFIT OF RS.7.47 CRORES ON SALE OF SHARES AND THE SAME WAS DECLARED AS LONG TERM CAPITAL GAINS TO THE EXTENT OF RS.5.09 CR ORES AND SHORT TERM CAPITAL GAINS 2 ITA NO. 211/MUM/2010 ASSTT. YEAR : 2006-07. TO THE EXTENT OF RS.2.38 CRORES. KEEPING IN VIEW TH E VOLUME AND FREQUENCY OF SHARE TRANSACTIONS CARRIED OUT BY THE ASSESSEE, THE AO PR OCEEDED TO EXAMINE THE ISSUE AS REGARDS THE HEAD OF INCOME UNDER WHICH PROFIT ON SA LE OF SHARES WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. ON SUCH EXAMINATI ON, HE TREATED, FOR THE FOLLOWING REASONS, THE PROFIT EARNED BY THE ASSESSEE ON SALE OF SHARES AS ITS BUSINESS INCOME : (A) THAT THE MAIN ACTIVITY OF THE ASSESSEE IS SHAR E TRADING AND THE ADVISORY INCOME WAS EARNED ONLY FROM ONE PARTY NAMELY INDEA CAPITAL PVT. LTD., SINGAPORE. (B) THE ASSESSEE INDULGED IN 434 TRADING TRANSACTIO NS WHICH RESULTED IN STCG AND 90 OTHER TRANSACTIONS INVOLVING SHARES WHI CH WERE HELD FOR MORE THAN A YEAR. (C) THAT THE ASSESSEE INVESTED RS.10.39 CRORES ON W HICH HE EARNED DIVIDEND OF RS.7.80 ONLY LAKHS I.E. RETURN OF 0.78% , HENCE THE INTENTION OF THE ASSESSEE THAT SHARES WERE PURCHASED AS INVESTME NT CANNOT BE PROVED. HE COULD HAVE GOT BETTER RETURNS BY DEPOSITING IN BANK S. (D) THAT THE TRANSACTIONS CARRIED OUT BY THE ASSESS EE CAN BE GIVEN EITHER THE COLOUR OF INVESTMENT OR THE COLOUR OF BUSINESS. (E) THAT AS PER THE CASE OF PARI MANGALDAS GIRDHARD AS VS. CIT (1977) CTR 647 (GUJ.) THE INTENTION OF THE INVESTOR IS IMP ORTANT FACTOR, IF THE INTENTION IS TO GET PROFIT, SUCH INCOME SHOULD BE T REATED AS BUSINESS INCOME. (F) THAT THE TURNOVER OF THE SHARES WAS OF RS.2.43 CRORES, THE NUMBER, FREQUENCY OF TRANSACTIONS CLEARLY INDICATE THAT THE RE WAS NO INTENTION FOR KEEPING IT AS AN INVESTMENT. (G) THOUGH THE ASSESSEE TREATING THE SHARES AS INVE STMENT IN BALANCE SHEET, IT CANNOT FORM A CONCLUSIVE EVIDENCE TO PROV E THAT THE ASSESSEE HAD ACTUALLY INTENDED TO INVEST IN SHARES. (H) THAT THE TREATMENT GIVEN BY THE DEPARTMENT IN P RECEDING & SUCCEEDING ASSESSMENTS IS NOT A CONCLUSIVE PROOF OF INVESTMENT. THIS CAN ONLY BE A GUIDING FACTOR. (I) THAT THE MEMORANDUM OF UNDERSTANDING AND ARTICL ES OF ASSOCIATION AUTHORIZING THE ACTIVITY OF INVESTMENT, ITSELF IS N OT A PROOF OF INVESTMENT AS 3 ITA NO. 211/MUM/2010 ASSTT. YEAR : 2006-07. PER THE DECISION OF HONBLE MP HIGH COURT IN THE CA SE OF CIT VS. MOTLAY FINANCE PVT. LTD. 290 ITR 719. (J) THAT AS PER THE DECISION OF AUTHORITY OF ADVANC E RULING IN THE CASE OF FIDELITY ADVISORS SERIES (2004) 271 ITR 1, ORDINARI LY PURCHASE AND SALE OF SHARES WITH A MOTIVE OF EARNING PROFIT WOULD RESULT IN BUSINESS INCOME. 