JCIT, CHENNAI V. Shri C.Srikanth, CHENNAI

ITA 257/CHNY/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86314 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 06-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Keywords: Capital asset; Business income; Transactions in derivatives; Question of law
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. ASSESS - MENT YEAR APPELLANT RESPONDENT 233/MDS/2010 2005-06 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1) CHENNAI-34. MR. C.SRIKANTH NEW NO.19/3 OLD NO.11/3, 3 RD AVENUE, BESANT NAGAR, CHENNAI-90. PAN:ABHPS5947E 209/MDS/2012 & 257/MDS/2012 2006-07 & 2008-09 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1) CHENNAI-34. MR. C.SRIKANTH SHRESHTA SHANGRILA APARTMENT, V AVENUE, BESANT NAGAR, CHENNAI-90 PAN:ABHPS5947E 234/MDS/2010 2005-06 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1) CHENNAI-34. M/S. ALTIUS SECURITIES TRADING PVT.LTD. NEW NO.6, OLD NO.29, GROUND FLOOR, CIT COLONY II MAIN ROAD, MYLAPORE, CHENNAI-4. PAN:AACCA4561D 217/MDS/2012 & 218/MDS/2012 2006-07 & 2007-08 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1) CHENNAI-34. M/S. ALTIUS SECURITIES TRADING PVT.LTD. NEW NO.6, OLD NO.29, GROUND FLOOR, CIT COLONY II MAIN ROAD,MYLAPORE, CHENNAI-4. PAN:AACCA4561D / APPELLANT BY : MR. S. DAS GUPTA, JCIT /RESPONDENT BY : MR. M.S.SYALI, SR.ADVOCATE MR. TARANDEEP SINGH, CA MR. N.R.SURESH, C.A & MR. K.V.SRINIVASAN, C.A /DATE OF HEARING : 19 TH JANUARY, 2015 /DATE OF PRONOUNCEMENT : 25 TH FEBRUARY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: ALL THESE APPEALS ARE FILED BY THE REVENUE AGAI NST SEPARATE ORDERS OF COMMISSIONER OF INCOME TAX (APPE ALS)- III, CHENNAI FOR THE ASSESSMENT YEARS 2005-06, 2006 -07 AND 2 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 2008-09. ASSESSEE MR. C.SRIKANTH IS THE MANAGING DIRECTOR OF M/S. ALTIUS SECURITIES TRADING PVT. LTD. AND BO TH THE ASSESSEES ARE INTO TRADING OF SHARES. AS THE ISSUE IS COMMON IN ALL THESE APPEALS OF THE REVENUE , THEY ARE HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. THE ONLY ISSUE FOR CONSIDERATION BEFORE US IN ALL THESE REVE NUE APPEALS IS THAT THE COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT P ROFIT FROM SALE OF SHARES UNDER THE HEAD CAPITAL GAINS INSTE AD OF ASSESSING THE SAME UNDER THE HEAD INCOME FROM BUSI NESS. 2. BRIEF FACTS ARE THAT ASSESSEE MR. C.SRIKANTH FI LED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 29.10.2005 DECLARING INCOME OF ` 6,75,53,832/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT ON 31.10.2007 BY THE ASSESSING OFFICER DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT ` 6,76,00,364/-. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER TREATED THE I NCOME FROM SALE OF SHARES FROM 01.10.2004 TO 31.03.2005 AMOUNTING TO ` 1,78,07,409/- AS INCOME FROM BUSINESS AS 3 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 AGAINST SHORT TERM CAPITAL GAINS RETURNED BY THE AS SESSEE. THE ASSESSING OFFICER WHILE ASSESSING THE PROFIT ON SALE OF SHARES AS BUSINESS INCOME AS AGAINST CAPITAL GAINS WAS OF THE VIEW THAT ASSESSEE IS INTO TRADING BUSINESS FOR THE REASON THAT DURING THE PERIOD FROM 01.10.2004 TO 31.03.200 5 THE ASSESSEE SOLD SHARES OF AS MANY AS 106 COMPANIES IN STOCK EXCHANGE. THE ASSESSEE HAS MADE HUGE VOLUME OF PURC HASE AND SALE OF SHARES, THE PERIOD OF HOLDING OF SHARES RANGES FROM 2 TO 45 DAYS. EXCEPT FEW SHARES, MOST OF THE S HARES PURCHASED WERE SOLD WITHIN A VERY SHORT PERIOD OF T IME BEFORE CLOSE OF THE FINANCIAL YEAR AND EFFECTIVELY THE PER CENTAGE OF PURCHASE AND SALES OVER THE HOLDING IS EXCEEDING 9 8% DURING THE PERIOD AND THEREFORE, THE ASSESSING OFFI CER CONCLUDED THAT IN VIEW OF THE CIRCUMSTANCES, THE AS SESSEE EXECUTED SUCH TRADES ONLY WITH AN INTENTION OF MAKI NG PROFITS IN THE NORMAL COURSE OF BUSINESS AND THEREFORE THE PROFIT ON SALE OF SHARES IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS AS AGAINST CAPITAL GAINS. 3. BEFORE THE ASSESSING OFFICER, ASSESSEE CONTENDE D THAT HIS INTENTION OF PURCHASE OF SHARES IS TO HOLD THEM AS CAPITAL 4 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 ASSET AND HELD THE SHARES FOR EARNING DIVIDEND INC OME AND CAPITAL APPRECIATION. IT WAS THE SUBMISSION OF THE ASSESSEE THAT HE CONSISTENTLY TRADE THE SHARES AS CAPITAL AS SET AND HE HAS NOT BORROWED CAPITAL FOR THE PURPOSE OF INVESTM ENT AND HE HAS TWO DIFFERENT SEGMENTS IN TRADING AND INVEST MENT ACTIVITY AND VARY THE INVESTMENT PORTFOLIO AS A MAT TER OF SAFEGUARDING HIS INVESTMENT PURSUANT TO HIS STUDIES OF MONITORING EXERCISES AND HE DID NOT SPECULATE IN T HE INVESTMENT. THESE SUBMISSIONS WERE NOT APPRECIATED BY THE ASSESSING OFFICER AND BROUGHT TO TAX THE PROFIT ON SALE OF SHARES AS BUSINESS INCOME OF THE ASSESSEE INSTEAD OF CAPITAL GAINS. ON APPEAL, THE COMMISSIONER OF INCO ME TAX (APPEALS) CONSIDERING THE SUBMISSIONS OF THE ASSESS EE AND THE EVIDENCES ON RECORD AND ON EXAMINING THE CONTEN TIONS OF THE ASSESSING OFFICER AS WELL AS THE ASSESSEE HELD THAT PROFIT ON SALE OF SHARES MADE DURING THE PERIOD FROM 01.10 .2004 TO 31.03.2005 WAS HELD TO BE CAPITAL GAINS AND NOT BUS INESS INCOME. THE REVENUE IS APPEAL BEFORE US. 4. LEARNED DEPARTMENTAL REPRESENTATIVE MR. DAS GUPT A REFERRING TO THE ASSESSMENT ORDER REITERATES THE CO NTENTIONS 5 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 RAISED BY THE ASSESSING OFFICER THAT THE INTENTION OF THE ASSESSEE IN DEALING WITH THE SHARES WAS ONLY TO MAK E PROFITS AND THERE WAS HUGE VOLUME OF TURNOVER OF PURCHASE A ND SALE OF SHARES, HOLDING PERIOD WAS RANGING FROM 2 TO 45 DAYS AND THEREFORE PROFITS ON SALE OF SHARES HAVE TO BE ASSE SSED UNDER THE HEAD INCOME FROM BUSINESS AND NOT UNDER THE HEAD CAPITAL GAINS. 5. LEARNED SENIOR ADVOCATE MR. M.S.SYALI APPEARING FOR THE ASSESSEES SUBMITS THAT ASSESSEE IS MAINTAINING TWO PORTFOLIOS ONE FOR TRADING AND ANOTHER FOR INVESTME NT WHICH IS PERMISSIBLE EVEN AS PER THE CIRCULAR OF CBDT AND T HIS IS ALSO SUPPORTED BY THE HONBLE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS. GOPAL PUROHIT (336 ITR 287). LEARNE D COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE IS H OLDING SHARES AS INVESTMENT FROM PAST SEVERAL YEARS AS COU LD BE SEEN FROM THE BALANCE SHEETS OF THE ASSESSEE AND T HE INTENTION OF THE ASSESSEE, AS PER INVESTMENTS ARE CONCERNED, IS NOT TO MAKE PROFIT BY TRADING THEM BUT TO HOLD A S INVESTMENTS AND TO EARN DIVIDEND INCOME AND CAPITAL APPRECIATION ON SUCH INVESTMENTS. LEARNED COUNSEL SUBMITS THAT THE OBSERVATION OF THE ASSESSING OFFICER THAT SHARES WERE 6 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 HELD ONLY FOR 2 TO 45 DAYS IS FACTUALLY WRONG. THE LEARNED COUNSEL SUBMITS THAT MANY SHARES WERE HELD FOR AS L ONG AS 365 DAYS. LEARNED COUNSEL SUBMITS THAT THE ALLEGA TION OF THE REVENUE THAT ASSESSEE HAS CHANGED TREATMENT TO GAIN BENEFIT OF PROVISIONS OF SECTION 111A IS PATENTLY WRONG. THE SR. COUNSEL SUBMITS THAT THERE IS A CHANGE IN THE B USINESS POLICY BUT NOT IN TREATMENT. THE COUNSEL SUBMITS TH AT INVESTMENT REMAINED AS INVESTMENT AND WHAT WAS TRAD ING REMAINED AS TRADING. THE COUNSEL FURTHER REFERRING TO COMPUTATION OF INCOME AND ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2010-11 WHICH ARE AT PAGES 29 TO 3 3 OF THE PAPER BOOK SUBMITS THAT THE CLAIM FOR BENEFICIAL LE GISLATION UNDER SECTION 111A HAS BEEN ACCEPTED BY THE ASSESS ING OFFICER IN SUBSEQUENT YEARS. LEARNED COUNSEL SUBMIT S THAT IN THE CASES OF SMK SHARES & STOCK BROKERS (8 TAXMANN. COM 120(MUM) AND GOPAL PUROHIT VS. JCIT ( 29 SOT 117) (MUM), IT WAS OBSERVED THAT IF THERE IS NO CHANGE I N MODUS- OPERANDI IN THE OPERATIONS OF THE ASSESSEE, THEN TH E DEPARTMENT SHOULD NOT DOUBT THE TRANSACTIONS MERELY OWING TO A CHANGE BROUGHT ABOUT BY FINANCE (NO.2) ACT, 20 04. 7 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 6. LEARNED SENIOR COUNSEL SUBMITS THAT ASSESSING O FFICER OMITS TO CONSIDER THAT DURING THE RELEVANT FINANCIA L YEAR THE ASSESSEE HAD EARNED INCOME FROM TRADING IN SHARES O F ` 2,08,13,211/- AND INCOME OF ` 84,131/- FROM TRADING IN MUTUAL FUNDS. THE COUNSEL SUBMITS THAT THESE ACTIVI TIES HAVE CONTINUED THROUGHOUT THE YEAR EVEN POST 01.10.2004. THE COUNSEL SUBMITS THAT THE ASSESSEE HAD SHOWN BUSINE SS INCOME FROM SHARE TRADING OF ` 14,74,811/- AFTER OCTOBER, 2004 AS AGAINST SHARE TRADING INCOME OF ` 19,21,227/- IN THE PRECEDING PERIOD. COUNSEL SUBMITS THAT A PERUSAL OF RETURNS OF INCOME AND BALANCE SHEETS OF THE ASSESSEE REVEALS T HAT ASSESSEE HAS BEEN CONSISTENTLY MAINTAINING STOCK-IN -TRADE AS WELL AS INVESTMENTS IN THE BOOKS OF ACCOUNTS. AUDIT ORS HAVE ALSO CERTIFIED THAT RECORDS WERE PROPERLY MAINTAINE D. INVENTORY IN INVESTMENTS WERE SHOWN SEPARATELY IN T HE PROFIT AND LOSS ACCOUNT AND CAPITAL GAIN AND BUSINESS INC OME WERE CREDITED SEPARATELY. COUNSEL SUBMITS THAT ACCOUNTIN G POLICY SPECIFICALLY HIGHLIGHTED THE INTENTION OF THE ASSES SEE AT THE TIME OF PURCHASE AND THEN CORRESPONDING ACCOUNTING. COUNSEL SUBMITS THAT ONLY CHANGE IN BUSINESS POLICY IS THAT 8 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 FROM 01.10.2004 FOR TRADING IN SHARES / MUTUAL FUN DS DELIVERY IS NOT TAKEN AND FOR INVESTMENTS DELIVERY IS TAKEN. 7. REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (SUPRA), LEARNED COUNSEL SUBMITS THAT PRESENTATIONS OF TRANSACTIONS IN THE BOOKS OF ACCOUNTS IS THE BEST WAY TO GATHER INTENTI ON OF THE ASSESSEE AS REGARDS NATURE OF TRANSACTION. THE COUN SEL SUBMITS THAT THIS DECISION OF THIS TRIBUNAL IN THE CASE OF GOPAL PUROHIT WAS CONFIRMED BY THE HONBLE BOMBAY H IGH COURT REPORTED IN 336 ITR 287 AND FURTHER AFFIRMED BY THE HONBLE SUPREME COURT REPORTED IN 334 ITR 308(ST) . 8. LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT AN ALLEGATION WITHOUT ANALYSIS IS BOUND TO BE MISLEADI NG. COUNSEL SUBMITS THAT EXTENT OF TRADING AND INVESTME NT IS EVIDENT FROM PAGES 9 TO 9B ON THE PAPER BOOK AND T O JUDGE THE MAGNITUDE OF AN ACTIVITY INTRA-COMPARISON IS MUST. COUNSEL SUBMITS THAT TRADING TURNOVER IS ` 1745.22 CRORES AND THAT OF INVESTMENT IS ` 32.52 CRORES ONLY AND THIS WORKS OUT TO 1.86% OF THE TURNOVER. SIMILARLY, PURCHASES OF 9 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 BUSINESS ARE 1743.13 CRORES AS AGAINST ` 31.63 CRORES OF INVESTMENT WHICH WORKS OUT TO A RATIO OF 1.81% 9. THE COUNSEL SUBMITS THAT BY NO STRETCH MAGNITUD E JUSTIFIES SUPPORT FOR THE ALLEGATION OF THE ASSESSI NG OFFICER THAT HOLDINGS WERE FOR SHORT PERIOD AND TRANSACTION S WERE NUMEROUS. THE COUNSEL FURTHER SUBMITS THAT VOLUME AND FREQUENCY OF TRANSACTIONS ARE IMPORTANT CRITERIA B UT NOT THE SOLE TEST. LEARNED COUNSEL SUBMITS THAT IN THE FOL LOWING CASES, IT HAS BEEN HELD THAT IF PROPER DEMARCATION IN TWO PORTFOLIOS IS MAINTAINED IN ACCOUNTS AND INTENTION IS OTHERWISE MAGNIFICENT THEN MERELY ON THE BASIS OF L ARGE VOLUME OF TRANSACTIONS OR SHORT LIQUIDITY, THE NATU RE CANNOT BE CHANGED:- I) E-CAP PARTNERS (64 SOT 192) (MUM) II) SMK SHARES & STOCK BROKERS (8 TAXMANN.COM. 120) III) NAGINDAS P.SETH (ITA NO.961/MUM/2010) IV) JANAK S.RANGWALLA (11 SOT 627 (MUM) IN CONCLUSION, THE SENIOR COUNSEL SUBMITS THAT COMM ISSIONER OF INCOME TAX (APPEALS) HAS CONSIDERED ALL THE CONT ENTIONS 10 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 OF THE ASSESSING OFFICER AND HAS GIVEN A FINDING TH AT PROFITS ON SALE OF SHARES HAVE TO BE ASSESSED AS CAPITAL GA INS ONLY FOR THE ELABORATE REASONS GIVEN BY THE COMMISSIONE R OF INCOME TAX (APPEALS). THEREFORE HE PLEADS FOR SUSTA INING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 10. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND THE DECISIONS RELIED ON. THE ASSESSING OFFICER TREATED THE PROFIT FROM TRADING IN CASH SEGMENT FROM 01.10.2004 TO 31.03.2005 AS BUSINESS INCOME OF THE ASSESSEE AS A GAINST THE ASSESSEES CLAIM OF SUCH INCOME UNDER THE HEAD SHORT TERM CAPITAL GAINS FOR THE FOLLOWING REASONS:- I) THE ASSESSEE DURING THE PERIOD FROM 01.10.20 04 TO 31.03.2005 HAS BROUGHT AND SOLD SHARES IN AS M ANY AS 106 COMPANIES THROUGH STOCK EXCHANGE. II) THE ASSESSEE HAS BOUGHT 62,05,150 SHARES OF VARIOUS COMPANIES ON VARIOUS DATES DURING THE SAID PERIOD AND SOLD THEM BEFORE THE END OF FINANCIAL YE AR. III) THE ASSESSEE HAS MADE PURCHASE OF SHARES F OR A TOTAL VALUE OF ` 77,81,61,051/- AND HAS SOLD THE SAME FOR A TOTAL VALUE OF ` 79,70,31,405/- DURING THE SAID PERIOD. IV) THE ASSESSEE HAS EXECUTED MORE THAN 500 TRANSACTIONS OF PURCHASES AND AN EQUAL NUMBER OF TRANSACTIONS OF SALE DURING THE SAID PERIOD. 11 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 V) ANALYSIS OF THE HOLDING PERIOD OF THESE SHAR ES REVEALS THAT ON AN AVERAGE THE HOLDING PERIOD OF TH ESE SHARES RANGES FROM 2 TO 45 DAYS. IN SOME CASES, IT IS OBSERVED THAT SHARES PURCHASED HAVE BEEN SOLD IMMEDIATELY. VI) EXCEPT FOR A VERY SMALL PORTION OF SHARES WHICH WERE PURCHASED DURING THE FAG END OF THE FINANCIAL YEAR ALL SHARES PURCHASED DURING THIS PERIOD HAVE BEEN S OLD WITHIN A VERY SHORT PERIOD OF TIME BEFORE THE CLOSE OF THE FINANCIAL YEAR. VII) EFFECTIVELY THE PERCENTAGE OF PURCHASE AN D SALES OVER THE HOLDING IS EXCEEDING 98% DURING THE SAID PERIOD. VIII) THE ASSESSEE HAS ALSO TAKEN FUNDING FROM M /S. ILFS FOR TRADING IN SECURITIES. EVEN THE PROFITS M ADE PURELY OUT OF TRANSACTIONS EXECUTED THROUGH ILFS FUNDING AMOUNTING TO ` 17,57,808/- HAVE BEEN ENTIRELY SHOWN AS CAPITAL GAINS. 11. FOR THE ABOVE REASONS, THE ASSESSING OFFICE R CONCLUDED THAT THE INTENTION OF THE ASSESSEE IN TRA DING SHARES IS ONLY FOR MAKING PROFIT AND THEREFORE THE TRANSAC TIONS HAVE TO BE ASSESSED AS INCOME FROM BUSINESS AND NOT UND ER THE HEAD CAPITAL GAINS. THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER CONSIDERED ELABORATELY THE C ONTENTIONS OF THE ASSESSING OFFICER AS WELL AS THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT INCOME FROM SALE OF SHARES I S TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS IN THE FAC TS AND 12 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 CIRCUMSTANCES OF THE CASE AND NOT AS BUSINESS INCOM E OBSERVING AS UNDER:- 4. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, SUBMISSIONS MADE BY THE AR, AND VARIOUS CASE LAWS RELIED UPON BY THE APPELLANT. WHETHER THE INCOME FR OM SHARE TRADING WOULD COME UNDER THE HEAD 'CAPITAL GA INS' OR 'BUSINESS INCOME' HAS BEEN SUBJECT MATTER OF NUMERO US LITIGATION. AS PER THE PROVISIONS OF THE ACT, 'BUSI NESS INCOME' AND 'CAPITAL GAINS' ARE SUBJECT TO TAX AT D IFFERENT RATES OF TAX. THE PROVISIONS OF THE ACT DO NOT LAY DOWN CLEAR CRITERIA FOR DETERMINING THE CHARACTERISATION OF INCOME, BUT CERTAIN GENETIC PRINCIPLES HAVE EVOLVED OUT OF THE JUDICIAL PRECEDENTS AND ADMINISTRATIVE DISPENSA TION. EARLIER IN 1989, VIDE INSTRUCTION NO. 1827 DATED 31 -08-89, CERTAIN TESTS WERE LAID DOWN BY THE CENTRAL BOARD O F DIRECT TAXES (CBDT) TO DISTINGUISH BETWEEN SHARES HELD AS STOCK-IN-TRADE AND SHARES HELD AS INVESTMENT. THE CBDT HAS ISSUED CIRCULAR NO 4/2007, DATED 15.06.07 TO PR OVIDE FURTHER GUIDELINES FOR DETERMINING WHETHER A PERSON IS A TRADER IN STOCKS OR AN INVESTOR IN STOCKS. THE SAID CIRCULAR, ISSUED AS A SUPPLEMENT TO THE EARLIER INSTRUCTION O F 1989, REITERATES THE PRINCIPLES LAID DOWN IN THE EARLIER JUDICIAL DECISIONS AND, MORE SPECIFICALLY, REPRODUCES CERTAI N OBSERVATIONS MADE IN THE TWO DECISIONS OF THE HON'B LE SUPREME COURT (CIT V ASSOCIATED INDUSTRIAL DEVELOPM ENT COMPANY (P) LTD (1971) 82 ITR 586 (SC) AND CIT V H. HOLCK LARSEN (1986) 160 ITR 67 (SC)). THE PRINCIPLE S LAID DOWN BY THE SAID CIRCULAR ARE AS FOLLOWS: (I) WHETHER A PARTICULAR HOLDING OF SHARES IS BY WA Y OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO H OLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN T HOSE SHARES WHICH ARE ITS STOCK-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. (II) 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 SH ARES IN THE MEMORANDUM OF ASSOCIATION IS NOT DECISIVE OF THE NATURE OF TRANSACTION; (III) THE SUBSTANTIAL NATURE OF TRANSACTIONS, THE M ANNER 13 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 OF MAINTAINING BOOKS OF ACCOUNTS, THE MAGNITUDE OF PURCHASES AND SALES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING WOULD FURNISH A GOOD GUID E TO DETERMINE THE NATURE OF TRANSACTIONS; (IV) ORDINARILY, THE PURCHASE AND SALE OF SHARES WI TH THE MOTIVE OF EARNING A PROFIT WOULD RESULT IN