The ITO, Ward-4(2), Ahmedabad V. Jay Investments Pvt.Ltd., Ahmedabad

ITA 3199/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6411 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 02-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMIR TEKRIWA LA
• Keywords: Capital asset; Business income; Rule of consistency; Transactions in derivatives
• Section: 143(3)

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M THE ITO, WARD 4(2), AHMEDABAD VS. JAY INVESTMENT (P) LTD., NR.SAHAJANAND COLLEGE, OPP: KAMDHENU COMPLEX, AMBAWADI, AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SAMIR TEKRIWALA, SR.DR RESPONDENT BY:- SMT. URVASHI SHODHAN, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS :- 1.1 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN DIRECTING THE ASSESSING OFFICER TO RECALCULATE THE INCOME FROM TR ANSACTIONS IN SECURITIES AS 'INCOME FROM CAPITAL GAINS' IF THE SE CURITIES WERE HELD FOR A PERIOD OF MORE THAN 30 DAYS OR AS INCOME FROM BUSINESS OR PROFESSION' IN CASE THE SECURITIES WERE HELD FOR LE SS THAN 30 DAYS, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIALS DRAUGHT ON RECORD. 1.2 IN DOING SO, THE LEARNED CIT(A) HAS ERRED IN LA W AND ON FACTS IN NOT APPRECIATING THAT AS PER THE DETAILED REASONS G IVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, THE SHAR ES /UNITS WERE PURCHASED AND SOLD BY THE ASSESSEE WITH THE MOTIVE OF EARNING OF PROFITS AND NOT BY WAY OF INVESTMENT AND THEREFORE, THE PROFIT ON THE SAID TRANSACTIONS WERE RIGHTLY TREATED AS 'BUSI NESS INCOME 1 OF THE ASSESSEE BY THE ASSESSING OFFICER. ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR2007-08 ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR 2007-08 2 1.3 IN DOING SO, THE LEARNED CIT(A) HAS ERRED IN LA W AND ON FACTS IN NOT APPRECIATING THAT KEEPING IN VIEW THE VOLUME AND FREQUENCY OF TRANSACTIONS, A SYSTEMATIC BUSINESS A CTIVITY WAS CARRIED OUT BY THE ASSESSEE IN THE PURCHASE AND SAL E OF SHARES / UNITS AND THE INCOME ARISING FROM THESE TRANSACTIONS WAS ASSESSABLE AS THE 'BUSINESS INCOME' OF THE ASSESSEE. IN THE CROSS OBJECTION THE ASSESSEE HAS RAISED FOLL OWING GROUND :- (1) THE LD. CIT(A) HAS ERRED IN FACT AND IN LAW IN DIRE CTING THE AO TO ASSESS THE INCOME ON TRANSFER OF SHARES/UNITS OF COMPANIES/MUTUAL FUND AS BUSINESS INCOME WHERE THE HOLDING PERIOD IS LESS THAN 30 DAYS. 2. THUS THE ONLY ISSUE INVOLVED IN THE APPEAL AND T HE CO IS WHETHER THE PROFIT ARISING TO THE ASSESSEE ON PURCHASE AND SALE OF SHARES SHOULD BE TREATED AS BUSINESS INCOME OR CAPITAL GAINS. FURTHE R WHETHER ON THE BASIS OF HOLDING PERIOD OF LESS THAN 30 DAYS, THEY SHOULD BE TREATED AS BUSINESS INCOME AND FOR HOLDING PERIOD OF MORE THAN 30 DAYS, THEY SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS AS HELD IN THE CASE OF SUGAMCHAND C. SHAH VS. ACIT IN ITA NO.3554/AHD/2008 AND OTHERS. 