ACIT CIR 21(3), MUMBAI V. JAGDISH MASTER, HUF, MUMBAI

ITA 3233/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48888 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 09-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS KU SUM INGALE
• Assessee Lawyers: PRADEEP KAPASI
• Keywords: Business income; Treatment of capital gains as business income; Question of law; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI J.SUDHAKAR R EDDY (A.M) ITA NO.3233/MUM/09(A.Y. 2006-07) THE ACIT, CIR. 21(3), C-11, BLDG., 5 TH FLOOR, PRATYAKSH KAR BHAVAN, BKC, BANDRA (E), MUMBAI 51. (APPELLANT) VS. MR. JAGDISH MASTER, HUF, 14, LAXMI NIWAS, CHURCH ROAD, VILE PARLE WEST, MUMBAI -56, PAN: AACHJ 5352E (RESPONDENT) ITA NO.3420/MUM/2009(A.Y. 2006-07) MR. JAGDISH MASTER, HUF, 14, LAXMI NIWAS, CHURCH ROAD, VILE PARLE WEST, MUMBAI -56, PAN: AACHJ 5352E (APPELLANT) VS. THE ACIT, CIR. 21(3), C-11, BLDG., 5 TH FLOOR, PRATYAKSH KAR BHAVAN, BKC, BANDRA (E), MUMBAI 51. (RESPONDENT) REVENUE BY : MRS. KUSUM INGALE ASSESSEE BY : SHRI PRADEEP KAPASI ORDER PER N.V.VASUDEVAN, J.M, ITA NO.3420/M/09 IS AN APPEAL BY THE ASSESSEE WHIL E ITA NO.3233/M/09 IS AN APPEAL BY THE REVENUE. BOTH THE SE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 24/3/2009 OF CIT(A) XXI, MU MBAI RELATING TO ASSESSMENT YEAR 2006-07. THE ONLY ISSUE THAT ARISE S FOR CONSIDERATION IN THE ASSESSEES APPEAL AND THE GROUND RAISED BY THE REVE NUE IN ITS APPEAL CAN BE CONVENIENTLY DECIDED TOGETHER. THESE GROUNDS READ AS FOLLOWS: ITA NO.3233&3420/MUM/2009(A.Y. 2006-07) 2 ASSESSEES GROUNDS:- 1. TREATMENT OF CAPITAL GAINS AS BUSINESS INCOME/TRADING: (A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN TRE ATING I) THE APPELLANT AS BOTH INVESTOR AS WELL AS TRADER. II) SHORT TERM CAPITAL GAIN IN RESPECT OF THOSE SHARES WHICH ARE HELD FOR LESS THAN 30 DAYS IN RESPECT OF SECONDARY MARKET PURCHASE AND SA LE AS BUSINESS INCOME/LOSS INSTEAD OF SHORT TERM CAPITAL GAINS. (B) THE APPELLANT PRAYS FOR THE LEAVE TO ADD, AMEND, AL TER, DELETE OR MODIFY ANY OF THE ABOVE GROUNDS. REVENUESS GROUNDS:- 1. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE I S BOTH AN INVESTOR AS WELL AS TRADER IN SHARES AND SECURITIES. (II) THE LD. CIT(A) HAS FURTHER ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE SURPLUS / LOSS ON SALE OF SHARES HELD FOR LESS THAN 30 DAYS IN RESPECT OF SECONDARY MARKET PURCHASE AND SALES AS B USINESS INCOME / LOSS AND TO TREAT THE SURPLUS / LOSS ON SALE OF SHA RES HELD FOR MORE THAN 30 DAYS AS CAPITAL GAINS /LOSS. (III) THE LD. CIT(A) HAS FURTHER ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE ENTIRE LONG TERM CAPITAL GAINS AS LONG TERM CAPITAL GAINS ON SALE OF SHARES AND GIVE EXEMPTION U/S. 10(38). 