The ACIT, Central Circle-2(3), Ahmedabad V. Smt. Belaben Himanshu Shah, Ahmedabad

ITA 3196/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9912 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-09-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 11-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA
• Keywords: Capital asset; Business income; Business expenditure; Salary income; Principle of natural justice; Rule of consistency; Transactions in derivatives; Advance ruling; Question of law
• Section: 2(14); 153A; 132; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA, JM & SHRI A N PAHUJA,AM ITA NOS.3196 TO 3200/AHD/2008 WITH C O NOS.276 TO 280/AHD/2008 (ASST. YEARS:-2000-01, 2002-03, 2003-04, 2005-06 & 2006-07) ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE- 2(3), ROOM NO. 305, ANNEXE TO AAYAKAR BHAVAN, AHMEDABAD V/S SMT. BELABEN HIMANSHU SHAH, A/64, PARISIMA COMPLEX, C G ROAD, NAVRANGPURA, AHMEDABAD [PAN : AHBPS 7672 L] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI ANIL KUMAR, DR ASSESSEE BY:- SHRI P M MEHTA, AR O R D E R A N PAHUJA: THESE FIVE APPEALS BY THE REVENUE AND CORRESPONDIN G CROSS-OBJECTIONS[CO] OF THE ASSESSEE AGAINST A COM MON ORDER DATED 04-06-2008 OF THE LD. CIT(APPEALS)-III, AHMED ABAD, RAISE THE FOLLOWING COMMON GROUNDS: ITA NOS.3196 TO 3200/AHD/2008[REVENUE] 1 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO TAX THE INCOME EARNED FROM TRADING IN SHARES UNDER THE HEAD LTCG / STCG AS SHOWN BY THE ASSESSEE INSTEAD OF TAXING IT UNDER THE HEAD INCOME FROM BUSINESS & POSSESSION. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 3 IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED TO THE ABOVE EXTENT. SINCE SIMILAR ISSUES ARE INVOLVED , THESE FIVE APP EALS WERE HEARD TOGETHER FOR THE SAKE OF CONVENIENCE AND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER. 2 FACTS, IN BRIEF, AS PER RELEVANT ASSESSMENT ORDER FOR THE AY 2000-01 ARE THAT A SEARCH U/S 132 OF THE INCOME-TA X ACT, 1961 ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 2 [HEREINAFTER REFERRED TO AS THE ACT] WAS CONDUCTE D IN THE GROUP CASES OF SHRI HIMANSHU J SHAH ON 22-09-2005. A WAR RANT OF AUTHORIZATION U/S 132 WAS ISSUED IN THE NAME OF THE ASSESSEE ALSO. CONSEQUENTLY, IN RESPONSE TO A NOTICE DATED 22.5.20 06 U/S 153A(A) OF THE ACT, THE ASSESSEE FILED RETURN DECLARING INC OME OF RS. 2,21,020/- FOR THE AY 2000-01 ON 17.5.2007. LIKEWIS E RETURNS WERE FILED FOR THE REMAINING ASSESSMENT YERS ALSO. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT]NOTICED THAT SHRI HIMANSHU J. SHAH AND HIS FOLLOWING FAMIL Y MEMBERS HAD ENTERED IN TO TRANSACTIONS IN SHARES OVER A PERIOD OF TIME, INCLUDING DURING THE PERIOD RELEVANT TO THE A.YS 2000-2001 T O 2006-2007: SR. NO. . NAME RELATIONSHIP WITH HIMANSHU J. SHAH 1: SHRI HIMANSHU J. SHAH SELF 2. SHRI BANKIM J. SHAH BROTHER 3. SHRI VAIBHAV J. SHAH BROTHER 4. SMT. BELA H. SHAH WIFE 5. SMT. HEMANGI B. SHAH SISTER-IN-LAW 6. SMT. KINNARI V. SHAH SISTER-IN-LAW CONSIDERING THE NATURE OF SHARE TRANSACTIONS, THEIR FREQUENCY, MAGNITUDE OF TRANSACTIONS AND NUMBER OF OTHER RELEV ANT FACTORS, THE ASSESSEE WAS SHOW CAUSED AS TO WHY THE TRANSACTIO NS IN SHARES SHOULD NOT BE CONSIDERED AS TRADING IN NATURE AND W HY AN AMOUNT OF RS.10,858/- SHOWN AS SHORT TERM CAPITAL GAIN AND RS .10,60,000/- SHOWN AS LONG TERM CAPITAL GAIN SHOULD BE NOT TREA TED AS 'BUSINESS INCOME'. IN RESPONSE, THE ASSESSEE REPLIED THAT TH ERE WAS ONLY ONE TRANSACTION IN RESPECT OF LTCG WHEREAS THE NUMBER OF TRANSACTIONS RELATING TO STCG WERE ALSO LIMITED. THE ASSESSEE EXPLAINED THAT SHE HAD ACQUIRED THE ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 3 SHARES WITH THE SOLE INTENTION TO MAKING AN INVESTM ENT IN THE SHARES AND USED HER OWN FUNDS TO MAKE THE INVESTMENT AND IN HER BAL ANCE SHEET THESE SHARES WERE REFLECTED UNDER THE HEAD OF INVESTMENT. THEREF ORE, CONSIDERING THE INTENTION OF THE ASSESSEE, PARTICULARLY WHEN SOME OF THE SHAR ES WERE HELD FOR MORE THAN 15 MONTHS AND THE TREATMENT ACCORDED BY THE ASSESSE E IN RECOGNIZING THE SAME IN THE BOOKS OF ACCOUNTS, THESE SHOULD BE CONSIDER ED AS INVESTMENT ONLY. INTER ALIA, THE ASSESSEE RELIED UPON CIRCULAR NO. 4 OF 20 07 ISSUED BY THE CBDT. HOWEVER, THE AO DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD CARRIED OUT A NUMBER O F TRANSACTIONS IN SALE AND PURCHASE OF SHARES AND THE ACTIVITY IN PURCHASE AND SALE OF SHARES WAS NOT OF INVESTMENT IN SHARES BUT THAT OF TRADING . THEREF ORE, THE AO CONCLUDED THAT THE TRANSACTIONS IN PURCHASE AND SALE OF SHARES WERE NO T FOR INVESTMENT PURPOSE BUT FOR TRADING PURPOSE. ACCORDINGLY, THE AO BROUGHT TH E INCOME SHOWN UNDER THE HEAD CAPITAL GAINS TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. THE TOTAL INCOME ASSESSED IN THESE FIVE ASSESSMENT YEA RS IS DETAILED HERE UNDER: ASST. YEAR DATE OF NOTICE U/S 153A DATE OF FILING RETURN RETURNED INCOME (RS.) ASSESSED INCOME (RS.) DEMAND (RS.) DATE OF NOTICE COMPLIANCE 00-01 22-5-06 17-5-07 2,21,020 12,81,020 7,40,825 1 -11-07 17-12-07 &19-12-07 02-03 22-5-06 17-5-07 2,17,060 2,15,140 28,636 1-11 -07 17-12-07 &19-12-07 03-04 22-5-06 17-5-07 2,28,520 2,28,520 23,967 1-11 -07 17-12-07 & 19-12-07 05-06 22-5-06 17-5-07 15,46,900 41,84,370 16,12,471 1-11-07 17-12-07 & 19-12-07 06-07 22-5-06 17-5-07 32,76,320 37,08,740 10,23,761 1-11-07 17-12-07 & 19-12-07 3. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 6. THE DETAILS ON RECORD, SUBMISSIONS MAD E ETC. WERE CAREFULLY CONSIDERED. IT IS HELD THAT THE CHALLENGE TO THE VALIDITY OF THE ASSESSMENT ORDER(S) IS NOT ONLY MISPLACED BUT ALSO MISDIRECTED. THE APPELLANT HAS VAINLY ATTEMPTED TO.YOKE TOGETHER THE HETROGENOUS CONCEPTS OF THE CHAPTER-XIV B WITH THE PROVISIONS OF SECTION 153A. FURTHER, NO ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 4 SPECIFIC INSTANCE OF ANY DENIAL OF NATURAL JUSTICE IS BROUGHT ON RECORD. MOREOVER, THIS IS NOT THE FORUM BEFORE WHICH THE LE GAL VALIDITY OF THE PROVISIONS OF THE ACT CAN BE CHALLENGED. THUS, THE RELATED GROUNDS OF APPEAL ARE DISMISSED WITHOUT FURTHER ELABORATION. 6.1 THE APPELLANT HAD DISCLOSED INCOME FROM CAPITAL GAINS / DIVIDENDS IN EARLIER YEARS AND THE SHARES AS INVESTMENTS IN T HE BOOKS OF ACCOUNT/BALANCE SHEETS. THE TRANSACTIONS WERE ON DE LIVERY BASIS AND WERE NOT REPETITIVE / NUMEROUS, ENOUGH TO WARRANT THE CO NCLUSION OF THE APPELLANT AS BEING A TRADER. THE DOUBTS OF THE AO I N THIS REGARD HAVE BEEN ANSWERED BY THE APPELLANT AS SUMMARIZED IN PARA 3.4 OF THIS ORDER. THE DECISIONS OF THE HON'BLE HIGH COURT OF GUJARAT REPO RTED IN 283ITR 338 HAS LAID DOWN GENERAL GUIDELINES IN THIS REGARD AND THE CONDUCT OF THE APPELLANT HAD NOT BEEN CONTRADICTORY. THE APPELLANT WAS NOT SOLELY OCCUPIED WITH SHARES BUT HAD INCOME FROM SALARY AND OTHER SOURCES AS WELL AS PER THE DETAILS (NOTED IN PARA 4.4 OF THIS ORDER). THUS ON HOLISTIC CONSIDERATION OF THE DETAILS ON RECORDS, FACTS AND CIRCUMSTANCES OF THE APPELLANT AND THE AFOREMENTIONED JUDICIAL DECISIONS , THE ACTION OF THE AO IN TREATING THE INCOME SHOWN AS CAPITAL GAINS AS BUSIN ESS INCOME, CANNOT BE UPHELD. CONSEQUENTLY, THE ADDITIONS SO MADE BY THE AO ARE DELETED AND THE RELATED GROUNDS OF APPEAL ARE ALLOWED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED AR ON BEHAL F OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A) WHILE REL YING UPON DECISION DATED 17.9.2009 OF THE ITAT, AHMEDABAD BENCHES IN THE GROUP CASE OF HINANSHU J SHAH & OTHERS IN ITA NOS .2875, 2878, 2879,2880,2882-84,2887 TO 91 & 2894/AHD/2008 FOR TH E AYS 2000- 01, 2004-05, 2005-06 AND 2006-07, ORDER DATED 24-06 -2010 IN THE CASE OF SMT. HEMANGI BANKIM SHAH IN ITA NOS.2863 T O 2865/AHD/2008 FOR THE AYS 2004-05 TO 2006-07 AND O RDER DATED 2- 07-2010 IN BANKIM JAYANTILAL SHAH & OTHERS IN ITA NOS.2866- 2874/AHD/2008 AND OTHERS FOR AYS 2000-01 TO 2004-05 . THE LD. DR, ON THE OTHER HAND, DID NOT OPPOSE THESE SUBMISSIONS ON BEHALF OF THE ASSESSEE. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE ITAT VIDE THEIR ORDER D ATED 17.9.2009 IN ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 5 THE GROUP CASE OF HIMANSHU J SHAH & OTHERS WHILE ADJUDICATING A SIMILAR ISSUE, CONCLUDED AS UNDER : 11.1. NOW WE CONSIDER THE RELEVANT AUTHORITIES ON THE SUBJECT. THE ISSUE WHETHER TRANSACTION IN SHARES SHOULD BE TREATED AS INVESTMENT OR TREATED AS BUSINESS AND IN WHAT CIRCUMSTANCES HOLDINGS SHOU LD BE TREATED AS INVESTMENT OR AS STOCK IN TRADE, HAS BEEN DISCUSSE D IN DETAIL BY THE TRIBUNAL, LUCKNOW BENCH SARNATH INFRASTRUCTURE (P) LTD V. ACIT (122 TTJ 216). IN THAT DECISION TRIBUNAL HAS REFERRED TO THE FOLLOWING JUDGEMENT OF THE COURTS. 1. FIDELITY NORTHSTAR FUND, IN RE (2007) 288 ITR 64 1 (AAR) 2. RAJA BAHADUR VISHESHWAR SINGH VS. COMMISSIONER O F INCOME-TAX (1961) 41 ITR 685 (SC) 3. CENTRAL INDIA AGENCIES (P.) LTD. VS. COMMISSIONE R OF INCOME-TAX (1970) 77 ITR 959 (ALL) 4. SAROJINI RAJAH (MRS.) VS. COMMISSIONER OF INCOME -TAX (1969) 71 ITR 504 (MAD) 5. DALHOUSIE INVESTMENT TRUST CO. LTD. VS. COMMISSI ONER OF INCOME-TAX (1968) 68 ITR 486 (SC) 6. COMMISSIONER OF INCOME-TAX VS. ASSOCIATED INDUST RIAL DEVELOPMENT CO. (P.) LTD. (1971) 82 ITR 586 (SC) 7. COMMISSIONER OF INCOME-TAX VS. HOLCK LARSEN (H.) (1986) 160 ITR 067 (SC) 8. COMMISSIONER OF INCOME-TAX VS. SUTLEJ COTTON MIL LS SUPPLY AGENCY LTD. (1975) 100 ITR 706 (SC) 11.2. PRINCIPLES HAVE BEEN CULLED OUT FROM THESE J UDGEMENT AS UNDER : 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FOL LOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETH ER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY F OR INVESTMENT PURPOSES : (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE T IME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT F ROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHE THER IT IS TREATED AS STOCK-IN-TRADE OR INVESTMENT. WHETHER SHOWN IN OPEN ING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET . (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHAS E AND PAID INTEREST THEREON ? NORMALLY, MONEY IS BORROWED TO P URCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN A SSET FOR RETAINING. ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 6 (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DI SPOSAL IN THAT PARTICULAR ITEM ? IF PURCHASE AND SALE ARE FREQUENT , OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD IND ICATE 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 TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AN D HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PRO FIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE ? FORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTMENT. IN TH E 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 ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN T HE 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 (ASSESSEE) IS AUTHORIZED IN ME MORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION ? WHETHER FOR T RADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE AR E SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO S HOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO 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 (OR SAY, STOC K-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 SH ARES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 7 (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISI TES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASS ESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESS EE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM ? WHETHER IT HAD SUCH AN INTENTION (TO CA RRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WER E MADE ? (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEP ARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND T HERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WIL L BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN. 11.3. THESE DECISION HAS BEEN FOLLOWED BY THE MUMBA I BENCH IN THE CASE OF GOPAL PUROHIT V. JCIT [(2009) 29 SOT 117 (MUM)] WHEREIN IT HAD BEEN HELD AS UNDER : IT WAS NOTED THAT THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF SALE AND PURCHASE OF SHARES FOR A QUITE LONG PERIOD . IT WAS ALSO NOTED THAT NON-DELIVERY BASED TRANSACTIONS HAD BEEN TREATED BY THE ASSESSEE AS BUSINESS ACTIVITY AND DELIVERY BASE D TRANSACTIONS HAD BEEN TREATED AS AN INVESTMENT ACTIVITY AND, ACC ORDINGLY, THE ASSESSEE HAD CLAIMED HIMSELF BOTH DEALER AS WELL AS INVESTOR AND HAD OFFERED INCOME FOR TAXATION ACCORDINGLY, WHICH HAD BEEN CLAIMED TO HAVE BEEN ACCEPTED BY THE REVENUE AUTHOR ITIES IN EARLIER YEARS AND, HENCE, IT BECAME IMPORTANT TO AN ALYSE THE FACTS OF FEW EARLIER YEARS. ON CONSIDERING THE FACT S OF THE EARLIER YEARS, THE FOLLOWING CONCLUSIONS EMERGED : (I) THE FACTS OF THE YEAR UNDER CONSIDERATION WITH REGARD TO NATURE OF INCOME(S) EARNED BY THE ASSESSEE AND T HE TRANSACTIONS WERE SAME IN ALL THOSE YEARS, EXCEPT TRANSACTIONS IN F&O SEGMENT IN SOME OF THE YEARS WH EREIN THIS KIND OF ACTIVITY WAS STARTED BY THE STOCK EXCH ANGE. (II) INTEREST ON BORROWED CAPITAL HAD BEEN ALLOWED AS BUSINESS EXPENDITURE AGAINST THE PROFIT ON JOBBING ACTIVITIES SHOWN BY THE ASSESSEE AS BUSINESS PROFIT. ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 8 (III) THE ASSESSEE HAD SHOWN SHARES PURCHASED ON DELIVERY BASIS AS INVESTMENT AT THE END OF THE YEAR AND NO STOCK-IN-TRADE EXISTED ON THAT DATE AND THE ASSESSE E HAD EARNED BOTH LONG-TERM AND SHORT-TERM CAPITAL GAINS WHICH MEANT THE ASSESSEE HAD ALSO HELD SHARES FOR THE PER IOD OF MORE THAN 12 MONTHS. [PARA 8] THUS, THE NATURE OF ACTIVITIES, MODUS OPERANDI OF T HE ASSESSEE, MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARE S AS INVESTMENT AT THE YEAR END WERE SAME IN ALL THE YEA RS, AND, HENCE, APPARENTLY, THERE APPEARED NO REASON AS TO W HY THE CLAIMS MADE BY THE ASSESSEE SHOULD NOT BE ACCEPTED. HOWEVER, THE REVENUE AUTHORITIES HAD TAKEN A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERATION BY HOLDING THAT PRINCIPLE OF RE S JUDICATA WAS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS. THERE COULD NOT BE ANY DISPUTE ON THIS ASPECT, BUT THERE IS ALSO ANOTH ER JUDICIAL THOUGHT THAT THERE SHOULD BE UNIFORMITY IN TREATMEN T AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES AND