3. THE FACTS OF CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT ASSESSEE HAS SHOWN PR OFIT ON SALE OF INVESTMENT AT RS.87,53,880/- BUT HAS OFFERED RS.46, 73,400/- AS SHORT TERM CAPITAL GAINS FOR TAXATION. THE AO NOTED THAT ASSES SEE HAS ENTERED INTO MANY AND VOLUMINOUS TRANSACTIONS AND SALES AND PURC HASES WERE FREQUENT DURING THE FINANCIAL YEAR. THUS ON THE BASIS OF VOL UME AND FREQUENCY OF THE TRANSACTIONS THE AO INFERRED THAT ASSESSEE IS E NGAGED IN TRADING IN ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR 2007-08 3 SHARES AND IS NOT MERELY AN INVESTOR. IN RESPONSE T O SHOW CAUSE NOTICE THE ASSESSEE COMPANY FURNISHED FOLLOWING REASONS IN SUP PORT OF HIS ARGUMENTS THAT IT IS NOT ACTING AS A TRADER BUT ONL Y DISPOSING OF SHARES AS INVESTOR. THE SHARES/UNITS OF THE COMPANIES/MUTUAL FUNDS HAVE BEEN SHOWN AS AN INVESTMENT AND NOT AS A STOCK IN TRADE. THE PROFIT/LOSS ARISING ON PHYSICAL TRANSFER HAS B EEN CREDITED/DEBITED IN PROFIT & LOSS ACCOUNT. THE SHARES/UNITS OF THE COMPANIES/MUTUAL FUNDS HAV E BEEN VALUED AT COST AS ON BALANCE SHEET DATE. IN OTHER WORDS LO SSES DUE TO FALL IN THE VALUE OF STOCKS OF INVESTMENT HAVE NOT BEEN DEB ITED TO PROFIT AND LOSS ACCOUNT. IN THE RETURN OF INCOME THE INCOME ON ACTUAL TRANS FER OF INVESTMENT HAVE BEEN OFFERED FOR TAX UNDER THE HEAD CAPITAL GA IN BECAUSE THE INCOME ARISING ON TRANSFER OF CAPITAL ASSETS IS TAX ABLE UNDER THE HEAD CAPITAL GAIN. SINCE BEGINNING THE ASSESSEE COMPANY IS FOLLOWING THE SAME METHOD CONSISTENTLY. IN PAST THE DEPARTMENT HAS ALS O ACCEPTED THE SAME METHOD IN THE ASSESSMENT MADE U/S 143(3) OF TH E IT ACT, 1961. THE AO REJECTED THE ABOVE CONTENTIONS AND ANALYSED THE TRANSACTIONS OF THE ASSESSEE IN SHARES IN TERMS OF QUANTUM, SALE DA TE, SALE VALUE, PURCHASE DATE, COST VALUE AND BOOK GAIN AS SHOWN IN TABULAR FORM IN PARA 4.6 OF THE ORDER AND FINALLY HELD THAT - (I) THE ASSESSEES ONLY ACTIVE BUSINESS HAS BEEN BUYING AND SELLING OF SHARES IN LARGE QUANTITIES AND IN ORGANIZED AND SYSTEMATIC MANNER. ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR 2007-08 4 (II) AS PER THE DECISION OF THE HON. SUPREME COURT IN TH E CASE OF CIT VS. DISTRIBUTORS, BARODA 83 ITR 377 REAL, SUBST ANTIAL AND SYSTEMATIC OR ORGANIZED INVESTMENT WOULD CONSTITUTE BUSINESS. IN THE CASE OF THE ASSESSEE SELLING ACTIVITIES ARE SUBSTANTIAL AND ARE RUNNING INTO MORE THAN CRORES. IT IS ENGAGED IN SUCH ACTIVITIES SINCE MANY YEARS IN A REGULAR AND SYSTEM ATIC MANNER. (III) THE MAJOR INCOME OF THE ASSESSEE COMPANY IS FROM SH ARES AND TRANSACTIONS AND OTHER INCOME ARE FROM DIVIDENDS AN D INTEREST AND THUS BUYING AND SELLING SHARES/UNITS IS ITS SOL E BUSINESS. (IV) THE MOTIVE OF THE INVESTMENT IN THE UNITS AND SHARE S IS NOT TO EARN MERE DIVIDEND TO EARN PROFIT BY ENTERING INTO FREQUENT TRANSACTIONS IN BUYING AND SELLING OF SHARES. 4. THE LD. CIT(A) RELYING ON THE DECISION OF THIS T RIBUNAL IN THE CASE OF SUGAMCHAND C. SHAH (SUPRA) HELD THAT IF HOLDING PERIOD IS 30 DAYS OR LESS THEN PROFITS ARISING FROM SALE OF SHARES SHOUL D BE TREATED AS BUSINESS INCOME AND IF HOLDING PERIOD OF SHARES IS MORE THAN 30 DAYS THEN PROFIT ARISING FROM SALE OF SHARES/UNITS SHOULD BE TREATED AS SHORT-TERM CAPITAL GAINS. HE ACCORDINGLY DIRECTED THE AO TO RECALCULAT E THE INCOME FROM TRANSACTIONS OF SECURITIES OF THE ASSESSEE AS INCOM E FROM BUSINESS AND INCOME FROM CAPITAL GAINS. 5. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. BASIC CONTENTION OF THE LD. AR HAS BEEN THA T ONCE IT IS SHOWN AS INVESTMENT IN THE BOOK THEN ENTIRE PROFIT SHOULD BE TREATED AS CAPITAL GAINS IRRESPECTIVE OF HOLDING PERIOD WHEREAS THE LD. DR V EHEMENTLY ARGUED THAT ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR 2007-08 5 FREQUENCY AND VOLUME OF THE TRANSACTIONS IS CLEARLY SHOWING HIS INTENTION THAT HE IS TRADING IN SHARES THOUGH SHOWN AS INVEST MENT IN THE BOOKS. 6. IN OUR CONSIDERED VIEW, THE ISSUE IS NOW DIRECTL Y COVERED BY THE DECISION IN THE CASE OF SUGAMCHAND C. SHAH (SUPRA) WHEREIN SEVERAL DECISIONS OF THE TRIBUNAL AND OF HIGH COURTS WERE C ONSIDERED AND THE TRIBUNAL CAME TO THE CONCLUSION THAT HOLDING PERIOD IS VERY RELEVANT IN DECIDING WHETHER PROFIT ARISING OUT OF SALE OF SHAR ES SHOULD BE ASSESSED AS BUSINESS INCOME OR CAPITAL GAINS. THE TRIBUNAL IN T HE CASE OF SUGAMCHAND C. SHAH (SUPRA) HELD AS UNDER :- 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN OUR CONSIDERED VIEW, THE TRIBUNAL IN THE CASES OF GOPAL PUROHIT VS. JT. CIT(SUPRA) AND OF SARNATH INFRASTRUCTURE (P) LTD. V S. ASSTT.CIT(SUPRA) LAID DOWN CRITERIA FOR HOLDING AS TO WHEN TRANSACTI ON IN SHARES BE TREATED AS TRADING AND WHEN THEY SHOULD BE TREATED AS INVES TMENT. 10. FOR THE SAKE OF CONVENIENCE, WE REPRODUCE HEREU NDER THE RELEVANT PORTION OF THE ORDER OF ITAT BOMBAY BENCH IN THE CA SE OF GOPAL PUROHIT VS. JT.CIT [2009] 29 SOT 117 (MUM.) . IF THESE FACTS ARE TAKEN INTO CONSIDERATION, THEN, FOLLOWING CONCLUSIONS EMERGE : (I) THE FACTS OF THE YEAR UNDER CONSIDERATION WITH REGA RD TO NATURE OF INCOME(S) EARNED BY THE ASSESSEE AND THE TRANSACTIO NS ARE SAME IN ALL THESE YEARS EXCEPT TRANSACTIONS IN F&O SEGMENT IN S OME OF THE YEARS WHEREIN THIS KIND OF ACTIVITY WAS STARTED BY THE ST OCK EXCHANGE. (II) INTEREST ON BORROWED CAPITAL HAS BEEN ALLOWED AS B USINESS EXPENDITURE AGAINST THE PROFIT ON JOBBING ACTIVITIES SHOWN BY T HE ASSESSEE AS BUSINESS PROFIT. (III) THE ASSESSEE HAS SHOWN SHARES PURCHASED ON DELIVERY BASIS AS INVESTMENT AT THE END OF THE YEAR AND NO STOCK-IN-TRADE EXIST ON THAT DATE AND THE ASSESSEE HAS EARNED BOTH LONG-TERM AND SHORT-TERM C APITAL GAINS WHICH ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR 2007-08 6 MEANS THE ASSESSEE HAS ALSO HELD SHARES FOR A PERIO D OF MORE THAN 12 MONTHS. 8.1 THUS, THE NATURE OF ACTIVITIES, MODUS OPERANDI OF T HE ASSESSEE, MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARES AS INVES TMENT AT THE YEAR END IS SAME IN ALL THE YEARS, HENCE; APPARENTLY, THERE APP EARS NO REASON AS TO WHY THE CLAIMS MADE BY THE ASSESSEE SHOULD NOT BE ACCEP TED. HOWEVER, THE REVENUE AUTHORITIES HAVE TAKEN A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERATION BY HOLDING THAT PRINCIPLE OF RES JUDI CATA IS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS. THERE