3. THE ACTION OF THE AO IN TREATING ITS PROFIT ON S ALE OF SHARES AS BUSINESS INCOME INSTEAD OF CAPITAL GAINS WAS CHALLENGED BY T HE ASSESSEE IN AN APPEAL FILED BEFORE THE LEARNED CIT(APPEALS) AND THE FOLLOWING S UBMISSIONS WERE MADE ON ITS BEHALF BEFORE THE LEARNED CIT(APPEALS) IN SUPPORT O F THE STAND THAT THE PROFIT ON SALE OF SHARES WAS ASSESSABLE AS CAPITAL GAINS : (A) THAT THE APPELLANT IS A PUBLIC LIMITED COMPANY LISTED IN BOMBAY STOCK EXCHANGE AND INCORPORATED IN 1994. (B) THAT THE COMPANY IS IN THE BUSINESS OF CONSULTA NCY AND INVESTMENT, ITS SURPLUS MONEY INVESTED IN THE SHARES WITH LISTED CO MPANIES, UNLISTED COMPANIES AND MUTUAL FUNDS. (C) THAT THE MAIN ACTIVITY OF THE APPELLANT IS CONS ULTANCY SERVICES. THIS FACT WAS MENTIONED IN RETURN OF INCOME SUBMITTED. A LL THE ENTRIES IN THE BOOKS OF ACCOUNT SUPPORT THE FACT THAT SHARES WERE HELD AS INVESTMENT. (D) THE AO HAS TREATED THAT THERE ARE 434 TRANSACTI ONS RESULTING IN SHORT TERM CAPITAL GAIN AND 90 TRANSACTIONS RESULTING IN LONG TERM CAPITAL GAIN WHICH IS INCORRECT. AS PER THE STATEMENT OF CAPITAL GAINS THERE ARE 164 TRANSACTIONS WHICH RESULTED IN SHORT TERM CAPITAL G AIN AND 55 TRANSACTIONS WHERE RESULTED IN LONG TERM CAPITAL GAIN. (E) THE AVERAGE NUMBER OF DAYS THE SHARES WAS HELD IN CASE OF SHORT TERM CAPITAL GAIN WAS 115 DAYS AND IN CASE OF LONG TERM CAPITAL GAIN WAS 523 DAYS. (F) THE AO HAD STATED THAT DIVIDEND EARNED BY THE A SSESSEE WAS RS.7.80 LAKHS OUT OF INVESTMENT OF RS.10.30 CRORES GIVING Y IELD OF 0.78%, THIS IS INCORRECT. THE AVERAGE AMOUNT INVESTED IN STOCK WAS RS.3.48 CRORES OF WHICH DIVIDEND OF RS.7.80 LAKHS WAS RECEIVED WHICH WORKS OUT TO RETURN OF 2.24%. 4 ITA NO. 211/MUM/2010 ASSTT. YEAR : 2006-07. ALL THE INVESTMENTS WERE MADE WITH A DUEL PURPOSE O F EARNING DIVIDEND AND TO ENCASH CAPITAL APPRECIATION. IF DIVIDEND IS CONS IDERED AS THE ONLY CRITERIA, ASSET LIKE GOLD, LAND WHICH DO NOT YIELD ANY INCOME CAN NOT BE CONSIDERED AS INVESTMENT AT ALL. STILL PEOPLE INVEST IN THESE ASS ETS WITH AN INTENTION OF DERIVING BENEFIT OF LONG TERM CAPITAL GAIN APPRECIA TION. (G) THE AO RELIED ON PARI MANGALDAS GIRDHANDAS VS. CIT (1977) CTR 647 AND THE TEST APPLIED IS AGAINST THE FACTS OF TH E CASE. (H) THAT FOR THE LAST 11 YEARS THE SHARE TRANSACTIO N WERE ALWAYS RECORDED AS INVESTMENT IN THE BOOKS OF ACCOUNT AND AT NO POI NT OF TIME THEY WERE HELD AS STOCK IN TRADE. (I) ABOUT 14% OF THE EQUITY HOLDING AMOUNTING TO RS .55,50,000/- IS IN EQUITY SHARES OF UNLISTED COMPANIES, AND NO TRADER WOULD INVEST IN UNLISTED SHARES WHERE THERE IS NO LIQUIDITY. FURTHER RS.4 CR ORES WAS INVESTED IN MUTUAL FUNDS AND NO TRADER ORDINARILY INVESTS SUCH HUGE AMOUNT IN MUTUAL FUNDS. (J) THAT IN ALL THE EARLIER YEARS THE DEPARTMENT TR EATED THE INCOME FROM SHARE TRANSACTIONS AS CAPITAL GAINS. THOUGH THE PRI NCIPLE OF RESJUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS, THE