IT WAS ALREADY FOUND THAT FACTS AND CIRCUMSTANCES WERE IDE NTICAL, EVEN THOUGH A DIFFERENT STAND HAD BEEN TAKEN BY THE REVE NUE AUTHORITIES. IN THAT VIEW OF THE MATTER, THE ACTION OF THE REVENUE AUTHORITIES IN DISALLOWING THE CLAIM OF THE ASSESSE E IN THE RELEVANT YEAR NEEDED VERIFICATION. IN THE PROCESS T O FIND THE ANSWER, IT WAS NOTED THAT THERE WAS A CHANGE IN THE SCHEME OF TAXATION RELATING TO SHORT-TERM CAPITAL GAINS AND L ONG-TERM CAPITAL GAINS. THROUGH THE FINANCE ACT, 2004, THE L EGISLATURE IMPOSED SECURITIES TRANSACTION TAX ON THE SALE AND PURCHASE OF SHARES AND OTHER DERIVATIVE TRANSACTIONS AND, SIMUL TANEOUSLY, THE LEGISLATURE EXEMPTED LONG-TERM CAPITAL GAIN UNDER S ECTION 10(38) FROM THE LEVY OF TAX AND ON SHORT-TERM CAPIT AL GAIN, A CONCESSIONAL RATE OF TAX I.E., 10 PER CENT HAS BEEN LEVIED SUBJECT TO THE CONDITION THAT TRANSACTIONS RESULTING INTO T HIS TYPE OF GAIN MUST HAVE SUFFERED SECURITIES TRANSACTION TAX. THAT WAS THE FIRST YEAR OF SUCH CHANGE AND, HAVING REGARD TO THE QUANT UM OF GAINS, THIS SCHEME OF TAXATION ONLY MUST HAVE PROMPTED THE REVENUE AUTHORITIES TO TAKE A DIFFERENT VIEW ON THE SAME TY PES OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE IN EARLIE R YEARS. THERE WAS NO DISPUTE THAT THE ASSESSEE HAD CLAIMED EXEMPT ION UNDER SECTION 10(38) AND/OR HAD PAID TAX UNDER SECTION 11 1A AT CONCESSIONAL RATE ON THE TRANSACTIONS, WHERE SECURI TIES TRANSACTION TAX HAD NOT BEEN PAID. IT WAS ALSO NOTE D THAT THE ASSESSEE HAD PAID TAX ON SHORT-TERM CAPITAL GAINS A T NORMAL RATES ON SHARE TRANSACTIONS EXECUTED IN THE PERIOD PRIOR TO IMPOSITION OF SECURITIES TRANSACTIONS TAX. THE LEGI SLATIVE CHANGE ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 9 OF THIS NATURE, WHEREBY NO CHANGE HAD BEEN MADE IN RESPECT OF NATURE AND MODUS OPERANDI OF SUCH SHARE TRANSACTION S, RESULTING INTO ANY ADVANTAGE COULD NOT BE TAKEN AWAY BY THE R EVENUE AUTHORITIES IN THAT MANNER AND IN THOSE CIRCUMSTANC ES, PRINCIPLE OF CONSISTENCY, THOUGH IT IS AN EXCEPTION TO THE PR INCIPLE OF RES JUDICATA MUST BE APPLIED HERE. IT IS FURTHER SO BEC AUSE THE PAYMENT OF SECURITIES TRANSACTION TAX IS MANDATORY, I.E., WHETHER AN ASSESSEE EARNS THE PROFIT OR NOT OR SUFFERS A LO SS AND BY IMPOSITION OF SUCH TAX, THE LEGISLATURE HAS NOT GIV EN ANY BENEFIT TO A CLASS OF TRANSACTIONS AS A WHOLE THOUGH IT MAY RESULT INTO AN APPARENT BENEFIT TO INDIVIDUAL(S) ENTERING INTO THO SE TRANSACTIONS. THUS, IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, ON THE BASIS OF PRINCIPLE OF CONSISTENCY ALONE, THE ACTION OF THE REVENUE AUTHORITIES WAS LIABLE TO BE QUASHED. IT WAS ORDERE D ACCORDINGLY AND THE ASSESSING OFFICER WAS DIRECTED TO ACCEPT TH E CLAIMS OF ASSESSEE IN REGARD TO SHORT-TERM CAPITAL GAIN AND L ONG-TERM CAPITAL GAIN. [PARA 8.1] FURTHER, ON THE BASIS OF MERITS ALSO, IN VIEW OF TH E RATIO OF THE DECISION OF SARNATH INFRASTRUCTURE (P.) LTD.S CASE (SUPRA), IT WAS HELD THAT THE DELIVERY BASED TRANSACTION SHOULD BE TREATED AS OF THE NATURE OF INVESTMENT TRANSACTIONS AND PROFIT TH EREFROM SHOULD BE TREATED AS SHORT-TERM CAPITAL GAIN OR LON G TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. [PARA 8. 3] THE REVENUE HAD ALSO HELD THAT PRESENTATION IN THE BOOKS OF ACCOUNT WAS NOT CONCLUSIVE WHICH MAY BE TRUE TO SOM E EXTENT, BUT IT IS THE MOST CRUCIAL SOURCE OF GATHERING INTE NTION OF THE ASSESSEE AS REGARDS THE NATURE OF TRANSACTION AND, IN LAW, IT IS ALSO SO, I.E., SUCH PRESENTATION REFLECTS, PRIMA FA CIE, A VIEW OF THE ASSESSEE ON A PARTICULAR SUBJECT AND THIS PRINCIPLE WAS EFFECTIVELY APPLICABLE IN A SITUATION LIKE THAT AS COMPARED TO A SITUATION WHERE NATURE OF EXPENDITURE OR INCOME IS DIFFERENT IN THE BOOKS OF ACCOUNT AND IN THE RETURN OF INCOME FILED BY THE ASSESSEE WHEREIN THE SPECIFIC PROVISIONS OF THE ACT HAVE TO BE CONSIDERED OVER SUCH PRESENTATION AND IF THERE EXIST NO SPECIF IC PROVISIONS, THEY ARE THE COMMERCIAL PROFITS WHICH HAVE TO BE TA XED AND EVEN IN THAT SITUATION, THE ASSESSEE MAY BE FOUND TO BE JUSTIFIED IN GIVING DIFFERENT TREATMENT IN THE BOOKS OF ACCOUNT AS COMPARED TO RETURN OF INCOME BECAUSE OF COMMERCIAL CONSIDERA TIONS OR ACCOUNTING REQUIREMENTS. HENCE, THERE WAS NO SUBSTA NCE IN THE FINDING OF THE REVENUE AUTHORITIES IN THE FACTS OF THE INSTANT CASE. THE REVENUE AUTHORITIES HAD ALSO HELD THAT BORROWED FUNDS WERE ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 10 UTILIZED FOR MAKING SUCH INVESTMENTS WHEREAS IN EAR LIER YEARS, INTEREST ON SUCH LOANS HAD BEEN ALLOWED AS BUSINESS EXPENDITURE AGAINST PROFIT ON SHARE TRADING TRANSACTIONS SHOWN AS BUSINESS INCOME AND IN THE YEAR UNDER CONSIDERATION ALSO, NO NEXUS BETWEEN THE INTEREST BEARING FUNDS AND INVESTMENT H AD BEEN ESTABLISHED AND, HENCE, FOR THIS REASON ALSO, THERE WAS