CANNOT BE, IN OUR VIE W, ANY DISPUTE ON THIS ASPECT BUT THERE IS ALSO ANOTHER JUDICIAL THOUGHT, THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY UNDER THE S AME FACTS AND CIRCUMSTANCES AND WE HAVE ALREADY FOUND THAT FACTS AND CIRCUMSTANCES ARE IDENTICAL, EVEN THOUGH A DIFFERENT STAND HAS BEEN T AKEN BY THE REVENUE AUTHORITIES. THIS ACTION OF THE REVENUE AUTHORITIES HAS LED US TO ASK OURSELVES THAT IN THIS YEAR WHY IT HAS BEEN DONE SO. IN THE P ROCESS TO FIND THE ANSWER, WE NOTED THAT THERE WAS A CHANGE IN THE SCHEME OF TAXA TION RELATING TO SHORT-TERM CAPITAL GAINS AND LONG-TERM CAPITAL GAINS. THROUGH THE FINANCE ACT, 2004, THE LEGISLATURE IMPOSED SECURITIES TRANSACTION TAX ON T HE SALE AND PURCHASE OF SHARES AND OTHER DERIVATIVE TRANSACTIONS AND, SIMUL TANEOUSLY, THE LEGISLATURE EXEMPTED LONG-TERM CAPITAL GAIN UNDER SECTION 10(38 ) OF THE ACT FROM THE LEVY OF TAX AND ON SHORT-TERM CAPITAL GAIN, A CONCESSION AL RATE OF TAX I.E., 10 PER CENT HAS BEEN LEVIED SUBJECT TO THE CONDITION THAT TRANSACTIONS RESULTING INTO THIS TYPE OF GAIN MUST HAVE SUFFERED SECURITIES TRA NSACTION TAX. THIS IS THE FIRST YEAR OF SUCH CHANGE AND, HAVING REGARD TO THE QUANT UM OF GAINS, THIS SCHEME OF TAXATION ONLY, IN OUR VIEW, HAS PROMPTED THE REV ENUE AUTHORITIES TO TAKE A DIFFERENT VIEW ON THE SAME TYPES OF TRANSACTIONS EN TERED INTO BY THE ASSESSEE IN EARLIER YEARS. AT THIS STAGE, WE CONSIDER IT FIT TO STATE THAT THERE IS NO DISPUTE BEFORE US THAT ASSESSEE HAS CLAIMED EXEMPTION UNDER SECTION 10(38) AND/OR HAS PAID TAX UNDER SECTION 111A AT CONCESSIONAL RAT E ON THE TRANSACTIONS, WHERE SECURITIES TRANSACTION TAX HAS NOT BEEN. IT I S ALSO NOTED THAT THE ASSESSEE HAS PAID TAX ON SHORT-TERM CAPITAL GAINS AT NORMAL RATES ON SHARE TRANSACTIONS EXECUTED IN THE PERIOD PRIOR TO IMPOSITION OF SECUR ITIES TRANSACTIONS TAX. IN OUR VIEW, THE LEGISLATIVE CHANGE OF THIS NATURE, WHEREB Y NO CHANGE HAS BEEN MADE IN RESPECT OF NATURE AND MODUS OPERANDI OF SUCH SHA RE TRANSACTIONS, RESULTING INTO ANY ADVANTAGE CANNOT BE TAKEN AWAY BY THE REVE NUE AUTHORITIES IN THIS MANNER AND IN THESE CIRCUMSTANCES, WE ARE OF THE VI EW THAT, PRINCIPLE OF CONSISTENCY, THOUGH IT IS AN EXCEPTION TO THE PRINC IPLE OF RES JUDICATA MUST BE APPLIED HERE. IT IS FURTHER SO BECAUSE THE PAYMENT OF SECURITIES TRANSACTION TAX IS MANDATORY I.E., WHETHER AN ASSESSEE EARNS THE PR OFIT OR NOT OR SUFFERS A LOSS AND BY IMPOSITION OF SUCH TAX, THE LEGISLATURE HAS NOT GIVEN ANY BENEFIT TO A CLASS OF TRANSACTIONS AS A WHOLE THOUGH IT MAY RESU LT INTO AN APPARENT BENEFIT TO INDIVIDUAL(S) ENTERING INTO THOSE TRANSACTIONS. THUS, IN OUR VIEW, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ON THE BASIS OF PRIN CIPLE OF CONSISTENCY ALONE, THE ACTION OF THE REVENUE AUTHORITIES IS LIABLE TO BE QUASHED. WE ORDER ACCORDINGLY AND DIRECT THE ASSESSING OFFICER TO ACC EPT THE CLAIMS OF ASSESSEE IN REGARD TO SHORT-TERM CAPITAL GAIN AND LONG-TERM CAPITAL GAIN. ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR 2007-08 7 10.1. IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD . VS. ASSTT.CIT(SUPRA), THE TRIBUNAL CONSIDERED THE CIRCULAR NO.4 OF CBDT(2 007) DATED 15/06/2007, VARIOUS OTHER DECISIONS, SUCH AS, CIT V S. ASSOCIATED INDUSTRIAL CO. LTD. (1971) 82 ITR 586 (SC), CIT VS. H. HOLCK LARSEN (H) (1986) 160 ITR 67 (SC), FIDELITY NORTHSTAR FUND IN RE(2007) 207 CTR (AAR) 297; (2007) 288 ITR 641 (AAR), FIDELITY ADVIS OR SER SERIES VIII IN RE (2004) 271 ITR 1 (AAR), JP HARRISON (WATFORD) LTD. VS. GRIFFITH (H.M. INSPECTOR OF TAXES) (1962) 40 TAX CASES 281 ( HL), RAJA VISHEWARA SINGH (DECEASED) VS. CIT (1961) 41 ITR 685 (SC), CE NTRAL INDIA AGENCIES PVT.LTD.V S. CIT (1970) 77 ITR 959 (ALL.), MRS. SAR OJANI RAJAH VS. CIT (1969) 79 ITR 504 (MAD.), DALHOUSIE INVESTMENT CO.L TD. VS. CIT (1968) 68 ITR 486(SC), CIT VS. ASSOCIATED INDUSTRIAL DEVEL OPMENT CO.LTD. (1971) 82 ITR 586 (SC), CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. (1975) 100 ITR 706 (SC) AND CULLED OUT FOLLOWING PR INCIPLES WHICH ARE DESCRIBED IN PARA NO.13 OF THAT ORDER:- 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FOLLOWI NG PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOS ES : (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATME NT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED AS STOCK-IN -TRADE OR INVESTMENT. WHETHER SHOWN IN OPENING/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 PURCHASE GOODS FOR T HE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DIS POSAL IN THAT PARTICULAR ITEM ? IF PURCHASE AND SALE ARE FREQUENT, OR THERE ARE SUBSTA NTIAL TRANSACTIONS IN THAT ITEM, IT WOULD INDICATE TRADE. HABITUAL DEALING IN THAT PART ICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PU RCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTI NG (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AN D HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE ? FORMER WI LL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTMENT. IN THE CASE OF SHARES WHETHE R INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY 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 TH E BALANCE SHEET ? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR 2007-08 8 ARE VALUED AT COST OR MARKET VALUE OR NET REALIZABL E VALUE (WHICHEVER IS LESS), IT WILL INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOC K-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEM ORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION ? WHETHER FOR TRADE OR FOR INVESTMEN T ? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE ARE 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 SH OW 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 D ISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS IN VESTMENT (OR SAY, STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NOT REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHA RES (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 T HAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISIT ES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASSESSEE IS COMPL YING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM ? WHETH ER IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING O R WHEN PURCHASES WERE 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 SEPARATE ACCOUNT FOR EACH TYPE, THER E ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TW O PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FAC TORS HAS TO BE SEEN. 11. WHEN WE EXAMINE THE FACTS OF THE CASE, WE FIND ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNT IN RESPECT OF DEALI NG IN SHARES AND ASSESSEE HAS SHOWN THE TRANSACTIONS IN SHARES AS IN VESTMENT AND NOT AS STOCK-IN-TRADE. IT HAS BEEN SHOWN CONSISTENTLY FOR SEVERAL YEARS IN THE PAST AND DEPARTMENT HAS NOT CHALLENGED THE BOOK KEEPING OR ACCOUNTING OF SHARES AS INVESTMENT. NO CONTRARY MATERIAL OR FACTS HAVE BEEN POINTED OUT BY THE REVENUE TO SHOW THAT FACTS IN THE CURRENT YE AR ARE DIFFERENT THAN THE FACTS IN EARLIER YEARS. IT IS ALSO NOT POINTED OUT BY THE REVENUE THAT FREQUENCY AND NUMBER OF TRANSACTIONS ARE ABNORMALLY HIGH IN THE CURRENT YEAR AS COMPARED TO WHAT WAS DONE IN EARLIER YEARS. 12. THERE IS ALSO NO MATERIAL TO COME TO THE CONCLU SION THAT THE VALUATION OF INVESTMENT HAS BEEN DONE ON COST OR NE T RELIABLE VALUE ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR 2007-08 9 WHICHEVER IS LOW. THE ASSERTION OF THE ASSESSEE IS THAT ENTIRE PORT-FOLIO HAS BEEN VALUED AT COST AS AT THE END OF ACCOUNTING YEAR WHICH REMAINED UNCHALLENGED. 13. THE SHARES WHICH ARE SOLD OUT OF SUCH INVESTMEN T THIS YEAR WERE MOSTLY PURCHASED A YEAR OR EARLIER SHOWING THAT THE ASSESSEE HAD INTENTION WHILE PURCHASING THEM TO HOLD THEM AND TH EY WERE REFLECTED IN THAT BALANCE-SHEET AS INVESTMENT. THE ASSESSEE HAS ENJOYED DIVIDEND INCOME AND DECLARED THE SAME IN THE RETURN OF INCOM E TRADING THE TRANSACTIONS AS INVESTMENT, EVEN IF FREQUENCY OF SE LLING OF SHARES MAY BE MORE BUT IN RESPECT OF SHARES HELD FOR A CONSIDERAB LE LONGER PERIOD (FOR MORE THAN 366 DAYS) AS PER FINDING GIVEN BY THE LEA RNED CIT(APPEALS). THIS FINDING REMAINED UNCONTROVERTED. THE ASSESSEE HAS EARNED GAIN OF RS.37,52,281/-, ON SALE OF THOSE SHARES WHICH WERE HELD FOR MORE THAN 366 DAYS AND UPTO 6832 DAYS. IN ANY CASE, WHEN THOS E SHARES WERE PURCHASED IT COULD NOT BE SAID THAT INTENTION OF TH E ASSESSEE WAS TO DEAL IN THEM AND NOT TO HOLD THEM AS INVESTMENT. EVEN IN TH E CASE OF INVESTMENT IT IS FOR THE ASSESSEE TO DECIDE WHEN TO DISPOSE THEM OFF SO THAT TO GIVE MAXIMUM RETURN OUT OF THEM. THERE IS NO THEORY THAT ASSET HELD ON LONG- TERM BASIS SHOULD BE SOLD ONLY AT THE TIME OF NEED OR IN EMERGENCY. HE CAN VERY WELL SALE THE INVESTMENTS TO REAP THE BENE FIT WHEN PRICES OF SHARES ARE HIGH SO AS TO EARN BETTER GAINS AND MAKE INVESTMENT ELSEWHERE. IN OUR CONSIDERED VIEW, IT IS THE DECISI ON OF THE ASSESSEE TO DISPOSE OF AN INVESTMENT, IF ACCORDING TO HIM, MARK ET VALUE THEREOF HAVE REACHED A PLATEAU SO AS TO MAKE INVESTMENT IN OTHER ASSETS WHICH HAVE POTENTIAL OF APPRECIATION IN MARKET VALUE. THIS DEC ISION TO SALE HIS INVESTMENT AT HIGH MARKET PRICE CANNOT CONVERT AN O THERWISE INVESTMENT INTO TRADING. IF IN THE PAST, THE DEPARTMENT HAS AC CEPTED THE SALE OF SHARES OF HOLDINGS OF MORE THAN A YEAR AS INVESTMEN T AND PROFITS THEREON HAS BEEN ASSESSED UNDER THE HEAD CAPITAL GAIN, TH EN THERE IS NO REASON TO HOLD DIFFERENTLY THIS YEAR. WE ACCORDINGLY CONFI RM THE ORDER OF THE LEARNED CIT(APPEALS) IN RESPECT OF HOLDING THAT PRO FIT OF RS.37,52,281/- SHOULD BE ASSESSED AS 'LONG-TERM CAPITAL GAIN'. 15. IN RESPECT OF PROFIT OF RS.55,40,679/- BEING 'S HORT-TERM CAPITAL GAIN' AS CLAIMED BY THE ASSESSEE AND HELD AS PROFITS ASSE SSED UNDER THAT BUSINESS BY TWO AUTHORITIES, WE FIND THAT IN MANY C ASES THERE IS DELIVERY OF SHARES AND SHARE WERE REGISTERED IN THE NAME OF THE ASSESSEE. THE HOLDING PERIOD OF THE SHARES IS FROM 0 DAYS TO 3 66 DAYS. IN SOME CASES, THE FREQUENCY OF TRANSACTIONS ARE APPARENTLY SUBSTA NTIAL AS ON ONE DAY THE ASSESSEE HAS PURCHASED SEVERAL SCRIPTS AND SOLD SEVERAL OF THEM ON THE SAME DAY. ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR 2007-08 10 16. THE QUESTION IS WHETHER THEREFORE, MERELY FROM FREQUENCY OF THE TRANSACTIONS CARRIED ON BY THE ASSESSEE, HE IS TREA TED AS DEALER IN SHARES OR STILL HE IS HELD AS INVESTOR. AS FOUND IN THE CA SE OF SARNATH INFRASTRUCTURE (P) LTD. VS. ASSTT.CIT(SUPRA) ALSO, ASSESSEE ADDUCED EVIDENCE TO SHOW THAT HIS HOLDINGS ARE FOR INVESTME NT AS RECORDED IN THE BOOKS OF ACCOUNT. THE HOLDINGS ARE VALUED AT COST, AND SUCH ACCOUNTING HAS BEEN ACCEPTED BY THE REVENUE IN EARLIER YEARS. THERE IS NO MATERIAL TO SHOW THAT ASSESSEE HAS DECLARED HIMSELF AS A TRA DER IN SHARES AND LEGAL REQUIREMENTS THEREFOR HAVE BEEN COMPLIED WITH. IT I S ALSO A FACT THAT HE HAS NOT BORROWED ANY MONEY FOR INVESTING IN SHARES. MERELY BECAUSE, ASSESSEE HAD SOME BORROWED FUNDS IT WOULD NOT BY IT SELF SHOW THAT THEY WERE DEPLOYED IN INVESTMENT. NOTWITHSTANDING, EVEN BORROWING ARE REQUIRED TO SETTLE PAYMENTS OBLIGATIONS IN RESPECT OF INVESTMENTS, LIKE ONE TAKES LOAN FOR PURCHASING A HOUSE. IN ANY CASE, HIG H FREQUENCY TRANSACTIONS AND LOW PERIOD HOLDINGS INDICATE TRADE , WHEREAS LOW FREQUENCY TRANSACTIONS AND HIGH PERIOD HOLDINGS IND ICATE INVESTMENT. 17. IN THIS CASE, THE ASSESSEE HAS DISCHARGED THE O NUS OF SHOWING THAT IT IS MAKING INVESTMENT BUT REVENUE IS ABLE TO SHOW TH AT THERE ARE HIGH FREQUENCIES AND LOW HOLDINGS IN MANY TRANSACTIONS O F SHARES INDICATING THAT ASSESSEE HAS SOME INTENTION OF PURCHASING AND SELLING SHARES AS A TRADER. THE CASE OF THE ASSESSEE IS SUPPORTED BY TH E FACT THAT IT HAS ENTERED THE PURCHASES IN THE BOOKS AS INVESTMENT, S HARES ARE VALUED AT COST AND REVENUE IS HOLDING SUCH ACCOUNTING TREATME NT AS INVESTMENT IN THE PAST. THUS, THERE CANNOT BE A FIXED CRITERIA TO DECIDE AS IN THE PRESENT CASE WHETHER ASSESSEE HAS TRADED IN SHARES EVEN THO UGH ASSESSEE HELD THEM AS INVESTMENT. 18. THOUGH IT HAS BEEN HELD IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD.(SUPRA) THAT DELIVERY OF SHARES IS AN IMPORTANT CRITERIA FOR HOLDING THAT ASSESSEE IS INVESTING IN THEM BUT AFTER DEMATI ZATION WHERE SHARES ARE DELIVERED IN THE DEMAT ACCOUNT THE NEXT DAY, IT CAN NOT BE HELD THAT IN ALL SUCH CASES, IT WOULD BE INVESTMENT AND NOT TRADING. IF THAT IS SO HELD, THEN ALL THOSE TRADERS IN SHARES IN WHOSE DEMAT ACCOUNTS SHARES ARE DELIVERED CAN BE SAID TO HAVE EARNED CAPITAL GAINS AND NOT PROFITS. THEREFORE, ONLY ONE CRITERIA, I.E. DELIVERY OF SHAR ES ALONE WILL NOT BE SUFFICIENT TO DECIDE THE ISSUE. EVEN OTHERWISE IN S ARNATH INFRASTRUCTURE (P) LTD.(SUPRA) ITSELF IT HAS BEEN HELD THAT CUMULA TIVE EFFECT OF SEVERAL FACTORS WILL DECIDE THE ISSUE. 19. CONSIDERING THE TOTALITY AND PECULIARITY OF THE FACTS OF THIS CASE, WE FIND THAT ASSESSEE IS NEITHER FULLY ACTING AS A TRA DER NOR AS FULLY INVESTOR. DEMARCATION IS QUITE HAZY; THOUGH IN THE BOOKS HE I S SHOWING ALL THE ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR 2007-08 11 PURCHASES AS INVESTMENT BUT FREQUENCY OF TRANSACTIO N IN SEVERAL CASES IS SO LARGE AND HOLDING PERIOD IN MANY CASES IS SO SMA LL FROM 0 TO A WEEK OR SO THAT ASSESSEE IS DE FACTO SELLING AND PURCHAS ING SHARES AS TRADER. HE IS ALSO HOLDING SHARES FOR LONG PERIOD INDICATING THAT THEY ARE HELD AS INVESTMENT. THEREFORE, A CRITERIA HAS TO BE FIXED F OR DETERMINING AS TO WHEN HE IS ACTING AS TRADER AND WHEN AS INVESTOR. A CCORDINGLY, WE DECIDE FOLLOWING CRITERIA TO HOLD WHEN GAINS ARE TO BE TAX ED AS PROFIT TO BE EARNED UNDER THE BUSINESS OR TO BE TAXED AS SHORT T ERM CAPITAL GAIN, WE HOLD THAT IF SHARES ARE NOT HELD EVEN SAY FOR A MON TH, THEN THE INTENTION IS CLEARLY TO REAP PROFIT BY ACTING AS A TRADER AND HE DID NOT INTEND TO HOLD THEM IN INVESTMENT PORT-FOLIO. WE BELIEVE THAT IF A PERSON INTENDS TO HOLD HIS PURCHASES OF SHARES AS INVESTMENT, HE WOULD WAT CH THE FLUCTUATION OF RATES IN THE MARKET FOR WHICH A MINIMUM TIME IS NEC ESSARY, WHICH WE ESTIMATE AT ONE MONTH. WHERE SHARES ARE HELD FOR MO RE THAN A MONTH, THEY SHOULD BE TREATED AS INVESTMENT AND ON THEIR S ALE SHORT TERM CAPITAL GAIN SHOULD BE CHARGED. WHEN SHARES ARE HELD FOR LE SS THAN A MONTH, GAIN ON THEM SHOULD BE TREATED AS PROFIT FROM BUSINESS. 20. THE ASSESSEE WILL GIVE THE WORKING AND COMPUTIN G 'SHORT-TERM CAPITAL GAINS' ON THE ABOVE BASIS. THE REST OF THE PROFIT WILL BE TREATED AS ASSESSABLE UNDER THE HEAD BUSINESS. 7. FOLLOWING THE ABOVE DECISION, WE FIND NO INFIRMI TY IN THE ORDER OF LD. CIT(A) AND HENCE THE SAME IS CONFIRMED. AS A RE SULT, THE APPEAL FILED BY THE REVENUE AND THE CO FILED BY THE ASSESSEE, BO TH ARE DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE A ND THE CO FILED BY THE ASSESSEE, BOTH ARE DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 17/06/2011 SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 17/06/2011. ITA NO.3199/AHD/2010 ALONG WITH CO NO.12/AHD/2011 ASST. YEAR 2007-08 12 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 6/6/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 10/6/2011 /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..