2. THE ASSESSEE IS AN HUF. FOR ASSESSMENT YEAR 20 06-07 IT FILED THE RETURN OF INCOME DECLARING INCOME OF RS.99.83,834/- . ON PERUSAL OF THE DETAILS THE AO NOTICED THAT THE ASSESSEE HAS EARNED STCG OF RS. 99,18,863/- AND LTCG OF RS.3,09,14,236/-. ACCORDING TO THE AO ON PERUSAL OF THE CAPITAL GAIN OF THE ASSESSEE FOR THE ASSESSMENT YEA R 2004-05 AND 2003-04 IT WAS CLEAR THAT THE ASSESSEE HAS BEEN EARNING LTCG A ND STCG OF RS.63.93 LACS AND RS.36.50 LACS DURING THE A.Y.2004-05 AND R S.31.11 LACS AND RS.8.61 LACS IN 2003-04. THUS THE AO WAS OF THE PR IMA FACIE VIEW THAT THE ASSESSEE WAS CARRYING ON A CONTINUOUS BASIS TRADING IN SHARES BY DEVOTING TIME AND CARRYING ON ACTIVITIES IN A SYSTEMATIC MAN NER. THE AO HAS ALSO OBSERVED THAT THE ASSESSEE HAD DONE MORE THAN 253 T RANSACTION DURING THE PREVIOUS YEAR. ACCORDING TO THE AO THE INTENTION O F THE ASSESSEE WAS TO CARRY ON BUSINESS IN TRADING IN SHARES AND THIS WAS EVIDENT FROM THE FACT ITA NO.3233&3420/MUM/2009(A.Y. 2006-07) 3 THAT HE WAS CARRYING ON NUMBER OF TRANSACTIONS. HE ALSO NOTICED THAT ASSESSEE WAS NOT DEVOTING TIME FOR EARNING ANY OTHE R INCOME. IN THIS REGARD THE AO OBSERVED THAT INCOME FROM OTHER SOURCES SHOW N BY THE ASSESSEE WAS RS.58,446/- AND INCOME FROM HOUSE RENT RS.7,000/-. THE AO ALSO REFERRED TO THE FACT THAT THE VOLUME OF TRANSACTIONS MADE BY THE ASSESSEE WAS BIG. THE AO IN THIS REGARD REFERRED TO THE FACT THAT ON 31/01/06 THE ASSESSEE HAD TRADED 30000 SHARES OF GUJARAT AMBUJA CEMENT WHICH EARNED HIM A HANDSOME PROFIT. ANOTHER INSTANCE OF DEALING IN SH ARES OF FCS SOFTWARE WHERE IN ONE SINGLE TRANSACTION THE ASSESSEE MADE A PROFIT OF RS.1463340/- ON 22/9/05 WAS ALSO REFERRED TO BY THE AO. ACCORDI NG TO THE AO, IF THIS DOES NOT POINT TO A VIGILANT AND SAVVY TRADER THEN WHAT DOES. THEREFORE, HE HELD THAT BY NO STRETCH OF IMAGINATION CAN HE BE CATEGOR IZED AS AN INVESTOR. ACCORDING TO THE AO IT WAS EVIDENT THAT THE ASSESSE E WAS INTERESTED IN MAKING PROFIT BASED ON THE PRICE DIFFERENCE BETWEEN PURCHASE AND SALE PRICE. ACCORDING TO THE AO, IF THE ASSESSEE WAS AN INVESTO R, HE WOULD BE PRINCIPALLY INTERESTED IN HOLDING THE SHARES FROM THE POINT OF VIEW OF DIVIDEND. FOR THE ABOVE REASONS, THE AO HELD THAT THE INTENTION OF TH E ASSESSEE IS TO DERIVE PROFIT FROM SALE OF SHARES AND THE ASSESSEE SHOULD NOT BE TREATED AS A TRADER AND NOT AN INVESTOR AND HIS GAINS FROM BOTH LONG TE RM AND SHORT TERM BE BROUGHT IN THE RIGHT BRACKET OF TAX INSTEAD OF TAKI NG SHELTER OF EXEMPTION AND LOWER TAX RATES. 3. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD AS FOL LOWS: 4.3 . I HAVE PERUSED THE ASSESSMENT ORDER AND HAVE CAREFULLY CONSIDERED THE FINDING AND THE CONCLUSION OF THE AO . I HAVE ALSO CONSIDERED THE SUBMISSIONS OF THE APPELLANT. I HAV E CONSIDERED THE FACTS OF THE CASE. I AM OF THE CONSIDERED OPINION THAT BOTH THE AO AND THE APPELLANT HAVE TAKEN EXTREME VIEWS. WHILE THE AO HAS TREATED THE APPELLANT AS TRADER AND HAS TREATED ALL THE TRANSAC TIONS (SHORT TERM AS WELL AS LONG TERM) OF THE APPELLANT AS BUSINESS INC OME, THE APPELLANT HAS CLAIMED TO BE AN INVESTOR AND HAS TREATED ALL H IS TRANSACTIONS AS INVESTMENT TRANSACTIONS AND THEREBY OFFERED GAIN ON SALE OF SHARES AS CAPITAL GAINS. IN MY CONSIDERED OPINION NEITHER SE EMS TO BE A CORRECT VIEW, I ALSO FIND THAT THE AO HAS TAKEN A LIMITED V IEW OF THE MATTER BY ITA NO.3233&3420/MUM/2009(A.Y. 2006-07) 4 RESTRICTING HIMSELF TO THE FACTS OF THE YEAR UNDER CONSIDERATION WHEREAS AT TIMES IT IS NECESSARY TO CONSIDER THE FACTS OF T HE PAST AND SUBSEQUENT YEARS ALSO TO ASCERTAIN THE TRUE NATURE OF ACTIVITIES OF THE APPELLANT. 4.3.1. I HAVE CAREFULLY STUDIED THE TRANSACTIONS UNDERTAKING BY THE APPELLANT AND REQUESTED HIM TO GIVE A BREAKUP OF T RANSACTIONS OF SHORT TERM CAPITAL GAINS ON THE BASIS OF PERIOD OF HOLDING FOR MORE THAN 30 DAYS AND LESS THAN 30 DAYS IN RESPECT OF HIS SEC ONDARY MARKET TRANSACTIONS WHICH ARE AS UNDER:- SHORT TERM PROFIT ON SALE OF SHARES HELD FOR LESS T HAN 30 DAYS (BOUGHT AND SOLD THROUGH SECONDARY MARKET) RS. 4,58,974 SHORT TERM PROFIT ON SALES OF SHARES HELD FOR MORE THAN 30 DAYS RS. 94,59,889 RS. 99,18,863 A. FROM THE ANALYSIS OF THE DATA IT IS CLEAR THAT THIS IS A CASE OF AN INVESTOR CUM TRADER. THE APPELLANT IS AN INVESTOR WHO ALSO AT TIMES TRIES HIS HAND AT TRADING IN SHARES. IT IS W ELL KNOW FACT THAT THE PERSON WHO IS FULL TIME INVESTOR WOULD BE IN A POSITION TO UNDERSTAND AND TAKE ADVANTAGE OF SHORT TERM OPPORTU NITIES THAT ARE PRESENT IN THE MARKET. THE FACT THAT THE PERSO N CAN BE BOTH AN INVESTOR AS WELL AS A TRADER IS ALSO RECOGNIZED BY THE CBDT AND THE CBDT HAS STATED THAT A TAX PAYER CAN HAVE BOTH PORT FOLIOS, AN INVESTMENT PORTFOLIO AS WELL AS TRADING PORTFOLIO. VARIOUS FACTORS WHICH MAKES THE APPELLANT AN INVESTOR ARE THAT THE APPELLANT HAD MADE INVESTMENTS IN LISTED SHARES AND ALSO INVESTED IN IPOS, THE SHARES WERE SHOWN IN BALANCE SHEET AS INVESTMENTS A ND VALUED AT COST, THE APPELLANT DID NOT HAVE ANY OFFICE AND/OR ADMINISTRATIVE SET UP, THERE ARE NO COMMERCIAL FIXED ASSETS, THE S OURCE OF ACQUISITION OF SHARES WAS OUT OF OWN FUNDS AND FAMI LY FUNDS, THE RATIO OF INVESTMENTS TO SALE AND PURCHASES IS VERY HIGH AND THE FACT THAT THERE WAS NOT A SINGLE INSTANCE WHERE THE APPELLANT HAD SQUARED OFF THE