NO MERIT IN TREATING THE LONG-TERM CAPITAL GAIN AND SHORT-TE RM CAPITAL GAIN AS BUSINESS PROFITS. [PARA 8.4] IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, THE ASSESSEES CLAIM OF SHORT-TERM CAPITAL GAIN AND LONG-TERM CAPI TAL ON SHARE TRANSACTIONS WHERE THE DELIVERY HAD BEEN TAKEN OR G IVEN AND SECURITIES TRANSACTION TAX HAD BEEN PAID, WAS LIABL E TO BE ACCEPTED. ACCORDINGLY, THE ORDERS OF REVENUE AUTHOR ITIES WERE TO BE REVERSED. [PARA 9] 11.4. EVEN CBDT IN CIRCULAR NO.4/2007 DT.15.6.2007 HAS LAID DOWN THE PRINCIPLES FOR HOLDING AS TO WHEN PROFITS EARNED FR OM TRANSACTIONS IN SHARE SHOULD BE HELD AS BUSINESS OR SHOULD BE TREATED AS INVESTMENT CIRCULAR NO. 4/2007, DATED JUNE 15, 2007 SUB : DISTINCTION BETWEEN SHARES HELD AS STOCK-IN-T RADE AND SHARES HELD AS INVESTMENTTESTS FOR SUCH A DISTINCTION. THE INCOME-TAX ACT, 1961 MAKES A DISTINCTION BETWEE N A CAPITAL ASSET AND A TRADING ASSET. 2. CAPITAL ASSET IS DEFINED IN SECTION 2(14) OF THE ACT. LONG-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2(29A ) AND SECTION 2(29B). SHORT-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2(42A) AND SECTION 2(42B). 3. TRADING ASSET IS DEALT WITH UNDER SECTION 28 OF THE ACT. 4. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) THROUGH INSTRUCTION NO. 1827 DATED AUGUST 31, 1989, HAD BROUGHT TO THE NOTICE OF THE ASSESSING OFFICERS THAT THERE IS A DISTINCTION BETWEEN SHARES HELD AS INVESTMENT (CAPITAL ASSET) AND SHARES HELD AS STOCK-IN-TRADE (TRADING A SSET). IN THE LIGHT OF A NUMBER OF JUDICIAL DECISIONS PRONOUNCED AFTER THE I SSUE OF THE ABOVE INSTRUCTIONS, IT IS PROPOSED TO UPDATE THE ABOVE IN STRUCTIONS FOR THE INFORMATION OF THE ASSESSEES AS WELL AS FOR GUIDANC E OF THE ASSESSING OFFICERS. ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 11 5. IN THE CASE OF CIT V. ASSOCIATED INDUSTRIAL DEVE LOPMENT COMPANY (P) LTD. [1971] 82 ITR 586, THE SUPREME COURT OBSERVED THAT (HEADNOTE) : WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WIT HIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND HE SHOULD, IN NOR MAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM HIS RECOR DS AS TO WHETHER HE HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE HIS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT . 6. IN THE CASE OF CIT V. H. HOLCK LARSEN [1986] 160 ITR 67, THE SUPREME COURT OBSERVED (PAGE 87) : THE HIGH COURT, IN OUR OPINION, MADE A MISTAKE IN O BSERVING WHETHER TRANSACTIONS OF SALE AND PURCHASE OF SHARES WERE TR ADING TRANSACTIONS OR WHETHER THESE WERE IN THE NATURE OF INVESTMENT WAS A QUESTION OF LAW. THIS IS A MIXED QUESTION OF LAW AND FACT. 7. THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASSESSING OFFICERS. 8. THE AUTHORITY FOR ADVANCE RULINGS (AAR) [2007] 2 88 ITR 641, REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CA SES, HAS CULLED OUT THE FOLLOWING PRINCIPLES (PAGE 651) : (I) WHERE A COMPANY PURCHASES AND SELLS SHARES, IT MUST BE SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THAT EXIS TENCE OF THE POWER TO PURCHASE AND SELL SHARES IN THE MEMORANDUM OF ASSOCIATION IS NOT DECISIVE OF THE NATURE OF TRANSA CTION ; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS, THE MA NNER OF MAINTAINING BOOKS OF ACCOUNT, THE MAGNITUDE OF PURCHASES AND SA LES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING W OULD FURNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS ; (III) ORDINARILY THE PURCHASE AND SALE OF SHARES WI TH THE MOTIVE OF EARNING A PROFIT, WOULD RESULT IN THE TRANSACTION B EING IN THE NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE ; BUT WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCO ME BY WAY OF DIVIDEND ETC. THEN THE PROFITS ACCRUING BY CHANGE I N SUCH INVESTMENT (BY SALE OF SHARES) WILL YIELD CAPITAL GAIN AND NOT REVENUE RECEIPT. 9. DEALING WITH THE ABOVE THREE PRINCIPLES, THE AAR HAS OBSERVED IN THE CASE OF FIDELITY GROUP AS UNDER (PAGE 661) : WE SHALL REVERT TO THE AFOREMENTIONED PRINCIPLES. T HE FIRST PRINCIPLE REQUIRES US TO ASCERTAIN WHETHER THE PURCHASE OF SH ARES BY A FII IN ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 12 EXERCISE OF THE POWER IN THE MEMORANDUM OF ASSOCIAT ION/TRUST DEED WAS AS STOCK-IN-TRADE AS THE MERE EXISTENCE OF THE POWE R TO PURCHASE AND SELL SHARES WILL NOT BY ITSELF BE DECISIVE OF THE NATURE OF TRANSACTION. WE HAVE TO VERIFY AS TO HOW THE SHARES WERE VALUED/HELD IN THE BOOKS OF ACCOUNT I.E., WHETHER THEY WERE VALUED AS STOCK-IN-TRADE AT THE E ND OF THE FINANCIAL YEAR FOR THE PURPOSE OF ARRIVING AT BUSINESS INCOME OR H ELD AS INVESTMENT IN CAPITAL ASSETS. THE SECOND PRINCIPLE FURNISHES A GU IDE FOR DETERMINING THE NATURE OF TRANSACTION BY VERIFYING WHETHER THERE AR E SUBSTANTIAL TRANSACTIONS, THEIR