AO CANNOT TAKE DIFFERENT VIEW UNLESS THERE IS FRESH MATERIAL PLACED BEFORE HIM. (K) REGARDING FREQUENCY, VOLUME AND REGULARITY OF T HE TRANSACTIONS, IT WAS HELD BY THE MUMBAI TRIBUNAL IN THE CASE OF SHRI JAN AK S. RANGWALA (ITA NO.1163/MUM/2004 DATED 19.12.2006), THAT MERE MAGNI TUDE OF TRANSACTIONS DOES NOT CHANGE THE NATURE OF TRANSACTIONS WHICH WE RE ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST YEARS. (L) THAT ALL THE TRANSACTIONS WERE DELIVERY BASED. (M) THAT, THERE WAS NO DAY TRADING. (N) THAT ALL THE INVESTMENTS ARE OUT OF OWN FUNDS AND NOT OUT OF BORROWED AMOUNTS. (O) THAT S PER CIR. NO. 4 DATED 15.06.2007, NO SING LE CRITERIA IS DECISIVE AND TOTALITY OF THE FACTS SHOULD BE CONSIDERED TO D ETERMINE THE NATURE OF ACTIVITY. (P) THAT ORAL FACTS AND CIRCUMSTANCES OF THE CASE A RE SQUARELY COVERED BY THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF M/S J.M. SHARE & STOCK 5 ITA NO. 211/MUM/2010 ASSTT. YEAR : 2006-07. BROKERS LTD. (ITA NO. 5155/MUM/2001, JANAK S. RANGW ALLA VS. ACIT (SUPRA), SHRI MOTILAL OSWAL (ITA NO. 3861/MUM/2001) . 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, THE LEARNED CIT(APPEALS) FOUND FROM THE REL EVANT DETAILS FURNISHED BY THE ASSESSEE THAT THE SHARES SOLD BY THE ASSESSEE GIVIN G RISE TO LONG TERM CAPITAL GAINS OF RS.5.09 CRORES WERE HELD BY THE ASSESSEE FOR AN AVERAGE PERIOD OF 523 DAYS. HE ALSO FOUND THAT THE SHARES SOLD BY THE ASSESSEE GIV ING RISE TO SHORT TERM CAPITAL GAINS OF RS.2.38 CRORES WERE HELD BY THE ASSESSEE F OR AN AVERAGE PERIOD OF 115 DAYS. HE VERIFIED THE BOOKS OF ACCOUNT OF THE ASSES SEE AND FOUND THAT THE ASSESSEE HAD MAINTAINED ONLY ONE PORTFOLIO I.E. INVESTMENT A ND ALL THE SHARES PURCHASED AND SOLD WERE TREATED BY IT AS INVESTMENT. HE FOUND THA T A SIMILAR TREATMENT WAS GIVEN BY THE ASSESSEE COMPANY RIGHT FROM ITS INCORPORATIO N IN THE YEAR 1994 AND THE INCOME EARNED BY IT FROM SHARE TRANSACTIONS WAS ALW AYS ASSESSED UNDER THE HEAD CAPITAL GAINS. HE FURTHER FOUND THAT THE ASSESSEE HAD NEVER BORROWED MONEY FOR MAKING INVESTMENTS IN SHARES AND IT WAS NEVER ENGAG ED IN INTRA DAY TRADING OR TRADING IN FUTURES AND OPTIONS. HE ALSO FOUND THAT SUBSTANTIAL INVESTMENT WAS MADE BY THE ASSESSEE IN UNLISTED COMPANY AND IN MUTUAL F UNDS AND THE RATIO BETWEEN INVESTMENT AND TURNOVER IN SHARES WAS 1:3. KEEPING IN VIEW ALL THESE FINDINGS OF FACT RECORDED BY HIM AND RELYING INTER ALIA ON THE DECISION OF LUCKNOW BENCH OF THE ITAT IN THE CASE OF SARNATH INFRASTRUCTURE P.LT D. 313 ITR (AT) 13 AS WELL AS THAT OF MUMBAY BENCH OF ITAT IN THE CASE OF GOPAL P UROHIT VS. JCIT 20 DTR 99 (MUMBAI) ,THE LEARNED CIT(APPEALS) HELD THAT THE SH ARE TRANSACTIONS WERE CARRIED OUT BY THE ASSESSEE IN THE CAPACITY OF INVESTOR AND NOT OF A TRADER AND ACCORDINGLY HE DIRECTED THE AO TO TREAT THE PROFIT EARNED BY TH E ASSESSEE FROM SHARE TRANSACTIONS AS CAPITAL GAINS AND NOT BUSINESS INCOME. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 6 ITA NO. 211/MUM/2010 ASSTT. YEAR : 2006-07. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE AS TO WHETHER THE PR OFITS ON SALE OF SHARES CONSTITUTES BUSINESS INCOME OF THE ASSESSEE OR LONG TERM CAPITA L GAINS DEPENDS ON WHETHER THE SAID SHARES WERE PURCHASED BY THE ASSESSEE AS INVES TMENT OR STOCK IN TRADE. IN ORDER TO ASCERTAIN AS TO WHETHER THE SHARES WERE PURCHASE D BY THE ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE, THE MOST RELEVANT ASPECT WHICH I S TO BE SEEN IS THE INTENTION OF THE ASSESSEE BEHIND THE PURCHASE OF SHARES AND SUCH INT ENTION HAS TO BE GATHERED FROM THE FACTS OF THE CASE INCLUDING THE CONDUCT OF THE ASSESSEE. IN THE CASE OF SARNATH INFRASTRUCTURE P. LTD. (SUPRA) RELIED UPON BY THE L EARNED CIT(APPEALS) IN HIS IMPUGNED ORDER, THE COORDINATE BENCH OF THIS TRIBUN AL AT LUCKNOW HAS LAID DOWN CERTAIN PRINCIPLES/CRITERIAS WHICH CAN BE APPLIED T O THE FACTS OF THE GIVEN CASE TO ASCERTAIN WHETHER TRANSACTIONS IN SHARES ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOSE. WHILE LAYING DOWN THE SAID GUID ELINES/PRINCIPLES, THE TRIBUNAL HAS TAKEN INTO CONSIDERATION THE VARIOUS JUDICIAL P RONOUNCEMENTS ON THIS ISSUE AS WELL AS THE CIRCULAR ISSUED BY THE CBDT. THE GUIDEL INES/PRINCIPLES LAID DOWN BY THE TRIBUNAL ARE ENUMERATED BELOW : (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE T IME OF PURCHASE OF THE SHARES FOR ANY OTHER ITEM. THIS CAN BE FOUND OUT FR OM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER I T IS TREATED AS STOCK-IN- TRADE OR INVESTMENT? WHETHER SHOWN IN OPENING/CLOSI NG STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET? (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREO N. NORMALLY, MONEY IS BORROWED TO PURCHASE GOODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY O F SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND S ALE ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD INDICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF IN TENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDI NGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACT IONS AND LOW HOLDINGS 7 ITA NO. 211/MUM/2010 ASSTT. YEAR : 2006-07. INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HO LDINGS INDICATE INVESTMENT): (4) WHETHER PURCHASE AND SALE IS FOR R EALIZING PROFIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION I N ITS VALUE. FORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTME NT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MER ELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN E SSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKE N IN THE BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASS ESSEE) IS AUTHORIZED IN MEMORANDUM OF ASSOCIATION/ARTICLE OF ASSOCIATION? W HETHER FOR TRADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHET HER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESS EE TO ADDUCE EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRA DING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TW O 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 FOR SAY, STOCK-IN-TRADE), THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES (OR FOR THAT M ATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FR EQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY T HAT ASSESSEE WAS HOLDING THE SHARES FOR 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. WHETHE R IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUI REMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM SINCE BEGIN NING OR WHEN PURCHASES WERE MADE? (10) IT IS PERMISSIBLE AS PER CBDTS CIR CULAR NO. 4 OF 2007 OF 15 TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLI OS, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT MAINTAINING SEPARA TE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE I S NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONC LUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN. 8 ITA NO. 211/MUM/2010 ASSTT. YEAR : 2006-07. 6. IF THE ABOVE PRINCIPLES/GUIDELINES ARE APPLIED T O THE FACTS OF THE PRESENT CASE, WE FIND OURSELVES IN AGREEMENT WITH THE LEARNED CIT (APPEALS) THAT THE TRANSACTIONS IN SHARES WERE CARRIED OUT BY THE ASSESSEE AS AN IN VESTOR AND NOT AS A TRADER AND THE PROFIT EARNED FROM THE SAID TRANSACTION WAS CHARGEA BLE TO TAX IN ITS HANDS UNDER THE HEAD CAPITAL GAINS. FOR INSTANCE, THE MAIN OBJECT OF THE ASSESSEE COMPANY AS PER ITS MEMORANDUM OF ASSOCIATION IS AS UNDER : TO CARRY ON THE BUSINESS OF ANALYSIS AND RESEARCH ON THE FINANCIAL AND OTHER PARAMETERS OF COMPANIES, CORPORATION OR UNDERTAKING OF WHATEVER NATURE, WHETHER INCORPORATED OR OTHERWISE AND WHERESOEVER C ONSTITUTED, BOTH LISTED OR UNLISTED ON THE STOCK EXCHANGES OF INDIA AND ABR OAD, WITH A VIEW TO ADVISE CLIENTS AS TO WHETHER AN INVESTMENT CAN BE MADE OR OTHERWISE IN THE SHARES, STOCKS, UNITS, DEBENTURES, DEBENTURE-STOCKS, BONDS, MORTGAGES, AND SECURITIES ISSUED BY THESE COMPANIES, CORPORATIONS OR UNDERTAK INGS. THE ASSESSEE COMPANY THUS WAS INCORPORATED TO CARR Y ON THE BUSINESS OF ANALYSIS AND RESEARCH ON THE FINANCIAL AND OTHER PARAMETERS OF COMPANIES, CORPORATIONS OR UNDERTAKING WITH A VIEW TO ADVISE CLIENTS IN TAKING INVESTMENT DECISIONS. TO CARRY ON THE BUSINESS OF TRADING IN SHARES WAS NOT THE MA IN OBJECT OF