TRANSACTION ON THE SAME DATE WITHOU T TAKING DELIVERY OF SHARES. B. WHILE THE FACTORS LISTED ABOVE MAKES IT CLEAR THAT THE APPELLANT IS MAINLY AN INVESTOR THE FACTORS LIKE TURNOVER OF SHA RES IN LESS THAN 30 DAYS IN RESPECT OF SECONDARY MARKET TRANSACTIONS ETC., POINTS TO THE FACT THAT THE APPELLANT IS ALSO A TRADER. I TH EREFORE, HOLD THAT THE APPELLANT IS BOTH AN INVESTOR AS WELL AS TRADER . GAIN IN RESPECT OF THOSE SHARES WHICH WERE ACQUIRED THROUGH SUBSCR IBING TO INITIAL PUBLIC OFFER OF THE COMPANIES CANNOT BE TREATED AS TRADING. I DIRECT THE AO TO TREAT THE SURPLUS/LOSS ON SALE OF SHARES HELD FOR LESS THAN 30 DAYS IN RESPECT OF SECONDARY MARKET PURCHAS E AND SALES AS ITA NO.3233&3420/MUM/2009(A.Y. 2006-07) 5 BUSINESS INCOME/LOSS AND TO TREAT THE SURPLUS/LOSS ON SALE OF SHARES HELD FOR MORE THAN 30 DAYS AS CAPITAL GAI NS/LOSS.. I FURTHER DIRECT THE AO TO TREAT THE ENTIRE LONG TERM CAPITAL GAINS AS LONG TERM CAPITAL GAINS ON SALE OF SHARES AND GIVEN EXEMPTION U/S.10(38). 4. AGGRIEVED BY THE FINDING OF THE CIT(A) WHERE THE HOLDING PERIOD OF SHARES WAS LESS THAN 30 DAYS THE PROFIT HAS TO BE TREATED AS INCOME FROM BUSINESS THE ASSESSEE HAS FIELD THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE REVENUE HAS FILED THE APPEAL AGGRIEVED BY THE FINDI NG OF THE CIT(A) THAT WHERE SHARES ARE HELD FOR MORE THAN 30 DAYS THE INCOME O N SALE OF SHARES HAS TO BE CONSIDERED AS STCG AND THE FINDING THAT LTCG DEC LARED BY THE AO HAS TO BE ACCEPTED AND EXEMPTION UNDER SECTION 10(38) HAS TO BE ALLOWED THE REVENUE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE CONSIDERED THE RIVAL SUBMISSION. THE ISSUE TO BE DECIDED IS AS TO WHETHER THE STCG ON TRANSACTION OF PURCHASE AND SALE OF SHARES UNDERTAKEN BY THE ASSES SEE DURING THE PREVIOUS YEAR IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AS CLAIMED BY THE REVENUE OR INCOME UNDER THE HEAD CAPITAL GAIN AS CONTENDED B Y THE ASSESSEE. BEFORE WE DEAL WITH THE FACTS OF THE CASE OF THE ASSESSEE, WE WILL BRIEFLY NARRATE THE PRINCIPLES APPLICABLE IN DECIDING THE ABOVE ISSUE AS LAID DOWN IN SEVERAL JUDICIAL PRONOUNCEMENTS :- (A) WHETHER A TRANSACTION OF SALE AND PURCHASE OF SHARE S WERE TRADING TRANSACTIONS OR WHETHER THEY WERE IN THE NATURE OF INVESTMENTS IS MIXED QUESTION OF LAW AND FACT. CIT VS. HOLCK LARSEN, 60 ITR 67 (SC). (B) IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN INVEST OR AS WELL AS A DEALER IN SHARES. WHETHER A PARTICULAR HOLDING IS BY WAY OF I NVESTMENT OR FORMED PART OF STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVID ENCE FROM HIS RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARES WHICH WERE HOLD BY HIM AS INVESTMENTS AND THOSE HOLD AS STOCK IN TRADE. (CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. LTD., 82 ITR 586 (SC). (C) TREATMENT IN THE BOOKS BY AN ASSESSEE WILL NOT BE C ONCLUSIVE. IF THE VOLUME, FREQUENCY AND DT.15/6/2007ULARITY WITH WHIC H TRANSACTIONS ARE CARRIED OUT INDICATE SYSTEMATIC AND ORGANIZED ACTIV ITY WITH PROFIT MOTIVE, THEN IT WOULD BE A CASE OF BUSINESS PROFITS AND NOT CAPITAL GAIN. CIT VS. ITA NO.3233&3420/MUM/2009(A.Y. 2006-07) 6 MOTILAL HIRABHAI SPG. AND WVG. CO. LTD., 113 ITR 17 3 (GUJ); RAJA BAHADUR VISWSHWARA SINGH VS. CIT, 41 ITR 685 (SC). (D) PURCHASE WITHOUT AN INTENTION TO RESELL WHERE THEY ARE SOLD UNDER CHANGED CIRCUMSTANCES WOULD BE CAPITAL GAINS. CIT V S. PKN, 60 ITR 65 (SC). PURCHASE WITH AN INTENTION TO RESELL WOULD RE NDER THE GAIN PROFIT ON SALE BUSINESS PROFIT DEPENDING ON THE CIRCUMSTANCES OF THE CASE LIKE NATURE AND QUANTITY OF ARTICLE PURCHASED, NATURE OF THE OPERATION INVOLVED. SAROJ KUMAR MAZUMDAR VS. CIT, 37 ITR 242 (SC). (E) NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AND TH E QUESTION MUST DEPEND UPON THE COLLECTIVE EFFECT OF ALL THE RELEVANT MATE RIALS BROUGHT ON RECORD. JANKI RAM BAHADUR RAM VS. CIT, 57 ITR 21 (SC). 6. THE ABOVE TESTS HAVE AGAIN BEEN REITERATED BY T HE CBDT IN ITS CIRCULAR NO.4/2007 DT.15/4/2007. KEEPING IN MIND, THE ABOVE BROAD PRINCIPLES, WE SHALL NOW EXAMINE THE CASE OF THE ASSESSEE. 7. THE ASSESSEE HAD PURCHASED AND SOLD SHARES OF T HE FOLLOWING COMPANIES WHICH HAD GIVEN RISE TO SHORT TERM CAPITAL GAIN, VI Z., ELGI EQUIPMENT, FCS SOFTWARE SOLUTIONS LTD., GUJARAT AMBUJA CEMENT, ICI CI BANK, IDFC, IL & FS INVESTMENTS, JINDAL STAINLESS STEEL, KLG SY. ST. RI CO AUTO, SHANTI GEARS, SHREE CEMENTS, SPLIL, TCS AND ULTRATECH. IN ALL TH ERE WERE ONLY 37 TRANSACTIONS WHICH RESULTED IN SHORT TERM CAPITAL G AIN. THE OTHER RELEVANT DETAILS ARE AS FOLLOWS: PERSONAL CAPITAL RS. 16,04,60,390 INVESTMENT IN SHARES AS AT 31/03/2006 RS . 5,64,28,742 - IN GOVT., BOND & UNITS OF MF,PPF, LIC RS. 3,69,32,218 INVESTMENT IN SHARES AS AT 31/03/2005 RS . 3,67,07,513 -IN GOVT. BOND & UNITS OF MF, PPF,LIC RS. 5,00,00,000 DIVIDEND INCOME FOR YEAR ENDED 31/3/2005- - SHARES RS. 11,50,500 - UNITS RS. 86,472 COST OF SHARES PURCHASED DURING THE YEAR RS . 3,71,91,088 SELLING PRICE OF SHARES SOLD DURING THE YEAR RS. 10,39,07,885 - OUT OF SHARES PURCHASED IN EARLIER YEAR RS. 6,03,9 2,829 - OUT OF SHARES PURCHASED IN CURRENT YEARS. 