MAGNITUDE, ETC., MAINTENANCE OF BOOKS OF ACCOUNT AND FINDING THE RATIO BETWEEN PURCHASES AND SALES. IT W ILL NOT BE OUT OF PLACE TO MENTION THAT REGULATION 18 OF THE SEBI REGULATIONS ENJOINS UPON EVERY FII TO KEEP AND MAINTAIN BOOKS OF ACCOUNT CONTAINING TR UE AND FAIR ACCOUNTS RELATING TO REMITTANCE OF INITIAL CORPUS OF BUYING AND SELLING AND REALIZING CAPITAL GAINS ON INVESTMENTS AND ACCOUNTS OF REMITT ANCE TO INDIA FOR INVESTMENT IN INDIA AND REALIZING CAPITAL GAINS ON INVESTMENT FROM SUCH REMITTANCES. THE THIRD PRINCIPLE SUGGESTS THAT ORDI NARILY PURCHASES AND SALES OF SHARES WITH THE MOTIVE OF REALIZING PROFIT WOULD LEAD TO INFERENCE OF TRADE/ADVENTURE IN THE NATURE OF TRADE ; WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF COMPANIES IS TO DERIVE INCOME BY WAY O F DIVIDENDS ETC., THE TRANSACTIONS OF PURCHASES AND SALES OF SHARES WOULD YIELD CAPITAL GAINS AND NOT BUSINESS PROFITS. 10. THE CENTRAL BOARD OF DIRECT TAXES ALSO WISHES T O EMPHASISE THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I. E., AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIO COMPRISING OF STOCK-IN-TRADE WHIC H ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIO S, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E., CAPITAL GAINS AS WELL AS BUSINESS INCOME. 11. THE ASSESSING OFFICERS ARE ADVISED THAT THE ABO VE PRINCIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE GIVING RI SE TO CAPITAL GAINS) OR AS STOCK-IN-TRADE (AND THEREFORE GIVING RISE TO BUS INESS PROFITS). THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SING LE 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. 12. THESE INSTRUCTIONS SHALL SUPPLEMENT THE EARLIER INSTRUCTION NO. 1827 DATED AUGUST 31, 1989. [ F. NO. 149/287/2005-TPL ] 11.5. IN ANOTHER CASE JANAK S. RANGWALLA V. ASSISTA NT COMMISSIONER OF INCOME-TAX, RANGE-12(2), THE TRIBUNAL HAS SIMILARLY HELD AS UNDER : ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 13 THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE A SSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIP LE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRANSACTION IN WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND THE MAGNITUDE OF THE TRANSACTION DOES NOT ALTER THE NATURE OF TRANSACTION. THOUGH THE PRINCIPLE OF RES JUDICATA D OES NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY, IT IS A JUDICIALLY ACCEPTED P RINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS, UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. [PARA 6] IN THE FACTS OF THE INSTANT CASE, THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT WAS THE INTENTION OF THE ASSE SSEE WHICH WAS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY TH E ASSESSEE. THOUGH THE INVESTMENT IN SHARES WAS ON A LARGE MAGNITUDE BUT T HE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEARS HAD BEEN HELD TO BE INCOME FROM CAP ITAL GAINS BOTH ON LONG-TERM AND SHORT-TERM BASIS. THE TRANSACTION IN THE YEAR U NDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SHARES WAS SAME AS IN THE P RECEDING YEARS AND THE SAME WAS TO BE ACCEPTED AS SHORT-TERM CAPITAL GAINS. THE RE WAS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES, WHEN HIS INTENTION WAS TO HOLD SHARES IN THE INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK-IN-TRAD E. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTI ON, WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS . THE ASSESSING OFFICER WAS TO BE DIRECTED TO SET OFF THE LONG-TERM CAPITAL LOSS A GAINST THE SHORT-TERM CAPITAL GAIN OF THE YEAR UNDER CONSIDERATION. [PARA 7] IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE WAS ALLOWED. [PARA 9] 12. WHEN WE APPLY THE PRINCIPLES LAID DOWN IN THE A BOVE JUDGMENTS, WE FIND IN THE PRESENT CASE THAT (1) THE ASSESSEES DID NOT HAVE DEALINGS IN LARGE N UMBER OF SCRIPS OR LARGE FREQUENCY OF TRANSACTIONS WHICH WOULD WARRANT INTER FERENCE THAT THEY ARE TRADERS; (2) IN THE BOOKS OF ACCOUNTS THE ASSESSEES HAVE NEV ER TREATED THE SHARES AS STOCK IN TRADE AND RETURNS OF INCOME HAVE BEEN FILED PRIO R TO THE SEARCH SHOWING THEM AS INVESTMENTS AND PROFIT THERE FROM AS CAPITAL GAINS; ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 14 (3) EVEN THOUGH MONEY HAS BEEN BORROWED TO INVEST IN SHARES, NEITHER THE INTEREST PAID ON BORROWED MONEY OR SECURITY TRANSAC TION TAX HAS BEEN CLAIMED WHILE COMPUTING CAPITAL GAINS; (4) THE ASSESSEES HAVE RETAINED THE SHARES FOR ENJO YING APPRECIATION IN VALUE AND NOT FOR THE PURPOSE OF REALIZATION OF PROFIT. T HERE IS APPARENTLY NO COMMERCIAL MOTIVE WHICH IS AN ESSENTIAL INGREDIENT TO BE A TRA DER. IT IS CLEARLY SHOWN BY THEM IN THE RETURNS OF INCOME FILED THAT THEY ARE ENJOYI NG DIVIDEND INCOME FROM HOLDING SHARES AS INVESTMENT; (5) IT IS NOT SHOWN