THE ASSESSEE COMPANY. IT WAS ONLY AUTHORIZED TO MAKE INVESTMENT IN SHARES AS PER THE INCIDENTAL OR ANCILLIARY OBJECTS OF THE MEMORANDUM OF ASSOCIA TION. IN CONSONANCE WITH THESE CLAUSES OF THE MEMORANDUM OF ASSOCIATION, ONLY ONE PORTFOLIO I.E. INVESTMENT WAS MAINTAINED BY THE ASSESSEE IN RESPECT OF SHARES IN ITS BOOKS OF ACCOUNTS RIGHT FROM THE INCORPORATION IN THE YEAR 1994 AND ALL THE SHAR ES PURCHASED AND SOLD WERE TREATED IN THE BOOKS OF ACCOUNT AS INVESTMENT. THIS TREATMENT GIVEN BY THE ASSESSEE IN THE LAST 14 YEARS WAS NEVER QUESTIONED BY THE DE PARTMENT AND EVEN THE PROFIT FROM THE SHARE TRANSACTIONS DECLARED BY THE ASSESSE E AS CAPITAL GAINS WAS ACCEPTED BY THE DEPARTMENT. THE SHARES HELD BY THE ASSESSEE AS INVESTMENT WERE ALWAYS VALUED AT COST. IN THE PROFIT & LOSS ACCOUNT FOR TH E YEAR UNDER CONSIDERATION, ADVISORY INCOME WAS SHOWN BY THE ASSESSEE COMPANY S EPARATELY WHEREAS PROFIT ON 9 ITA NO. 211/MUM/2010 ASSTT. YEAR : 2006-07. SALE OF SHARES HELD AS INVESTMENT WAS SHOWN UNDER T HE HEAD OTHER INCOME. THE AVERAGE PERIOD OF HOLDING OF SHARES SOLD BY THE ASS ESSEE GIVING RISE TO SHORT TERM CAPITAL GAINS WAS 115 DAYS AND GIVING RISE TO LONG TERM CAPITAL GAINS WAS 523 DAYS. AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSE E BEFORE US, THE AVERAGE PERIOD OF HOLDING OF SHARES IN ALL THE TRANSACTIONS OF PUR CHASE AND SALE OF SHARES WAS ABOUT 300 DAYS. THERE WERE NO FUNDS BORROWED BY THE ASSES SEE FOR MAKING INVESTMENT IN SHARES AND ALL THESE INVESTMENTS WERE MADE BY IT OU T OF OWN FUNDS. THERE WAS NEITHER ANY INTRA DAY TRANSACTION MADE BY THE ASSES SEE IN SHARES NOR THERE WAS ANY TRADING IN SHARES ON FUTURES AND OPTION BASIS. EVEN THE TURNOVER TO INVESTMENT RATIO IN SHARES WAS LOW AS POINTED OUT BY THE LEARNED CIT (APPEALS) IN HIS IMPUGNED ORDER. IN OUR OPINION, IF ALL THESE RELEVANT FACTS OF THE ASSESSEES CASE ARE TAKEN INTO CONSIDERATION IN TOTALITY, IT BECOMES ABUNDANTLY CL EAR THAT TRANSACTIONS IN SHARES WERE MADE BY THE ASSESSEE AS AN INVESTOR AND NOT AS A TRADER AND THE PROFIT EARNED BY IT FROM THE SAID TRANSACTIONS WAS CAPITAL GAINS AND NOT BUSINESS INCOME AS RIGHTLY HELD BY THE LEARNED CIT(APPEALS). WE, THERE FORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) DIRECTIN G THE AO TO TREAT THE PROFIT EARNED BY THE ASSESSEE FROM SHARE TRANSACTIONS AS C APITAL GAINS AND UPHOLDING THE SAME, WE DISMISS THIS APPEAL FILED BY THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF MAY, 2011. SD/- SD/- (VIJAY PAL RAO) (P.M. JAGTA P) JUDICIAL MEMBER ACCOUNT ANT MEMBER MUMBAI, DATED: 30 TH MAY, 2011. WAKODE 10 ITA NO. 211/MUM/2010 ASSTT. YEAR : 2006-07. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH (TRUE COPY) BY ORDE R ASSTT. REGIS TRAR, ITAT, MUMBAI BEN CHES, MUMBAI.