4,35,1 5,056 COST OF SHARES SOLD IN CURRENT YEAR, PURCHASED IN EARLIER YEARS RS. 2,58,84,174 AVERAGE HOLDING PERIOD OF SHORT TERM SHARES SOLD 121 DAYS. ITA NO.3233&3420/MUM/2009(A.Y. 2006-07) 7 PERIOD OF HOLDING QUANTUM OF STCG PER QUARTER LESS THAN 90 DAYS RS. 43,83,090/- 91-180 DAYS RS. 8,92,580/- 181-270 DAYS RS. 10,48,298/- 271-364 DAYS RS. 35,94,420/- TOTAL RS. 99,18,388/- PERIOD OF HOLDING QUANTUM OF LTCG 366-730 RS. 1,24,50,450/- 731-1095 DAYS RS. 1,45,41,170/- 1096-1460 DAYS RS. 6,07,739/- ABOVE 1461 DAYS RS. 33,14,877/- TOTAL RS. 3,09,14,236/- AVERAGE HOLDING PERIOD OF LONG TERM SHARES SOLD 658 DAYS NO PURCHASE DAYS IN THE YEAR 332 DAYS NO SALE DAYS IN THE YEAR 222 DAYS NO TRANSACTION DAYS IN THE YEAR 189 DAYS I.CHART SHOWING COMPARISON OF VARIOUS VOLUME FOR TW O YEARS: PARTICULARS A.Y.2006-07 A.Y 2005-06 A.Y 2004-05 INVESTMENT IN SHARES 5,64,28,742 3,67,07,513 3, 51,50,411 SHORT TERM CAPITAL GAIN 99,18,388 1,76,023 28,07,107 - LESS THAN 30 DAYS 4,58,974 - MORE THAN 30 DAYS 95,59,889 LONG TERM CAPITAL GAINS 3,09,14,236 3,96,21,139 63,93,165 DIVIDEND 19,09,388 12,36,972 11,69,188 NUMBER OF SCRIPS PURCHASED 16 10 15 NUMBER OF SCRIPS SOLD 22 20 21 -LESS THAN 30 DAYS 4 -MORE THAN 30 DAYS 14 -INVESTMENT IN IPO WHICH ARE SOLD IN LESS THAN AND MORE THAN 30 DAYS 4 VALUE OF PURCHASES 8,27,96,491 3,02,29,191 2,36, 03,013 VALUE OF SHARES 10,39,07,886 7,00,26,353 3,28,03, 286 ITA NO.3233&3420/MUM/2009(A.Y. 2006-07) 8 II. DETAILS OF INCOME OTHER THAN CAPITAL GAINS: PARTICULARS A.Y.2006-07 AY 2005-06 A.Y 2004-05 BANK INTEREST 58,445 13371 9,823 OTHER INCOME 0 0 3,001 DIVIDEND FROM SHARES 19,09,387 11,50,000 11,69,188 DIVIDEND FROM MUTUAL FUNDS 0 86472 0 RBI BOND INTEREST 34,61,500 30,76,976 16,13,012 54,29,332 43,26,819 27,95,024 III STCG NO. OF SCRIPS TOTAL SALE PRICE TOTAL PURCHASE COST PURCHASE OF PREVIOUS YEAR RS. RS. RS. AT PURCHASE COST 14(12 INCY) AND (2 IN PY) 5,82,20,450 4,83,02,062 1,11,10,974 LTCG: NO. OF SCRIPS TOTAL SALE PRICE TOTAL PURCHASE COST PURCHASE OF PREVIOUS YEARS9S) SCRIPS RS. RS. RS.AT PURCHASE COST 8 SCRIPS 4,56,87,435 1,47,73,200 1,47,73,200 IV INVESTMENT IN SHARES A/C. F.Y 2005-06 (A.Y.2006-07) OPENING BALANCE PURCHASES SALES(AT COST) CLOSING BA LANCE RS. RS. RS. RS . 3,67,07,513 8,27,96,491 6,30,75,262 5,64,28 ,742 8. FROM THE FACTS AS STATED ABOVE, THE FOLLOWING CO NCLUSIONS CAN BE ARRIVED AT. (A) SHARES OF ONLY 22 COMPANIES HAD BEEN BOUGHT AND SOL D BY THE ASSESSEE DURING THE PREVIOUS YEAR. ITA NO.3233&3420/MUM/2009(A.Y. 2006-07) 9 (B) THE VOLUME OF PURCHASE AND SALE OF THE ASSESSEE DUR ING THE PREVIOUS YEAR WAS RS. 3,71,91,088/- AND RS. 10,39,07,885/- RESPECTIVELY. THE VALUE OF INVESTMENT AS ON 31.3.2004 WAS RS. 3,51,50 ,411/-. (C) THE PURCHASE AND SALE OF SHARES WAS THE ONLY ACTIVI TY OF THE ASSESSE BECAUSE THE KARTHA OF THE HUF WAS IN FULL TIME EMPL OYMENT. (D) THE PERIOD OF HOLDING IS NOT VERY SHORT AND IT