BY THE REVENUE THAT STOCK OF SH ARES HAVE BEEN VALUED AT COST OR MARKET PRICE WHICHEVER IS LOW BUT THEY HAVE VALUED AT COST WHILE COMPUTING THE CAPITAL GAINS; (6) THE ASSESSEES HAVE APPARENTLY DISCHARGED THE PR IMARY ONUS BY KEEPING RECORD OF INVESTMENT SHOWING HOLDINGS ONLY AS INVES TMENT AND NOT STOCK IN TRADE. THE PRIMARY ONUS HAS NOT BEEN REBUTTED BY THE REVEN UE. THE CASE OF THE REVENUE IS THUS BASED MERELY ON SUSPICION AND ON NUMBER OF TRANSACTIONS CARRIED IN ONE OR TWO YEARS THOUGH WHICH ARE NOT FREQUENT IF WE SPREA D THEM ON MONTHLY BASIS AS OBSERVED BY US ABOVE; (7) ASSESSEES HAVE ALWAYS TAKEN THE DELIVERY OF SHA RES AND MADE THEM REGISTERED. IT HAS BEEN HELD IN SARNATH INFRASTRUCT URE (P) LTD V. ACIT (122 TTJ 216) THAT ONCE SHARES ARE REGISTERED IN THE NAME OF THE ASSESSEE, INTENTION IS CLEAR THAT IT IS AN INVESTMENT AND NOT A TRADE; (8) THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE ASSESSEE HAS FULFILLED THE LEGAL REQUIREMENT FOR DEALING AS A TRADER IN SHARES . 13. IN OUR CONSIDERED VIEW THE SUSPICION OF THE REV ENUE TO HOLD THE TRANSACTIONS MADE BY THE ASSESSEES AS IN THE NATURE OF TRADE IS BASED ON THE PREMISE THAT THE ASSESSEES ARE FREQUENTLY RESHU FFLING ITS PORTFOLIO AND MERELY BECAUSE SHARES ARE REGISTERED/TRANSFERRED IN THE NAMES OF THE ASSESSEES WOULD NOT BE SUFFICIENT TO HOLD THAT THE TRANSACTIONS ARE INVESTMENT. BUT WE ARE OF THE CONSIDERED VIEW THAT THE PERCEPTION OF THE DEPARTMENTAL AUTHORITIES IS LEGALLY MISPLACED. THOU GH APPARENTLY IT MAY ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 15 APPEAR THAT MERELY BECAUSE SHARES ARE REGISTERED/TR ANSFERRED IN THE NAME OF THE ASSESSEE HE MAY NOT GO OUT OF AMBIT OF A TRA DER BUT THE FACT IS THAT THE ASSESSEES HAVE DISCHARGED THEIR ONUS BY GETTING THE SHARES REGISTERED IN THEIR NAMES. NOW ONUS SHIFTS TO THE REVENUE TO S HOW THAT INSPITE OF SHARES BEING TRANSFERRED/REGISTERED IN THE NAME OF THE ASSESSEES, THE ASSESSEE ARE STILL DEALING IN SHARES AS A TRADER. T HIS CAN BE DONE BY THEM BY SHOWING THAT ASSESSEES ARE CARRYING OUT LARGE FR EQUENCY OF TRANSACTIONS, CREATING AN OFFICE, CARRYING OUT RELA TED ORGANIZED ACTIVITIES AND COMPLYING WITH OTHER LEGAL REQUIREMENT OF BEING A TRADER. IN THE PRESENT CASE THE FREQUENCY OF TRANSACTIONS ARE NOT SO MUCH TO HOLD THAT THE ASSESSEES ARE STILL TRADERS EVEN THOUGH SHARES ARE REGISTERED IN THEIR NAMES. IN THE ABOVE TWO JUDGMENTS NAMELY SARNATH IN FRASTRUCTURE (P) LTD V. ACIT (122 TTJ 216) AND GOPAL PUROHIT V. JCIT [(2 009) 29 SOT 117 (MUM)], IT HAS BEEN HELD THAT ASSESSEE WOULD BE INV ESTOR PRIMARILY IF SHARES ARE REGISTERED BY IT IN ITS NAME. ONCE THERE IS NO CONTRARY MATERIAL TO HOLD OTHERWISE, WE WOULD RESPECTFULLY FOLLOW THE SE DECISIONS AND HOLD THAT THE ASSESSEES IN THE INSTANT CASES ON HAND HAV E DISCHARGED THE PRIMARY ONUS BY GETTING THE SHARES REGISTERED IN TH EIR NAMES AND THEREFORE, THEY CAN VERY WELL CLAIM AS INVESTORS. SINCE THE CA SE OF THE REVENUE IS BASED MERELY ON SUSPICION AND NOT ON ADEQUATE MATER IAL TO SHOW THAT THE ASSESSEE IS ACTING AS A TRADER, WE ARE UNABLE TO IN TERFERE WITH THE ORDER PASSED BY THE LEARNED CIT(A) WHICH IS QUITE ELABORA TE, REASONED AND BASED ON JUDGMENTS OF COURTS. 5.1 THE VIEW TAKEN IN THE AFORESAID DECISION HAS SUBSEQUENTLY BEEN FOLLOWED BY THE ITAT IN THEIR DECISION DATED 24-06-2010 IN ANOTHER GROUP CASE OF SMT. HEMANGI BANKIM SHAH IN ITA NOS.2863 TO 2865/AH D/2008 FOR THE AYS 2004-05 TO 2006-07 AND ORDER DATED 2-07-201 0 IN BANKIM JAYANTILAL SHAH & OTHERS IN ITA NOS.2866 TO 2874/AH D/2008 AND OTHERS FOR THE AYS 2000-01 TO 2004-05. 5.2 WE MAY POINT OUT THAT THE HONBLE JURISDICTIONAL HI GH COURT IN CIT VS. REVA SHANKER A. KOTHARI 283 ITR 338 (GUJARAT ) LAID DOWN THE FOLLOWING GUIDELINES IN ORDER TO DETERMINE WHETHER PROFITS ARISING ON SALE IS BUSINESS INCOME:- THE TESTS LAID DOWN BY VARIOUS DECISIONS OF THE APEX COURT INDICATE THAT, IN EACH CASE, IT IS THE TOTAL EFFECT OF ALL RELEVANT F ACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION. EACH C ASE HAS TO BE DETERMINED ON THE TOTAL IMPRESSION CREATED ON THE MIND OF THE COU RT BY ALL THE FACTS AND CIRCUMSTANCES DISCLOSED IN A PARTICULAR CASE. ONE O F THE PRINCIPAL TESTS IS WHETHER THE TRANSACTION IS RELATED TO THE BUSINESS NORMALLY CARRIED ON BY AN ASSESSEE. ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 16 THE NATURE OF THE COMMODITY WOULD ALSO BE A RELEVAN T FACTOR. IT IS EQUALLY WELL SETTLED THAT, MERELY BECAUSE THE ORIGINAL PURCHASE WAS MADE WITH THE INTENTION TO RESELL, IF AN ENHANCED PRICE COULD BE OBTAINED, THA T BY ITSELF IS NOT ENOUGH TO INFER THAT AN ASSESSEE IS CARRYING ON BUSINESS. HOWEVER, THOUGH PROFIT MOTIVE IN ENTERING INTO A TRANSACTION IS NOT DECISIVE, IF THE FACTS AND CIRCUMSTANCES INDICATE THAT THE PURCHASE OF THE ASSET WAS MADE SOLELY AND EXCLUSIVELY WITH AN INTENTION TO RESELL THE ASSET AT A PROFIT, IT WOULD BE A STRO NG FACTOR FOR INFERRING THAT THE TRANSACTION WAS IN THE NATURE OF BUSINESS. IN THE CASE OF PARI MANGALDAS GIRDHARDAS V. CIT [19 77] CTR 647 (GUJ), AFTER ANALYSING VARIOUS DECISIONS OF THE APEX COURT, THIS COURT HAS FORMULATED CERTAIN TESTS TO DETERMINE AS TO WHETHER AN ASSESSEE CAN BE SAID TO BE CARRYING ON BUSINESS. (A) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITI ON OF THE SUBJECT-MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN TH E ITEM, OR WITH A VIEW TO FINDING AN INVESTMENT. IF THE TRANSACTION, SINCE THE INCEPT ION, APPEARS TO BE IMPRESSED WITH THE CHARACTER OF A COMMERCIAL TRANSACTION ENTE RED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDELINE. (B) THE SECOND TEST THAT IS OFTEN APPLIED IS AS TO WHY AND HOW AND FOR WHAT PURPOSE THE SALE WAS EFFECTED SUBSEQUENTLY. (C) THE THIRD TEST, WHICH IS FREQUENTLY APPLIED, IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT-MATTER OF TRANSACTION DURING THE TIME T HE ASSET WAS WITH THE ASSESSEE. HAS IT BEEN TREATED AS STOCK-IN-TRADE, OR HAS IT BE EN SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE SHEET AS AN INVESTMENT. THIS IN QUIRY, THOUGH RELEVANT, IS NOT CONCLUSIVE. (D) THE FOURTH TEST IS AS TO HOW THE ASSESSEE HIMSE LF HAS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEA LT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEEDING ASSESSMENTS. THI S FACTOR, THOUGH NOT CONCLUSIVE, CAN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF THE TRANSACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSIDERED IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION. (E) THE FIFTH TEST, NORMALLY APPLIED IN CASES OF PA RTNERSHIP FIRMS AND COMPANIES, IS WHETHER THE DEED OF PARTNERSHIP OR THE MEMORANDUM O F ASSOCIATION, AS THE CASE MAY BE, AUTHORISES SUCH AN ACTIVITY. (F) THE LAST BUT NOT THE LEAST, RATHER THE MOST IMP ORTANT TEST, IS AS TO THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION S OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CASE WHERE THERE IS REPETITIO N AND CONTINUITY, COUPLED WITH THE MAGNITUDE OF THE TRANSACTION, BEARING REASONABL E PROPORTION TO THE STRENGTH OF HOLDING, THEN AN INFERENCE CAN READILY BE DRAWN THA T THE ACTIVITY IS IN THE NATURE OF BUSINESS. ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 17 5.3 IN THE LIGHT OF VIEW TAKEN BY THE ITAT AND THE GUIDELINES LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR AFORESA ID DECISIONS AS ALSO IN THE LIGHT OF CBDT CIRCULAR, IF WE ANALYSE THE TRANSACTIONS I N THE INSTANT CASE, WE FIND THAT UNDISPUTEDLY, THE ASSESSEE DISCLOSED INCOME FROM C APITAL GAINS / DIVIDENDS IN EARLIER YEARS AND THE SHARES HAVE BEEN TREATED AS INVESTMENTS IN THE BOOKS OF ACCOUNT/BALANCE SHEETS. THE LD. CIT(A) FOUND THAT T HE TRANSACTIONS WERE ON DELIVERY BASIS AND WERE NOT REPETITIVE / NUMEROUS E NOUGH TO WARRANT THE CONCLUSION THAT THE ASSESSEE WAS TRADING IN SHARES . THIS IS EVIDENT EVIDENT FROM THE FOLLOWING DETAILS: AY STCG RETURNED LTCG RETURNED INCOME HELD AS BUSINESS NUMBER OF SCRIPS NUMBER OF SALE TRANSACTIONS 2000-01 10,858 10,60,000 10,70,858 2 3 2002-03 63,090 -1,18,438 -1,917 1 1 2003-04 70,710 -2,36,235 70,710 1 2 2005-06 14,65,775 26,37,486 41,03,261 4 6 2006-07 32,35,360 4,32,418 36,67,778 7 11 5.4 IN THE LIGHT OF AFORESAID FACTS AND CIRCUMST ANCES, FOLLOWING THE VIEW TAKEN IN THE AFORESAID DECISIONS, ESPECIALLY WHEN THE REVEN UE HAVE NOT BROUGHT TO OUR NOTICE ANY MATERIAL OR CONTRARY DECISION IN ORDER TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INCLINED TO INTERFER E WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE, GROUND NO.1 IN THESE FIVE APPEAL S IS DISMISSED. 6. SINCE THE LD. AR ON BEHALF OF THE ASSESSEE D ID NOT PRESS GROUNDS RAISED IN THE CORRESPONDING COS DURING THE COURSE OF HEARING OF APPEALS, THESE GROUNDS ARE DISMISSED. ITA NOS. 3196 TO 3200/AHD/2008 & CO NOS.276 TO 280/A/08 18 7. GROUND NOS. 2 & 3 IN THESE APPEALS OF THE REVE NUE, BEING MERE PRAYER, DO NOT REQUIRE ANY SEPARATE ADJUDICATION AN D ARE, THEREFORE, DISMISSED. 8. IN THE RESULT, ALL THE FIVE APPEALS FILED BY T HE REVENUE ALONG WITH CORRESPONDING CROSS- OBJECTIONS ARE DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 9-09-2010 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 9-09-2010 COPY OF THE ORDER FORWARDED TO: 1. SMT. BELABEN HIMANSHU SHAH, A/64, PARISIMA COMPL EX, C G ROAD, NAVRANGPURA, AHMEDABAD 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRA L CIRCLE- 2(3), ROOM NO. 305, ANNEXE TO AAYAKAR BHAVAN, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-III, AHMEDABAD 5. DR, BENCH-A,ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD