Pratish Manilal Modi (HUF), JAMNAGAR V. The Assistant Commissioner of Income Tax, Circle-2, JAMNAGAR

ITA 340/RJT/2011

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 8586 (ITAT-RAJKOT)
• Duration Of Justice: 7 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 08-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Advance ruling; Question of law; Cost of acquisition; Wrong claim; Sham transactions
• Section: 2(14); 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ I.T.A. NO. 340/RJT/2011 ( / ASSESSMENT YEAR: 2007-08) PRATISH MANILAL MODI (HUF), NEAR CITY HOUSE, JUNDALA, PORBANDAR. / VS. ACIT, CIRCLE 2, JAMNAGAR. ./ ./ PAN/GIR NO. : AAEHM 2833 M ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : WRITTEN SUBMISSION / RESPONDENT BY : SHRI PRAVEEN VERMA, SR.D.R. / DATE OF HEARING 26/10/2018 !'# / DATE OF PRONOUNCEMENT 07/01/2019 $% / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)- JAMNAGAR, VID ES APPEAL NO.CIT(A)/JAM/158/09-10/121 DATED. 20.07.2011 FOR T HE ASSESSMENT YEAR (A.Y.) 2007-08 WITH THE FOLLOWING GROUNDS: 1. THAT THE LD CIT(A), JAMNAGAR ERRED AND WAS NOT JUSTIFIED IN COMING TO THE CONCLUSION THAT RS.13,57,857/- IS A B USINESS INCOME, ON TRANSACTION OF PURCHASE AND SALE OF SHAR ES WITH THIRTY DAYS, OUT OF TOTAL SHORT TERM GAIN OF RS.16,37,389/ - DECLARED BY THE APPELLANT BUT HELD BY ASSESSING OFFICER AS BUSI NESS INCOME, ON THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 2 - 2. THAT THE APPELLANT CARVES LEAVE TO AND/OR TO AME ND AND/OR TO ALTER TO AND/OR TO SUBSTITUTE TO ALL OR ANY OF THE GROUNDS OF APPEAL UP TO THE HEARING OF APPEAL. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IS THAT LD . CIT(A) ERRED IN TREATING THE PURCHASE/ SALE OF SHARES COMPLETED WIT HIN 30 DAYS AS BUSINESS INCOME AMOUNTING TO RS. 13,57,857/-. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN TH E PRESENT CASE IS A HUF AND ENGAGED IN THE BUSINESS OF TRADING IN SHARE S AND SECURITIES UNDER THE NAME AND STYLE OF M/S. PRATISH ENTERPRISE S. THE ASSESSEE DURING THE YEAR HAS SHOWN FOLLOWING INCOMES: SR. NO. PARTICULARS AMOUNT VALUE OF TRANSACTION 1. TRADING PROFIT FROM THE TRADING OF SHARES 2,57,828/- 2,91,52,332/- 2. SHORT TERM CAPITAL GAIN 16,37,389/- 4,61,54,825/- 3. DIVIDEND INCOME 94,686/- NIL 4. LONG TERM CAPITAL GAIN 498/- NIL 5. INTEREST INCOME 19,669/- NIL 3.1 THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERV ED CERTAIN FACTS AS DETAILED UNDER: I. THE ASSESSEE HAS BEEN CARRYING ON THE INVESTMENT IN SHARES ACTIVITY IN A SYSTEMATIC MANNER. II. THE ASSESSEE HAS CARRIED OUT SALE PURCHASE OF SHARE S IN INVESTMENT ACTIVITY IN 55 COMPANIES. III. THE TIME GAP BETWEEN THE PURCHASE AND SALE OF SHARE S IS VARYING BETWEEN FEW DAYS TO FEW MONTHS. ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 3 - IN VIEW OF ABOVE, THE AO AFTER CONSIDERING THE MAGN ITUDE OF THE TRANSACTION WAS OF THE VIEW THAT THE ASSESSEE IS CA RRYING OUT A TRADING ACTIVITY WHICH IS WRONGLY BEING CLASSIFIED BY THE A SSESSEE AS INVESTMENT ACTIVITY. ACCORDINGLY, THE AO WAS OF THE VIEW THAT THE ASSESSEE SHOULD NOT HAVE SHOWN INCOME UNDER THE HEAD SHORT TERM CAP ITAL GAIN AND LONG-TERM CAPITAL GAIN. ACCORDINGLY, AN EXPLANATION WAS SOUGHT FROM THE ASSESSEE VIDE LETTER DATED 10.08.2009. THE ASSE SSEE IN COMPLIANCE TO IT VIDE LETTER DATED 02.11.2009 AND 15.11.2009 SUBM ITTED AS UNDER: I. IT HAS CLASSIFIED DELIVERY BASED TRANSACTION UNDER THE HEAD INVESTMENT ACTIVITY WHEREAS NON-DELIVERY BASED TRAN SACTIONS WERE CLASSIFIED AS SHARE TRADING ACTIVITY. II. THE SHARES HELD AS AN INVESTMENT WERE FOR THE PURPO SE OF DIVIDEND INCOME. AS AND WHEN THERE WAS A BETTER PRI CE AVAILABLE IN RESPECT OF INVESTMENT IN SHARES, IT US ES TO SELL THE SHARES IN THE MARKET AND ACCORDINGLY, IT WAS DECLAR ING LONG TERM & SHORT TERM CAPITAL GAIN. 3.2 THE ASSESSEE ALSO SUBMITTED THAT THE REVENUE AC CEPTED THE METHOD ADOPTED BY IT FOR SHOWING THE ACTIVITY OF SALE PURC HASE OF SHARES IN THE EARLIER YEARS. 3.3 THE SHARES CLASSIFIED UNDER THE HEAD INVESTMENT WERE ALWAYS VALUED AT COST. HAD THE ASSESSEE BEEN ENGAGED IN TH E TRADING ACTIVITY OF SHARES THEN IT SHOULD HAVE VALUED THE INVESTMENT IN SHARES AT MARKET PRICE OR COST OF ACQUISITION WHICHEVER WAS LOWER. THE BAS IS ADOPTING FOR THE VALUATION OF SHARES WAS DULY ACCEPTED BY THE REVENU E ON A REGULAR BASIS YEAR AFTER YEAR. ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 4 - 3.4 HAD THE ASSESSEE BEEN SHOWN THE INVESTMENT ACTI VITY IN THE NATURE OF TRADING THEN IT SHOULD HAVE CLAIMED DEDUCTION OF THE SECURITIES TRANSACTION TAX PAID BY IT AS REBATE U/S 88E OF THE ACT. 3.5 THE ASSESSEE ALTERNATIVELY SUBMITTED THAT IF TH E AO WISHES TO TREAT THE INCOME FROM INVESTMENT ACTIVITY AS TRADING IN N ATURE, THEN IT SHOULD BE ALLOWED REBATE U/S 88E OF THE ACT. HOWEVER, THE AO DISAGREED WITH THE CONTENTION OF TH E ASSESSEE BY OBSERVING THAT THE INTENTION WAS TO EARN THE PROFIT FROM THE SALE PURCHASE OF SHARES WHICH WAS CARRIED OUT SYSTEMATICALLY. AS SUCH, THE ASSESSEE HAS CARRIED OUT SUBSTANTIAL TRANSACTIONS FOR THE PURCHA SE AND SALE OF SHARES. THEREFORE THE AO AFTER CONSIDERING THE FREQUENCY AN D MAGNITUDE OF TRANSACTIONS HELD THAT THE ASSESSEE HAS CARRIED OUT TRADING ACTIVITY IN THE PURCHASE AND SALE OF SHARES. ACCORDINGLY, THE AO H ELD THE SHORT TERM AND LONG TERM CAPITAL GAIN INCOME AS INCOME UNDER T HE HEAD BUSINESS AND PROFESSION. 3.6 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT IT HA D BEEN ALLOWED TO MAINTAIN TWO PORTFOLIOS ONE FOR SHARE TRADING ACTIV ITIES AND ANOTHER ONE FOR INVESTMENT IN SHARES ACTIVITY AS PER THE CBDT C IRCULAR NO.4/2007 DATED 15.06.2007. ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 5 - 3.7 AS SUCH, THE ASSESSEE WAS MAINTAINING TWO PORTF OLIOS ONE FOR THE SHARES WHERE NO DELIVERY WAS TAKEN, AND ACCORDINGLY , IT WAS CLASSIFIED UNDER THE HEAD BUSINESS AND THE OTHER ONE WHERE DEL IVERY WAS TAKEN OF THE SHARES, AND ACCORDINGLY IT WAS CLASSIFIED UNDER THE HEAD CAPITAL GAIN. THE ASSESSEE BEFORE THE LD. CIT(A) RELIED ON VARIOU S ORDERS. HOWEVER, THE LD. CIT(A) DISREGARDED THE CONTENTION OF THE AS SESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE FACTS MENTIONE D IN THE ASSESSMENT ORDER AND THE ABOVE SUBMISSION OF THE APPELLANT. US UALLY AN ASSESSEE CAN BOTH THE DEALER AND INVESTOR IN SHARES IN VIEW OF C BDT CIRCULAR NO.4/2007. BUT IT IS ALSO CLEAR THAT THE SAME CIRCULAR POINT O UT THAT THERE SHOULD BE CLEAR DEMARCATION BETWEEN TWO IN THE BOOKS OF ACCOUNTS AN D EACH CASE IS TO BE - DEALT ON FACTS. AS POINTED OUT BY THE AO IN THE CHA RT AND ALSO THE CHART SUBMITTED BY THE APPELLANT DURING THE COURSE OF APP ELLATE PROCEEDINGS IT IS NOTICED THAT THE TIME GAP BETWEEN PURCHASE AND SALE OF SHARES VARIES FROM ONE DAY TO 371 DAYS. APART FROM MAGNITUDE AND FREQUENCY , THE HOLDING OF THE SHARES IS BEST INDICATION TO SHOW THE INTENTION. TH E SHARES WHICH HAVE BEEN HELD ON VERY LESS PERIOD CANNOT BE CONSIDERED AS HE LD AS INVESTMENT. THE HON'BLE ITAT, AHMEDABAD D' BENCH IN THE CASE OF SUGAMCHAND C. SHAH VS. ACIT IN 37 DTR (AHD) (TRIB) 345 HAS DEALT WITH THIS ISSUE AT LENGTH. THE HON'BLE ITAT ON, THE BASIS OF THE FACTS WARS M THE VIEW THAT ASSESSEE IS NEITHER FULLY ACTING AS A TRADER NOR AS AN INVESTOR; IN THE BOOKS ALL THE PURCHASES ARE SHOWN AS INVESTMENT BUT FREQUENCY IN SEVERAL CA SES IS VERY LARGE AND HOLDING PERIOD IN MANY CASES IS VERY SMALL FROM 0 T O A WEEK OR SO; THEREFORE, THE HON'BLE TRIBUNAL WAS OF THE VIEW THAT CRITERIA HAS TO BE FIXED FOR DETERMINING AS TO WHEN HE IS ACTING AS TRADER AND W HEN AS AN INVESTOR. THE HON'BLE TRIBUNAL TOOK THE VIEW THAT IF SHARES ARE H ELD FOR MORE THAN A MONTH THEY SHOULD BE TREATED AS INVESTMENT AND PROFIT: ON SALE SHOULD BE CHARGED AS SHORT-TERM CAPITAL GAIN, BUT WHEN SHARES ARE HELD F OR LESS THAN A MONTH, GAIN SHOULD BE TREATED AS PROFIT FROM BUSINESS. THE SAM E FACT APPLIES TO THE FACTS' OF THE CASE OF APPELLANT, APPELLANT IS ALSO HAVIN G LARGE FREQUENCY IN SEVERAL CASES AND HOLDING PERIOD IN MANY CASES VARIED FROM 0 TO 371 DAYS. APPLYING AS IN THE CASE OF SUGAMCHAND C. SHAH DISCUSSED ABOV E, IT IS HELD THAT THE SHARES WHICH HAS BEEN HELD FOR LESS THAN 30 DAYS TH E PROFIT EARNED SHOULD BE TAXED AS INCOME FROM BUSINESS. I N THE STATEMENT GIVEN DURING THE APPELLATE PROCEEDINGS IT IS FOUND THAT THE FIGURE FOR PROFIT ON SALE OF SHARES WHICH HAS BEEN HELD LESS THAN 30 DAYS COMES TO RS.13,57,857, THE AO IS DIRECTED TO TREAT THIS AS INCOME FROM BUSHELS AND REST OF THE PROFIT ON SALE OF SHARES IS DIRECTED ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 6 - TO BE, TREATED AS PROFIT FROM SHORT-TERM CAPITAL GA INS. AS REGARDING THE LONG- TERM CAPITAL GAIN SHOWN BY THE ASSESSEE AT RS.498, AO IS DIRECTED TO TREAT THE SAME AS INCOME FROM LONG-TERM CAPITAL GAIN AND NOT INCOME FROM BUSINESS. THIS GROUND OF APPEAL IS PARTLY ALLOWED. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) ASSE SSEE IS IN APPEAL BEFORE US. 4. THE LD. AR BEFORE US HAS FILED WRITTEN SUBMISSIO N DATED 23.10.2013 AND 15.06.2007 WHICH READS AS UNDER: TO: THE HONORABLE MEMBERS OF INCOME-TAX APPELLATE TRIBUNAL, RAJKOT DB BENCH, RAJKOT. DATED: 23-10-2013 HONBLE SIR, REF: SHRI PRATISH MANILAL MODI(HUF). V/S THE AC1T CIRCLE-2, JAMNAGAR, PAN : AAEHM 2833 H A. Y. 2007-08, ITAT APPEAL NO. 340/RJT/2011 DATE OF HEARING: 23-10-2013 SUB: HEARING NOTES: PLEASE REFER TO ABOVE. ABOVE APPEAL HAS BEEN FIXED FOR HEARING TODAY ON 23-10-2013 AND UNDERSIGNED HAVE APPEARED BEFORE YOU R HONOURS. PRIOR TO DATE LASTLY HEARING OF ABOVE APPEAL WAS FI XED FOR HEARING ON 11-07-2012. ON THAT DAY HEARING WAS TAKEN PLACE. THE POINT INVOLVED IS ONLY WHETHER THE TRANSACTION OF PURCHASE AND SALE OF SHARES WITHIN THIRTY DAYS IS A BUSINESS INCOME O R SHORT TERM CAPITAL GAIN AS CLAIMED BY THE ASSESSEE? ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 7 - THE LEARNED CIT(A) ONLY RELYING ON THE JUDGMENT OF IN THE MATTER OF ITAT AHMEDABAD 'D' BENCH JUDGMENT IN THE CASE OF SU GAMCHAND C. SHAH VS. ASSISTANT COMMISSIONER OF INCOME-TAX REPOR TED IN (2010) 37 DTR (AHD)(TRIB) 345, HAS HELD THAT TRANSACTION OF PURCHASE AND SALE OF SHARES WITHIN THIRTY DAYS ARE BUSINESS INCOME AN D NOT SHORT TERM CAPITA] GAIN. DETAILED WRITTEN SUBMISSION HAS BEEN SUBMITTED ON T HAT DAY AND IT WAS MAINLY CONTENDED AS UNDER: ITAT AHMEDABAD D BENCH JUDGMENT IN THE CASE OF SUGAMCHAND C. SHAH VS. ASSISTANT COMMISSIONER OF IN COME-TAX REPORTED IN (2010) 37 DTR (AHD)(TRIB) 345 IS NOT AP PLICABLE HERE AS THE FACTS OF THAT CASE IS DIFFERENT. IN THA T CASE THE ASSESSEE HAS NOT MADE ANY DEMARCATION BETWEEN THE TWO TYPES OF DEALING IN SHARES. AND UNDER THAT CIRCUMSTANCES BASED ON TH E FACTS OF THAT CASE, A CRITERIA HAS BEEN FIXED THAT WHERE THE GAIN EARNED ON A SHARES WHICH ARE HELD FOR LESS THEN A MONTH AS PR OFIT FROM BUSINESS. BUT HERE THAT IS NOT A CASE AT ALL AS HERE THE ASSE SSEE HAS MADE THE DISTINCTION BETWEEN THE INVESTMENT IN SHARES AN D TRADING IN SHARES. WHENEVER THE ASSESSEE IS DO THE BUSINESS IN SHARES HE NEVER TAKES DELIVERY OF SHARES AND SALE THE SHARES ON THE SAME DAY, AND WHENEVER HE WANTS TO PURCHASE SHARES FOR I NVESTMENT PURPOSE HE TAKES THE DELIVER OF SHARES. SHARES IN THE BOOKS OF ACCOUNTS AT THE END OF THE Y EAR ALWAYS VALUED AT COST AND NOT AT A COST OR MARKET VALUE WH ICHEVER IS LOWER, BECAUSE THE ASSESSEE NEVER TAKES THE DELIVER Y OF TRADING SHARES TRADED ON SAME DATE HENCE THERE IS NO OPENIN G OR CLOSING STOCK OF TRADING SHARES. THERE CANNOT BE A SUB-DIVISION OF TRANSACTION RELAT ING TO STCG. THE TRANSACTIONS CANNOT BE BIFURCATED ON THE BASIS OF HOLDING PERIOD OF 30 DAYS SO AS TO CLASSIFY A PART OF THE G AIN AS STCG AND A PART AS BUSINESS PROFIT. THE ASSESSEE HAD SEPARATE PORTFOLIOS FOR INVESTMENT AND TRADING AND IN THE BOOKS, THE SHARES GIVING RISE TO THE STC G HAD BEEN TREATED AS AN 'INVESTMENT' AND NOT AS 'STOCK-IN-TRA DE'. THE SHARES WERE VALUED AT COST AND NOT AT LESSER OF MAR KET VALUE. BUT THE FACTS OF THE CASE IS SIMILAR TO MUMBAI ITAT JUDGMENT IN THE MATTER OF GOPAL PUROHIT VS. JOINT COMMISSIONER OF INCOME- ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 8 - TAX, REPORTED IN (2009) 122 TTJ (MUMBAI) 87: (2009) 29 S OT 117: (2009) 20 DTR 99, AND ALSO CONFIRMED BY THE BOMBAY HIGH COURT REQUESTED TO PLEASE HELD THAT THE APPELLANT H AS EARNED TOTAL SHORT TERM CAPITAL GAIN OF RS. 16.37,389 AND LONG TERM CAPITAL GAIN OF RS. 498 AND NOT AS TRADING INCOME A S HELD BY HONORABLE CIT(A) THAT TRANSACTION OF PURCHASE AND S ALE OF SHARES WITHIN THIRTY DAYS ARE BUSINESS INCOME AND N OT SHORT TERM CAPITAL GAIN AND CONFIRMED THE ADDITION OF RS.13,57 ,857/- OUT OF TOTAL ADDITION MADE BV THE AO AT RS. 16,37,389/-. AT THAT TIME AS ONE OF THE HONORABLE MEMBER OF THE BENCH BEING ALSO A MEMBER IN ABOVE ITAT AHMEDABAD 'D' BENCH JUD GMENT THE CASE WAS ADJOURNED AND ALSO DIRECTED TO BRING COPY OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONS IDERATION. AGAIN ABOVE APPEAL FIXED FOR HEARING TODAY ON 23-10 -2013 AND AS DIRECTED IN EARLIER HEARING I HAVE SUBMITTED A COPY OF AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT, AND ALSO SUBMITTED A COPY OF CIRCULAR NO. 4 OF 2007. DATED 15 TH JUNE, 2007. CASE WAS ARGUED. DURING THE COURSE OF HEARING THE H ONORABLE MEMBERS, EVEN THOUGH THERE BEING NO DISPUTE OR ADVE RSE FINDING BY THE ASSESSING OFFICER REGARDING THE SEPARATE TREATM ENT OF SHARES TRADING ( I.E. PROFIT EARNED ON PURCHASE AND SALES OF SHARES WITHOUT DELIVERY BASIS) AND SHORT TERM CAPITAL GAIN (I.E. P ROFIT EARNED ON PURCHASE AND SALES OF SHARES ON DELIVERY BASIS) HAV E ASKED TO PRODUCE THE REGISTERS REGARDING BOTH TYPE OF SHARES TRANSACTIONS AND BOOKS OF ACCOUNTS. AT THAT TIME I HAVE ASKED THE TI ME FOR ADJOURNMENT AND TO FIXED THE HEARING ON MONDAY DATE D 28-10-2013 AS ABOVE DETAILS WERE WITH THE ASSESSEE SITUATED AT PORBANDAR. BUT HONORABLE MEMBERS INSISTED ON TO PRODUCE THE SA ME AT THAT TIME AND DID NOT GRANTED THE ADJOURNMENT AND AFTER SOME FURTHER ARGUMENTS INFORMED THAT THE HEARING IS CONCLUDED AN D THEY WILL DECIDE THE MATTER CONSIDERING WRITTEN SUBMISSION. ABOVE HEARING NOTE IS PREPARED ONLY FOR RECORD PURP OSE AND IT IS HEAR BY SUBMITTED IN DUPLICATE. SORRY FOR THE INCONVENIENCE CAUSED. ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 9 - THANKING YOU, YOURS TRULY, GIRISH PARIKH ADVOCATE SENT BY REGISTERED AD ENCL: TWO COPIES OF ABOVE HEARING NOTE. CIRCULAR NO. 4 OF 2007, DT. 15TH JUNE, 2007 SUB. : DISTINCTION BETWEEN SHARES HELD AS STOCK-IN- TRADE AND SHARES HELD AS INVESTMENT - TESTS F SUCH A DISTINCTION 15/06/2007 SECTION 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 TH E ACT. LONG- TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2(29A) AND SECTION 2(29B). SHORT-TERM CAPITAL ASSET S AND GAINS ARE DEALT WITH UNDER SECTION (42A) AND SECTIO N 2(42B). 3. TRADING ASSET IS DEALT WITH UNDER SECTION 28 OF THE ACT. 4. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) THROUG H INSTRUCTION NO. 1827 DATED AUGUST 31, 1989 HE BROUG HT TO THE NOTICE OF THE ASSESSING OFFICERS THAT THERE IS A DISTINCTION BETWEEN SHARES HELD AS INVESTMENT (CAPI TAL ASSET) AND SHARES HELD AS STOCK-IN-TRADE (TRADING A SSET). IN THE LIGHT OF A NUMBER OF JUDICIAL DECISION PRONOUNC ED AFTER THE ISSUE OF THE ABOVE INSTRUCTIONS, IT IS PROPOSED TO UPDATE THE ABOVE INSTRUCTIONS FOR THE INFORMATION O F ASSESSEES AS WELL AS FOR GUIDANCE OF THE ASSESSING OFFICERS. 5. IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DE VELOPMENT COMPANY (P) LTD. 1972 CTR (SC) 239 : (1971 82 ITR 5 86 (SC), THE SUPREME COURT OBSERVED THAT : ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 10 - 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORM; CIRCUMSTANCE S, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED AN DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE AND THOSE WHICH ARE HELD BY WAY C INVESTMENT.' 6. IN THE CASE OF CIT VS. H. HOLCK LARSEN (1986) 5 8 CTR (SC) 53 : (1986) 160 ITR 67 (SC), THE SUPREME COURT OBSERVED : 'THE HIGH COURT, IN OUR OPINION, MADE A MISTAKE IN OBSERVING WHETHER TRANSACTIONS OF SALE AND PURCHASE C SHARES WERE TRADING TRANSACTIONS OR WHETHER THESE W ERE IN THE NATURE OF INVESTMENT WAS A QUESTION OF LAW THIS WAS A MIXED QUESTION OF LAW AND FACT.' 7. THE PRINCIPLES LAID DOWN BY THE SUPREME COURT I N THE ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASSESSING OFFICERS. 8. THE AUTHORITY FOR ADVANCE RULINGS (AAR) IN FIDE LITY NORTHSTAR FUND & ORS., IN RE (2007) 207 CTR (AAR) 297 : (2007) 288 ITR 641 (AAR), REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CASES, HA: CULLED OUT THE FOLLOWING PRINCIPLES :- '(I) WHERE A COMPANY PURCHASES AND SELLS SHARES, I T MUST BE SHOWN THAT THEY WERE HELD AS STOCK-IN- TRADE AND THAT EXISTENCE OF THE POWER TO PURCHASE AND SELL SHARES IN THE MEMORANDUM OF ASSOCIATION IS NOT DECISIVE OF THE NATURE OF TRANSACTION; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS, THE M ANNER OF MAINTAINING BOOKS OF ACCOUNTS, THE MAGNITUDE OF PURCHASES AND SALES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING WOULD FURNISH ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 11 - A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS; (III) ORDINARILY THE PURCHASE AND SALE OF SHARES W ITH THE MOTIVE OF EARNING A PROFIT, WOULD RESULT IN THE TRANSACTION BEING 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 INCOME BY WAY OF DIVIDEND ETC. THEN THE PROFITS ACCRUING BY CHANGE IN 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:- 'WE SHALL REVERT TO THE AFOREMENTIONED PRINCIPLES. THE FIRST PRINCIPLE REQUIRES US TO ASCERTAIN WHETHER TH E PURCHASE OF SHARES BY A FII IN EXERCISE OF THE POWE R IN THE MEMORANDUM OF ASSOCIATION/TRUST DEED WAS AS STOCKIN - TRADE AS THE MERE EXISTENCE OF THE POWER TO PURCHAS E AND SELL SHARES WILL NOT BY ITSELF BE DECISIVE OF THE N ATURE OF TRANSACTION. WE HAVE TO VERIFY AS TO HOW THE SHARES WERE VALUED/HELD IN THE BOOKS OF ACCOUNT I.E. WHETHER TH EY WERE VALUED' AS STOCK-IN-TRADE AT THE END OF THE FINANCI AL YEAR FOR THE PURPOSE OF ARRIVING AT BUSINESS INCOME OR H ELD AS INVESTMENT IN CAPITAL ASSETS. THE SECOND PRINCIPLE FURNISHES A GUIDE FOR DETERMINING THE NATURE OF TRANSACTION BY VERIFYING WHETHER THERE ARE SUBSTANT IAL TRANSACTIONS, THEIR MAGNITUDE, ETC., MAINTENANCE OF BOOKS OF ACCOUNT AND FINDING THE RATIO BETWEEN PURCHASES AND SALES. IT WILL NOT BE OUT OF PLACE TO MENTION THAT REGULATION 18 OF THE SEBI REGULATIONS ENJOINS UPON EVERY FII T O KEEP AND MAINTAIN BOOKS OF ACCOUNT CONTAINING TRUE AND F AIR ACCOUNTS RELATING TO REMITTANCE OF INITIAL CORPUS O F BUYING AND SELLING AND REALIZING CAPITAL GAINS ON INVESTME NTS AND ACCOUNTS OF REMITTANCE TO INDIA FOR INVESTMENT IN I NDIA 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 RE ALIZING PROFIT WOULD LEAD TO INFERENCE OF TRADE/ADVENTURE I N THE ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 12 - NATURE OF TRADE; WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF COMPANIES IS TO DERIVE INCOME BY WAY OF DIVIDENDS ETC., THE TRANSACTIONS OF PURCHASES AND S ALES OF SHARES WOULD YIELD CAPITAL GAINS AND NOT BUSINESS P ROFITS.' 10. CBDT ALSO WISHES TO EMPHASIS THAT IT IS POSSIBLE F OR A TAX PAYER TO HAVE TWO PORTFOLIOS, I.E., AN INVESTMEN T PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIO COMPRISIN G OF STOCK-IN-TRADE WHICH ARE TO BE TREATED AS TRADING A SSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E., CAPITAL GAINS AS WELL AS BUSINESS INCOME. 11. ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE PRINC IPLES SHOULD GUIDE THEM IN DETERMINING WHETHER, IN A GIVE N CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVEST MENT (AND THEREFORE GIVING RISE TO CAPITAL GAINS) OR AS STOCK-IN- TRADE (AND THEREFORE GIVING RISE TO BUSINESS PROFIT S). 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 WHETHE R, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE A S INVESTMENT OR STOCK-IN-TRADE. 12. THESE INSTRUCTIONS SHALL SUPPLEMENT THE EARLIER INS TRUCTION NO. 1827 DATED AUGUST 31, 1989. [F. NO. 149/287/2005-TPL] (2007) 210 CTR (ST) 29 5. ON THE OTHER HAND, THE LD. DR VEHEMENTLY SUPPORT ED THE ORDER OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THIS JUNCTURE, WE ARE INCLI NED TO REFER TO THE ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 13 - CIRCULAR ISSUED BY THE CBDT VIDE NO.6/2016 DATED 29 .02.2016. THE RELEVANT EXTRACT READS AS UNDER: IN THIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIV ERSAL PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARA CTER OF INCOME FROM SALE OF SHARES AND SECURITIES (I.E. WHETHER THE SAM E IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME), CBDT REALIZING TH AT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESPE CT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINT Y IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FU RTHER INSTRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPL US GENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHALL TAKE INTO ACCOUNT TH E FOLLOWING (A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERI OD OF HOLDI NG THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THEM AS STOCK-IN- TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURIT IES WOULD BE TREATED AS ITS BUSINESS INCOME, (B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM T HE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPU TE BY THE ASSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAK EN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLI CABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; (C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHALL CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY THE CBDT. 6.1 AS PER THE ABOVE CIRCULAR, THE CASE ON HAND FAL LS UNDER THE CLAUSE C AND IT IS PERTINENT TO TAKE GUIDANCE FROM THE C BDT CIRCULAR NO. 4/2007 DATED 15.06.2007. THE RELEVANT EXTRACT READS AS UNDER: 1. THE INCOME-TAX ACT, 1961 MAKES A DISTINCTION BETWE EN A 'CAPITAL ASSET' AND A 'TRADING ASSET'. ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 14 - 2. CAPITAL ASSET IS DEFINED IN SECTION 2(14) OF THE A CT. LONG-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2(29A ) AND SECTION 2(29B). SHORT-TERM CAPITAL ASSETS AND GAINS ARE DEA LT WITH UNDER SECTION 2(42A) AND SECTION 2(42B). 3. TRADING ASSET IS DEALT WITH UNDER SECTION 28 OF TH E ACT. 4. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) THROUGH I NSTRUCTION NO. 1827, DATED AUGUST 31, 1989 HAD BROUGHT TO THE NOTI CE OF THE ASSESSING OFFICERS THAT THERE IS A DISTINCTION BETWEEN SHARES HELD AS INVESTMENT (CAPITAL ASSET) AND SHARES HELD AS STOCK-IN-TRADE ( TRADING ASSET). IN THE LIGHT OF A NUMBER OF JUDICIAL DECISIONS PRONOUNCED AFTER THE ISSUE OF THE ABOVE INSTRUCTIONS, IT IS PROPOSED TO UPDATE THE AB OVE INSTRUCTIONS FOR THE INFORMATION OF ASSESSEES AS WELL AS FOR GUIDANC E OF THE ASSESSING OFFICERS. 5. IN THE CASE OF COMMISSIONER OF INCOME-TAX (CENTRAL ), CALCUTTA V. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. ( P.) LTD. [1971] 82 ITR 586, THE SUPREME COURT OBSERVED THAT : 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F 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 IT SHOULD, IN NOR MAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE ITS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT .' 6. IN THE CASE OF COMMISSIONER OF INCOME-TAX, BOMBAY V. H. HOLCK LARSEN [1986] 160 ITR 67, THE SUPREME COURT OBSERVE D : 'THE HIGH COURT, IN OUR OPINION, MADE A MISTAKE IN OBSERVING 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 WAS A MIXED QUESTION OF LAW AND FACT.' 7. THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN T HE ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASSESSING OFFICERS. 6.2 ON PERUSAL OF THE ABOVE CIRCULARS IT IS CLEAR T HAT THE ASSESSEE CAN MAINTAIN TWO PORTFOLIOS ONE FOR TRADING IN THE SHAR ES AND THE OTHER ONE IS FOR THE INVESTMENT IN SHARES. THE ONLY REQUIREMENT OF THE CIRCULAR, BOTH ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 15 - THE ACTIVITIES OF THE ASSESSEE SHOULD BE CLEARLY DE MARCATED IN THE BOOKS OF ACCOUNTS. AS THE ASSESSEE HAS NOT SHOWN ANY ACTIVIT Y FROM THE TRADING OF SHARES AND THERE WAS ALSO NO CLOSING STOCK SHOWN IN THE FINANCIAL STATEMENT. THEREFORE, WE ARE OF THE VIEW THAT THE A SSESSEE IS DEALING ONLY IN THE INVESTMENT ACTIVITY AS EVIDENT FROM THE CLAS SIFICATION SHOWN BY THE ASSESSEE UNDER THE HEAD INVESTMENTS. IN THIS REGARD , WE REFERRED TO THE RELEVANT PORTION OF THE BALANCE SHEET OF THE ASSESS EE WHICH IS PLACED ON PAGE 25 OF THE PAPER BOOK AND REPRODUCED AS UNDER: SHARES APPLICATION ADHUNIK METAL SHARE APPL. 94,500.00 BIRLA POWER SOLU. SHARE APP. 94,500.00 KEWAL KIRAN CLO. SHARE APP. 96,250.00 ROHIT FERRO TECH SHARE APPL. 96000.00 SHIVALIK GLOBLE SHARE APPL. 48,000.00 4,29,250.00 INVESTMENT N.S.C. ACCOUNT 30,000.00 30,000.00 SHARE INVESTMENT SHARE ACCOUNT 1,73,439.46 1,73,439.46 FROM THE ABOVE BALANCE SHEET, IT IS CLEAR THAT THE ASSESSEE HAS DEMARCATED ITS SHARES UNDER THE HEAD INVESTMENT. THEREFORE THE CIRCULAR ISSUED BY THE CBDT APPLIES TO THE INSTANT FACTS OF THE CASE. THER EFORE, KEEPING IN VIEW THE PROVISION OF THE CIRCULAR ISSUED BY THE CBDT WE ARE INCLINED TO HOLD THAT THE INCOME FROM THE INVESTMENT OF SHARE ON ACC OUNT OF SALE/ PURCHASE SHOULD BE LIABLE TO TAX UNDER THE HEAD CAPITAL GAIN . ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 16 - 6.3 WE ALSO NOTE THAT THE CIRCULARS ISSUED BY THE C BDT WHICH ARE BENEFICIAL TO THE ASSESSEE ARE BINDING ON THE TRIBU NAL AS HELD BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF K ESHAVJI RAVJI & CO. VS. CIT REPORTED IN 183 ITR 1 WHEREIN IT WAS OBSERV ED AS UNDER : THE TASK OF INTERPRETATION OF THE LAWS IS THE EXCLU SIVE DOMAIN OF THE COURTS. HOWEVER, - THIS IS WHAT SHRI RAMACHANDRAN R EALLY HAS IN MIND - CIRCULARS BENEFICIAL TO THE ASSESSEES AND WHICH TON E DOWN THE RIGOUR OF THE LAW ISSUED IN EXERCISE OF THE STATUTORY POWER U NDER SECTION 119 OF THE ACT OR UNDER CORRESPONDING PROVISIONS OF THE PR EDECESSOR ACT ARE BINDING ON THE AUTHORITIES IN THE ADMINISTRATION OF THE ACT. THE TRIBUNAL, MUCH LESS THE HIGH COURT, IS AN AUTHORITY UNDER THE ACT. THE CIRCULARS DO NOT BIND THEM. BUT THE BENEFITS OF SUC H CIRCULARS TO THE ASSESSEES HAVE BEEN HELD TO BE PERMISSIBLE EVEN THO UGH THE CIRCULARS MIGHT HAVE DEPARTED FROM THE STRICT TENOR OF THE ST ATUTORY PROVISION AND MITIGATED THE RIGOUR OF THE LAW. BUT THAT IS NOT TH E SAME THING AS SAYING THAT SUCH CIRCULARS WOULD EITHER HAVE A BINDING EFF ECT IN THE INTERPRETATION OF THE PROVISION ITSELF OR THAT THE TRIBUNAL AND THE HIGH COURT ARE SUPPOSED TO INTERPRET THE LAW IN THE LIGH T OF THE CIRCULAR. THERE IS, HOWEVER, SUPPORT OF CERTAIN JUDICIAL OBSE RVATIONS FOR THE VIEW THAT SUCH CIRCULARS CONSTITUTE EXTERNAL AIDS TO CON STRUCTION. 6.4 WE ALSO NOTE THAT THE REVENUE HAS ACCEPTED THE ACTIVITY OF INVESTMENT IN THE SHARES IN EARLIER YEARS AS WELL A S SUBSEQUENT YEARS WHICH WAS ALSO NOT DISTURBED BY THE REVENUE. THEREF ORE, THE PRINCIPLES OF CONSISTENCY NEED TO BE FOLLOWED WITHOUT ANY DEVIATI ON WHEN THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE F ROM THE EARLIER YEARS. RELIANCE IN THIS REGARD IS PLACED ON THE JUDGMENT O F THE HONBLE SUPREME COURT IN THE CASE OF RADHASAOMI SATSANG VS CIT REPO RTED IN (1992) 193 ITR 321 (SC) WHEREI IT WAS HELD AS UNDER: ON THESE REASONINGS IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER AND IF THERE WAS NO CHANGE IT WAS IN SUPPORT OF THE ASSESSEEWE DO NOT THINK THE QUESTION ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 17 - SHOULD HAVE BEEN REOPENED AND CONTRARY TO WHAT HAD BEEN DECIDED BY THE COMMISSIONER IN THE EARLIER PROCEEDINGS, A DIFF ERENT AND CONTRADICTORY STAND SHOULD HAVE BEEN TAKEN. WE ARE, THEREFORE, OF THE VIEW THAT THESE APPEALS SHOULD BE ALLOWED AND THE Q UESTION SHOULD BE ANSWERED IN THE AFFIRMATIVE, NAMELY, THAT THE TRIBU NAL WAS JUSTIFIED IN HOLDING THAT THE INCOME DERIVED BY THE RADHASOAMI S ATSANG WAS ENTITLED TO EXEMPTION UNDER SECTIONS 11 AND 12. 6.5 WE ALSO NOTE THAT THE ITAT, AHMEDABAD IN THE CA SE OF ACIT VS. BHANUPRASAD T. TRIVEDI HUF IN IT(SS)A NO.460/AHD/20 10 PERTAINING TO THE A.Y. 2005-06 VIDE ORDER DATED 11.07.2016 HAS DE CIDED THE ISSUE IN FAVOR OF THE ASSESSEE BY OBSERVING AS UNDER: 10. THE DISPUTE IS REGARDING THE NATURE OF INCOME ON SALE AND PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE, WHET HER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SH OULD BE TREATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBAT ABLE ISSUE AND THERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS I SSUE. EACH CASE IS THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION . IN THE BALANCE SHEET, THE ASSESSEE HAS SHOWN SHARES UNDER THE HEAD 'INVES TMENT'. THESE INVESTMENT SHARES HAVE BEEN VALUED AT COST. THE HON 'BLE SUPREME COURT IN THE CASE OF CIT ASSOCIATED INDUSTRIAL DEVELOPMEN TCO PVT. LTD. 82 ITR 586, WHICH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN ITS CIRCULAR NO. 4/2007 DT. 15.6.2007, HAS OBSERVED THA T:- 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHI CH IS -WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION T O PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAIN TAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOC K-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT' 11. THE CBDT HAS FURTHER THROWN LIGHT ON THIS CONT ROVERSIAL ISSUE IN ITS CIRCULAR NO. 6/2016 DATED 29.02.2016 AND THE SA ME READS AS UNDER:- ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 18 - SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHAR ES AND SECURITIES - CAPITAL GAINS OR BUSINESS INCOME -- INSTRUCTIONS IN ORDER TO REDUCE LITIGATION - REG.- SUB-SECTION (14) OF SECTION 2 OF THE INCOME-TAX ACT , 1961 ('ACT') DEFINES THE TERM 'CAPITAL ASSET' TO INCLUDE PROPERT Y OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE ANY STOCK-IN-TR ADE OR PERSONAL ASSETS SUBJECT TO CERTAIN EXCEPTIONS. AS R EGARDS SHARES AND OTHER SECURITIES, THE SAME CAN BE HELD EITHER A S CAPITA! ASSETS OR STOCK-IN-TRADE/ TRADING ASSETS OR BOTH. D ETERMINATION OF THE CHARACTER OF A PARTICULAR INVESTMENT IN SHARES OR OTHER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK-IN- TRADE, IS ESSENTIALLY A FACT-SPECIFIC DET ERMINATION AND HAS LED TO A LOT OF UNCERTAINTY AND LITIGATION IN T HE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFER ENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVESTMENTS FROM THE SHARES HELD AS STOCK- IN-TRADE. THE CENTRAL BOARD OF DIRECT TAX ES ('CBDT') HAS ALSO, THROUGH INSTRUCTION NO. 1827, DATED AUGUS T 31, 1989 AND CIRCULAR NO. 4 OF 2007 DATED JUNE 15, 2007, SUM MARIZED THE SAID PRINCIPLES FOR GUIDANCE OF THE FIELD FORMATION S. 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPL ICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN THIS BACKGROUND, WHILE RECOGN IZING THAT NO UNIVERSAL PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID D OWN TO DECIDE THE CHARACTER OF INCOME FROM SALE OF SHARES AND SEC URITIES (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN O R BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/S ECURITIES TRANSACTIONS TAKES PLACE IN RESPECT OF THE LISTED O NES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINTY IN THE MA TTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER IN STRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS G ENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHALL TAKE INTO AC COUNT THE FOLLOWING- ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 19 - A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE P ERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THE M AS STOCK-IN- TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHA RES/SECURITIES WOULD BE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCO ME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHAL L NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS STA ND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SH ALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFERENT /CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I .E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS I NCOME) SHALL CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAI D CIRCULARS ISSUED BY THE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL N OT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES W HERE THE GENUINENESS OF THE TRANSACTION ITSELF IS QUESTIONAB LE, SUCH AS BOGUS CLAIMS OF LONG TERM CAPITAL GAIN/SHORT TERM C APITAL LOSS OR ANY OTHER SHAM TRANSACTIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITIGATION AND MAINTAINING CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT O F INCOME DERIVED FROM TRANSFER OF SHARES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON TH E TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECURITIES. 12. CONSIDERING THE FACTS IN HAND, IN THE LIGHT OF THE AFOREMENTIONED CIRCULAR OF THE BOARD, IN OUR CONSIDERED OPINION, T HE INTENTION OF THE ASSESSEE AT THE TIME OF THE PURCHASE OF SHARES IS P ARAMOUNT. IF THE ASSESSEE HAS CLEAR INTENTION OF BEING AN INVESTOR A ND SHOWING THE SHARES AS INVESTMENT, WE DO NOT FIND ANY REASON TO DISTURB THE INTENTION OF THE ASSESSEE. THE ASSESSEE UNDER CONSIDERATION IS INVES TOR AND, THEREFORE, ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 20 - ANY GAIN ARISING OUT THE TRANSFER OF SHARES SHOULD BE TREATED AS CAPITAL GAINS BE IT SHORT TERM OR LONG TERM. 13. IN THE LIGHT OF THE AFOREMENTIONED DISCUSSION, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE FIRST A PPELLATE AUTHORITY. GROUND NO. 1 IS ACCORDINGLY DISMISSED. 6.6 THE HONBLE HIGH COURT OF GUJARAT SUBSEQUENTLY CONFIRMED THE VIEW TAKEN BY THE TRIBUNAL IN THE ABOVE CASE REPORT ED IN 87 TAXMANN.COM 137 WHEREIN IT WAS HELD AS UNDER: 4. THE CIT (APPEALS) AND THE TRIBUNAL HAVING APPLIED SUCH PARAMETERS ON THE FACTS OF THE CASE AND HAVING COME TO THE CON CLUSION THAT THE ASSESSEE'S STAND THAT THE SHARES WERE HELD BY WAY O F INVESTMENT AND THEREFORE THE SALE THEREOF SHOULD RESULT IN LONG TE RM CAPITAL GAIN INSTEAD OF BUSINESS INCOME, CALLS FOR NO INTERFERENCE . 6.7 WE ALSO NOTE THAT THE REVENUE AGAINST THE ORDER OF HONBLE GUJARAT HIGH COURT IN THE ABOVE CASE HAD FILED A PE TITION BEFORE THE HONBLE SUPREME COURT WHICH WAS DISMISSED BY THE HO NBLE SUPREME COURT REPORTED IN 95 TAXMANN.COM 19. 6.8 WE ALSO NOTE THAT THE CASE LAW RELIED ON BY THE LD. CIT(A) HAS NOT CONSIDERED THE CBDT CIRCULAR NO.6/2016 DATED 29.02. 2016. THEREFORE WE ARE RELUCTANT TO RELY ON THE JUDGMENT RELIED UPO N BY THE LD. CIT(A). IN VIEW OF ABOVE, WE HOLD THAT THE FREQUENCY, MAGNI TUDE OF THE TRANSACTION IN A SYSTEMATIC MANNER CANNOT BE THE CR ITERIA TO HOLD THAT THE ASSESSEE IS ENGAGED IN A BUSINESS ACTIVITY OF SHARE S. THEREFORE, WE ARE INCLINED TO SET ASIDE THE ORDER OF THE LD. CIT(A) A ND DIRECT THE AO TO ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 21 - TREAT THE INCOME FROM INVESTMENT ACTIVITY UNDER THE HEAD CAPITAL GAIN. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLO WED. 6.9 WE ALSO NOTE THAT THE CASE LAW RELIED ON BY THE LD. CIT(A) IS NOT APPLICABLE TO THE PRESENT FACTS OF THE CASE. IN THA T CASE, THE ASSESSEE WAS UNABLE TO SHOW ANY DEMARCATION BETWEEN SHARES HELD AS STOCK-IN-TRADE AND INVESTMENT. THEREFORE THE INCOME FROM THE SHARE S HELD FOR LESS THAN ONE MONTH WAS TREATED AS INCOME FROM THE BUSINESS A ND PROFESSION. HOWEVER, IN CASE ON HAND, THERE IS A CLEAR DEMARCAT ION BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. THEREFORE WE ARE OF THE VIEW THAT THE PRINCIPLE LAID DOWN BY THE ITAT IN THE CASE OF SUGAMCHAND C. SHAH (SUPRA) IS NOT APPLICABLE TO THE FACTS ON HAND. 6.10 WE ALSO REFER TO THE BALANCE SHEET OF THE ASSE SSEE AS ON 31.03.2007 AS REPRODUCED AS UNDER: PROPERTIES AND ASSETS SCH. CURRENT YEAR 31.03.2007 RS. FIXED ASSETS: 0.00 INVESTMENT: A 12111866.59 CURRENT ASSETS: B INVENTORIES: (TAKEN, VALUED & CERT. BY PROPRIETOR) STOCK IN TRADE 0.00 RECEIVABLES: 0.00 FROM THE ABOVE BALANCE SHEET, IT IS CLEAR THAT THE ASSESSEE HAS CLEARLY DEMARKED THE SHARES AS INVESTMENT AND STOCK IN TRAD E. ITA NO.340/RJT/2011 PRATISH MANILAL MODI (HUF) VS. ACIT ASST.YEAR 2007-08 - 22 - 6.11 IN VIEW OF THE ABOVE WE ARE INCLINED TO REVERS E THE ORDER OF AUTHORITIES BELOW. THUS, WE SET ASIDE THE ORDER OF THE LD. CIT-A AND DIRECT THE AO TREAT THE INCOME FROM THE SALE & PURC HASE OF SHARES UNDER HEAD CAPITAL GAIN. THUS THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 07/01/2019 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER ( WASEEM AHMED ) ACCOUNTANT MEMBER AHMEDABAD; DATED 07/01/2019 PRITI YADAV, SR.PS !'#$ %$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & '( ) / CONCERNED CIT 4. ) ( ) / THE CIT(A)- JAMNAGAR. 5. *+, --'( , '(# , !. /DR,ITAT, RAJKOT 6. ,/0 1 / GUARD FILE. & ' / BY ORDER, * - //TRUE COPY// ( / ') * ( DY./ASSTT.REGISTRAR) , !. / ITAT, RAJKOT 1. DATE OF DICTATION 01/11/2018 (DICTATION PAGE-6) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER : 20/12/2018 3. OTHER MEMBER.. 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S24/12/2018 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT.. 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER 10. DATE OF DESPATCH OF THE ORDER