IS R EASONABLE TO PRESUME THAT THE PURCHASE WAS MADE WITH AN INTENTION TO MAK E INVESTMENT. (E) THE SCALE OF ACTIVITY IS NOT SUBSTANTIAL. (F) THE TRANSACTIONS WERE NOT CONTINUOUS AND REGULAR BU T WERE SPORADIC. (G) BORROWED FUNDS HAD NOT BEEN USED FOR PURCHASE OF SH ARES. (H) COMPOSITION OF LONG TERM CAPITAL GAIN IS SUBSTANTIA L WITH A SUBSTANTIALLY LONG HOLDING PERIOD. (I) THE ASSESSEE HAS TREATED THE SHARES AS INVESTMENTS IN ITS BOOKS OF ACCOUNTS. (J) THE REVENUE HAS DISPUTED THE CLAIM OF THE ASSESSEE ONLY IN THIS ASSESSMENT YEAR. IN THE PAST AND SUBSEQUENT ASSESS MENT YEARS THE CLAIM OF THE ASSESSEE HAS BEEN ACCEPTED. (K) EVEN THE HOLDING PERIOD OF SHARES WHICH GAVE RISE T O STCG WAS MOE THAN 30 DAYS IN THE MAJORITY OF THE SCRIPS. (L) ALL TRANSACTIONS WERE DELIVERY BASED TRANSACTIONS A ND THE ASSESSEE DID NOT INDULGE IN TRANSACTIONS WITHOUT AC TUAL DELIVERY. 9. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE FAC TS AS IT PREVAILS IN THE CASE OF THE ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE W AS A TRADER IN SHARES. WE ARE OF THE VIEW THAT THE CIT(A) ERRED IN TREATING T HE ASSESSEE AS AN INVESTOR TRADER AND THIS CONCLUSION IS PURELY BASED ON THE N UMBER OF DAYS THE ASSESSEE HELD SHARES. THE FACT THAT THE ASSESSEE S OLD SHARES WITHIN 30 DAY OF PURCHASE CANNOT BE THE BASIS TO HOLD THAT VIS-- VIS THOSE SHARES THE ASSESSEE DID TRADING. WE ARE OF THE VIEW THAT THE INTENTION OF THE ASSESSEE IS TO HOLD SHARES AS INVESTMENTS AND THE CIRCUMSTANCES DO NOT JUSTIFY GIVING A DIFFERENT TREATMENT. WE THEREFORE HOLD THAT THE CA PITAL GAIN AS DECLARED BY THE ASSESSEE SHOULD BE ACCEPTED. THE PARTIES HAVE PLACED RELIANCE ON SEVERAL JUDICIAL PRONOUNCEMENTS BEFORE US. WE HAVE REFRAINED FROM MAKING ANY REFERENCE TO THOSE DECISIONS AS THE SAME ARE BA SED ON FACTS PREVAILING IN EACH CASE. THE FUNDAMENTAL PRINCIPLE AS ELABORATED BY US IN THE EARLIER PART OF THIS ORDER AS LAID IN JUDICIAL PRONOUNCEMENTS HA VE BEEN APPLIED TO THE FACTS OF THE CASE. FOR THE REASONS GIVEN ABOVE, WE ALLOW THE APPEAL OF THE ASSESSEE AND DISMISS THE APPEAL BY THE REVENUE. ITA NO.3233&3420/MUM/2009(A.Y. 2006-07) 10 10. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS A LLOWED WHILE THE APPEAL BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 18 TH DAY OF MAY, 2011. SD/- SD/- (J.SUDHAKAR REDDY ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 18 TH MAY.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RJ BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 9/5/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 10/5/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER ITA NO.3233&3420/MUM/2009(A.Y. 2006-07) 11