THE TRANSACTION BEING IN THE NATURE OF TRADE / ADVENTUR E IN THE NATURE OF TRADE, BUT WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS A DERIVE INCOME BY WAY OF DIVIDEND, ETC., THEN THE PROFITS ACCRUING BY CHANGES IN SUCH INVESTMENT (BY SALE OF SHARES) WILL YIELD CAPITAL GAIN AND NOT REVENUE REC EIPT. 4.1 IMPORTANTLY, THE CIRCULAR ALSO RECOGNISES THAT AN ASSESSEE COULD HAVE TWO PORTFOLIOS VIZ., INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND TRADING PORTFOLIO COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATE D AS TRADING ASSETS. THE MUMBAI TRIBUNAL IN THE CASE OF GOPAL PUROHIT V JCIT (2009) 122 TTJ 87 (MUM) HAS REITERATED THE PRINCIPLES LAID DOWN IN THE ABOVE- MENTIONED CBDT CIRCULAR AND HAS CONCLUDED THAT AN ASSESSEE CAN BE AN INVESTOR AND TRADER SIMULTANEOUS LY AND HENCE INCOME EARNED ON THE SAME SHOULD BE CLASSIFIED ACCORDINGLY. 4.2 THE HON'BLE SUPREME COURT IN RAJA BAHADUR KAMAKHYA NARAIN SINGH (SUPRA) HAS HELD THAT THE DISTINCTION BETWEEN THE TWO TYPES OF TRANSACTIONS I S NOT ALWAYS EASY TO MAKE. HOWEVER, IF THE FACTS OF THE APPELLANT ARE CONSIDERED AGAINST THE PRINCIPLES LAID DOWN BY THE JUDICIAL PRECEDENTS AND CBDT CIRCULAR, IT IS CLEAR THAT THE APPELLANT HAS MADE SUBSTANTIAL COMPLIANCE TO THE CRITERIA FOR INVESTME NT. A PERUSAL OF THE RETURNS OF INCOME AND BALANCE SHEETS OF THE APPELLANT REVEAL THAT THE APPELLANT H AS BEEN CONSISTENTLY MAINTAINING ASSETS AS STOCK-IN-TR ADE AS WELL AS INVESTMENTS IN ITS BOOKS OF ACCOUNT. THE RE IS NO DISPUTE THAT THE ASSESSEE HAS CLAIMED EXEMPTION U/S 10(38) AND HAS PAID TAX U/S 111A AT CONCESSIONAL RATE ON TRANSACTIONS WHERE SECURITY TRANSACTION TAX HAD BEEN PAID. IT IS ALSO NOTED THA T THE APPELLANT HAS PAID TAX ON SHORT TERM CAPITAL GAIN A T NORMAL RATES ON THE SHARE TRANSACTIONS EXECUTED IN THE PERIOD PRIOR TO 01-10-2004. THERE WAS AN AMENDMENT IN THE ACT BY FINANCE ACT, 2004 WHEREBY SECTION 10(38) OF THE ACT WAS CHANGED AND A CONCESSIONAL RA TE 14 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 OF TAX AT THE RATE OF 10% WAS LEVIED SUBJECT TO THE CONDITION THAT THE TRANSACTIONS RESULTING INTO THIS TYPE OF CAPITAL GAINS SUFFER SECURITY TRANSACTION TAX. IF A NY ADVANTAGE ACCRUES TO THE ASSESSEE DUE TO A LEGISLAT IVE ENACTMENT WHICH CONFERS CERTAIN ADVANTAGE ON THE APPELLANT, THEN THE SAME CANNOT BE TAKEN AWAY BY TH E REVENUE BY TREATING THE TRANSACTION IN SUCH A WAY T HAT THE APPELLANT SUFFERS THE HIGHER / MAXIMUM RATE OF TAXATION. THE MODUS OPERANDI OF THE APPELLANT, THE MANNER OF KEEPING THE RECORDS AND PRESENTATION OF SHARES AS INVESTMENT AT THE END IS SAME IN ALL THE YEARS. THEREFORE, THERE IS NO REASON AS TO WHY THE CLAIM MADE BY THE APPELLANT SHOULD NOT BE ACCEPTED . THE APPELLANT HAS NO DOUBT TRANSACTED LARGE NUMBER OF SHARES WHICH HAVE GIVEN IT 'BUSINESS PROFIT' AS WEL L AS 'CAPITAL GAIN'. THAT BY ITSELF COULD NOT CONVERT A CAPITAL GAIN INTO BUSINESS PROFIT. THOUGH THE PERIOD OF HOL DING FOR LONG TERM CAPITAL GAIN HAS BEEN SPECIFIED IN TH E ACT, NO SUCH PERIOD HAS BEEN SPECIFIED FOR SHORT TERM CAPITAL GAIN. BUT THE APPELLANT HAS PROVED WITH EVIDENCE THAT ALL THE TRANSACTIONS CONFERRING SHORT TERM CAPITAL GAIN WERE TAKEN DELIVERY OF AND TRANSACTED THROUGH DEMAT ACCOUNT. IT IS ALSO NOT TRUE THAT THE SHARES WERE HELD ONLY FOR 2 TO 45 DAYS. MANY SHARES WERE HELD FOR AS LONG AS 365 DAYS. IN ANY CASE, THE LEARNED ASSESSING OFFICER HAS NOT DISTURBED THE LON G- TERM CAPITAL GAIN. THUS, IMPLIEDLY, AS PER THE ASSE SSING OFFICER, EITHER THE SHARES WERE HELD FOR MORE THAN 12 MONTHS OR FOR A PERIOD OF 2 TO 45 DAYS. THIS IS FAC TUALLY WRONG AND THE APPELLANT HAS HELD MANY SHARES FOR PERIOD EXCEEDING 45 DAYS UPTO 12 MONTHS. THE APPELLANT DID NOT BORROW FUNDS FOR THE PURPOSE OF INVESTMENT AND UTILIZED HIS OWN FUNDS FOR THE SHARE S HELD AS INVESTMENT. THE BORROWED FUNDS FROM ILFS WAS FOR F&O BUSINESS AND NOT FOR THE PURPOSE OF INVESTMENTS. THE SHARES PURCHASED AS INVESTMENT HAVE ALSO BEEN KEPT IN THE INVESTMENT ACCOUNT AND NOT IN THE STOCK-IN-TRADE (INVENTORY) ACCOUNT. THE APPELLANT HAS SHOWN INVESTMENT OF RS.9,81,132/-, RS.59,79,579/- AND RS.7,41,83,096/- AS ON 31032003, 3103-2004 AND 31-03-2005 RESPECTIVELY. HE HAS ALSO SHOWN DIVIDEND INCOMES IN ALL THE YEARS. THE ASSERTION THAT APPELLANT DID NOT SHOW AN Y BUSINESS INCOME FROM TRADING IN SHARES AFTER 01- 102004 IS ALSO NOT CORRECT. HE HAS ALSO SHOWN BUSINESS INCOME OF RS.3,78,847/ AFTER OCTOBER, 200 4. IN VIEW OF THE ABOVE FACTUAL POSITION AND JUDICIAL PRECEDENTS, IT IS HELD THAT THE ASSESSING OFFICER W AS NOT CORRECT IN TREATING THE 'SHORT- TERM CAPITAL GA IN' AS 15 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 'BUSINESS INCOME'. THE ASSESSING OFFICER IS, ACCORDINGLY, DIRECTED TO ACCEPT THE SHORT-TERM CAPI TAL GAIN SHOWN BY THE APPELLANT. THE APPELLANT SUCCEEDS ON THIS GROUND. 12. IT WAS THE FINDING OF THE COMMISSIONER OF INCOM E TAX (APPEALS) THAT ASSESSEE WAS MAINTAINING TWO PORTFOL IOS ONE FOR TRADING AND ANOTHER FOR INVESTMENTS. MAINTAININ G SEPARATE PORTFOLIOS ONE FOR INVESTMENT AND THE OTHER FOR TR ADING IS ALSO PERMISSIBLE. THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. GOPAL PUROHIT (SUPRA) AFFIRMING THE DECISIO N OF THE TRIBUNAL HELD AS UNDER:- THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THA T THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTIONS INVOLVE D INVESTMENT IN SHARES. THE SECOND SET OF TRANSACTION S INVOLVED DEALING IN SHARES FOR THE PURPOSES OF BUSI NESS (DESCRIBED IN PARAGRAPH 8.3 OF THE JUDGMENT OF THE TRIBUNAL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL HAS CORRECTLY APPLIED THE P RINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RELATI NG TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. TH E TRIBUNAL HELD THAT THE DELIVERY-BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NAT URE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THE REFROM SHOULD BE TREATED EITHER AS SHORT-TERM OR, AS THE C ASE MAY BE, LONG-TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. A FINDING OF FACT HAS BEEN A RRIVED AT BY THE TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DIS TINCT TYPES OF TRANSACTIONS, NAMELY, THOSE BY WAY OF INVESTMENT ON THE ONE HAND AND THOSE FOR THE PURPO SES OF BUSINESS ON THE OTHER HAND. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TR IBUNAL HAS OBSERVED IN PARAGRAPH 8.1 OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING 16 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 RECORDS AND THE PRESENTATION OF SHARES AS INVESTMEN T AT THE END OF THE YEAR, IN ALL THE YEARS. THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIPLE OF RE S JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDING S. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION, THAT THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EA CH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CASE OF THE ASSESSEE . THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REV ENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A D IVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUEST ION (B), THEREFORE, DOES NOT ALSO RAISE ANY SUBSTANTIAL QUES TION OF LAW. THE HONBLE SUPREME COURT HAS ALSO DISMISSED THE SP ECIAL LEAVE PETITION FILED BY THE REVENUE AGAINST THIS JU DGEMENT REPORTED IN 334 ITR 308(ST). 13. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE ASSESSEE WAS CONSISTENTLY HOLDING SHARES AS INV ESTMENTS FOR PAST SEVERAL YEARS AND IS EVIDENT FROM THE BAL ANCE SHEETS OF THE ASSESSEE. IT WAS THE FINDING OF THE COMMISSI ONER OF INCOME TAX (APPEALS) THAT ASSESSEE NOT ONLY HELD S HARES FOR 2 TO 45 DAYS BUT ALSO HELD MANY SHARES FOR AS LONG AS 365 DAYS. THE ASSESSEE HAS NOT BORROWED ANY FUNDS FOR T HE PURPOSE OF INVESTMENTS AND UTILIZED ITS OWN FUNDS F OR SHARES HELD AS INVESTMENTS. IT WAS THE FINDING OF THE COM MISSIONER OF INCOME TAX (APPEALS) THAT BORROWED FUNDS FROM IL FS FOR 17 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 BUSINESS AND NOT FOR THE PURPOSE OF INVESTMENT. IT WAS THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT ASSESSEE HAS RECEIVED DIVIDEND INCOME IN ALL THE Y EARS FROM 2003 ONWARDS. THE COMMISSIONER OF INCOME TAX (APPEA LS) ALSO OBSERVED THAT ASSERTION OF THE ASSESSING OFFIC ER THAT ASSESSEE DID NOT SHOW ANY BUSINESS INCOME FROM TRAD ING IN SHARES AFTER 01.10. 2004 IS NOT CORRECT AS THE ASS ESSEE HAS SHOWN INCOME OF ` 3,78,847/-. NONE OF THESE FINDINGS HAVE BEEN REBUTTED BY THE REVENUE. ON GOING THROUGH THE SUBMISSIONS OF BOTH THE PARTIES AND THE IMPUGNED OR DER, WE DO NOT FIND ANY STRONG REASONS TO REVERSE THE FINDI NGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN CONCLUDING THAT THE PROFIT ON SALE OF SHARES SOLD AFTER 01.10.2004 HAS TO BE ASSESSED AS CAPITAL GAINS. THE FINDINGS OF THE COMM ISSIONER OF INCOME TAX (APPEALS) WERE NOT REBUTTED BY THE RE VENUE. IN THE CIRCUMSTANCES, WE AFFIRM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THA T PROFIT ON SALE OF SHARES IS ASSESSABLE UNDER THE HEAD SHO RT-TERM CAPITAL GAINS. 18 ITA NOS. 233 & 234/MDS/2010 & 209, 217, 218 & 257/MDS/2012 14. THE FACTS IN THE CASE OF M/S. ALTIUS SECURITIES TRADING PVT. LTD. ARE ALSO SIMILAR TO THE FACTS OF THE ASSE SSEE MR. C.SRIKANTH. IN THE CIRCUMSTANCES, THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN THE CASE OF M/S. ALTIUS SECURITIES TRADING PVT. LTD. ARE ALSO AFFIRM ED BY REJECTING THE GROUNDS RAISED BY THE REVENUE IN ALL THESE APPEALS. 15. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON WEDNESDAY, T HE 25 TH FEBRUARY, 2015 AT CHENNAI. SD/- SD/- ( . ) ( $ &' ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) ) / ACCOUNTANT MEMBER &* ) / JUDICIAL MEMBER & /CHENNAI, , /DATED 25 TH FEBRUARY, 2015 SOMU */0 10 / COPY TO: 1. APPELLANT 2. RESPONDENT 3. 2 () /CIT(A) 4. 2 /CIT 5. 0 **5 /DR 6. 8 /GF .