M/s. Swarnim Multiventures Pvt.Ltd., Hyd, Hyderabad V. ACIT,Circle-3(3), Hyderabad

ITA 452/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66299 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 20-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALKA R JAIN
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Capital asset; Business income; Depreciation; Rule of consistency; Application of stay; Advance ruling; Question of law; Capital receipt
• Section: 2(14); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEM BER ITA NO.452/HYD/2012 : ASSESSMENT YEAR 2008-09 ITA NO.453/HYD/2012 : ASSESSMENT YEAR 2007-08 S.A.NO.88/HYD/2012 (IN ITA NO.452/HYD/2012) : ASSESSMENT YEAR 2008-09 S.A.NO.89/HYD/2012 (IN ITA NO.453/HYD/2012) : ASSESSMENT YEAR 2007-08 M/S. SWARNIM MULTIVENTURES P. LTD., HYDERABAD ( PAN - AAFCS 1508 R) V/S. DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(3), HYDERABAD (APPELLANT/APPLICANT) (RESPONDENT) ITA NO.803/HYD/2011 : ASSESSMENT YEAR 2006-07 DY. COMMISSIONER OF INCOME- TAX CIRCLE 3(3), HYDERABAD V/S. M/S. SWARNIM MULTIVENTURES P. LTD., HYDERABAD ( PAN - AAFCS 1508 R ) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.MURALI MOHANA RAO DEPARTMENT BY : SMT. ALKA R.JAIN DATE OF HEARING 23.7.2012 DATE OF PRONOUNCEMENT 21.09.2012 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX(APPEALS) I V, HYDERABAD, BOTH ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 2 DATED 29.2.2012 FOR THE ASSESSMENT YEARS 2007-08 A ND 2008-09. ASSESSEE HAS ALSO FILED APPLICATIONS SEEKING STAY OF RECOVER Y OF OUTSTANDING DEMAND FOR THOSE TWO YEARS, TILL THE HEARING AND DISPOSAL OF T HOSE APPEALS. SIMILARLY, THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) GUNTUR, DATED 28.2.2011 FOR THE ASSESSMENT YEAR 2006-07. S INCE ALL THESE MATTERS INVOLVE A COMMON ISSUE, THESE APPEALS ARE CLUBBED A ND HEARD TOGETHER AND ARE BEING DISPOSED OFF WITH THIS COMMON ORDER FOR T HE SAKE OF CONVENIENCE. 2. IN THE APPEAL OF THE REVENUE FOR THE ASSESSMEN T YEAR 2006-07, ITA NO.803/HYD/2011, THE GRIEVANCE OF THE REVENUE I S AGAINST THE DIRECTION OF THE CIT(A) TO TREAT THE INCOME ARISING OUT OF T HE ASSESSEE/S TRANSACTIONS OF BUYING AND SELLING SHARES AS LONG TERM CAPITAL G AINS. SIMILARLY, IN THE ASSESSEES APPEALS FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09, THE COMMON GRIEVANCE OF THE ASSESSEE IS AGAINST THE DIR ECTION OF THE CIT(A) TO TREAT THE INCOME ARISING OUT OF THE ASSESSEES ACTI VITIES IN BUYING AND SELLING OF SHARES AS INCOME FROM BUSINESS, INSTEAD OF AS LO NG TERM CAPITAL GAINS EXEMPT FROM INCOME-TAX, AS CLAIMED BY THE ASSESSEE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF INVESTMENT AND DEALING IN SECURITIES. A SSESSEE TREATED THE INCOME FROM THE SHARE TRANSACTIONS AS CAPITAL GAINS AND TH EREBY CLAIMED EXEMPTION UNDER S.10(38) OF THE INCOME-TAX ACT. BESIDES, THE ASSESSEE HAS SHOWN INCOME FROM SHORT TERM CAPITAL GAINS AS TAXABLE AT SPECIAL RATES. FOR THE ASSESSMENT YEAR 2006-07, THE CIT(A) HAS GIVEN A DIR ECTION TO THE ASSESSING OFFICER TO TREAT THE INCOME FROM OUT OF BUYING AND SELLING OF SHARES AS CAPITAL GAINS, AND ALSO DIRECTED GRANTING OF EXEMPTION OF T HE SAME FROM TAX UNDER S.10(38) OF THE ACT. AGAINST THIS DIRECTION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 3 4. HOWEVER, FOR THE ASSESSMENT YEARS 2007-08 AND 2 008-09, THE CIT(A) HAS HELD THAT THE INCOME ARISING OUT OF BUY ING AND SELLING OF SHARES BY THE ASSESSEE SHOULD BE ASSESSED AS INCOME FROM B USINESS, AND ACCORDINGLY UPHELD THE VIEW TAKEN BY THE ASSESSING OFFICER IN THIS BEHALF FOR THOSE YEARS. AGGRIEVED BY THIS FINDING OF THE CIT( A), ASSESSEE IS IN APPEAL. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT EMPLOYED ANY PERSON TO CARRY ON ANY BUSIN ESS FOR THE YEARS UNDER APPEAL. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT BORROWED ANY FUNDS FROM OUTSIDE AGENCY IN THE YEARS UNDER CONSIDERATIO N FOR THE PURCHASE OF THE SHARES. IT IS FURTHER SUBMITTED THAT THE ASSESSEE HAS IN FACT NOT PURCHASED ANY SHARES DURING THE YEARS UNDER APPEAL, AND HAS O NLY DEALT IN THE SHARES ALREADY PURCHASED AND BROUGHT FORWARDED FROM EARLIE R YEARS. HE ALSO RELIED ON THE CIRCULAR OF THE CBDT NO.4 OF 2007 DATED 15 TH JUNE, 2007, WHICH READS AS UNDER- INCOME TAX CIRCULAR NO. 4/2007, DATED 15-6-2007 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 S ECTION 2(29B). SHORT-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTI ON 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 INVES TMENT (CAPITAL ASSET) AND SHARES HELD AS STOCK-IN-TRADE (TRADING ASSET). IN T HE LIGHT OF A NUMBER OF JUDICIAL DECISIONS PRONOUNCED AFTER THE ISSUE OF TH E ABOVE INSTRUCTIONS, IT IS PROPOSED TO UPDATE THE ABOVE INSTRUCTIONS FOR THE I NFORMATION OF ASSESSEES AS WELL AS FOR GUIDANCE OF THE ASSESSING OFFICERS. ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 4 5. IN THE CASE OF COMMISSIONER OF INCOME TAX (CENTRAL ), CALCUTTA VS ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD ( 82 ITR 586), THE SUPREME COURT OBSERVED THAT: WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN T HE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCU MSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOC K-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. 6. IN THE CASE OF COMMISSIONER OF INCOME TAX, BOMBAY VS H. HOLCK LARSEN (160 ITR 67), THE SUPREME COURT OBSERVED : THE HIGH COURT, IN OUR OPINION, MADE A MISTAKE IN OBS ERVING 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 THE ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASSESSING OFFICERS. 8. THE AUTHORITY FOR ADVANCE RULINGS (AAR) (288 ITR 641), REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CASES, HAS CULLED OUT THE FOLLOWING PRINCIPLES :- (I) WHERE A COMPANY PURCHASES AND SELLS SHARES, IT MUST BE SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THAT EXISTENCE OF T HE 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 MA NNER OF MAINTAINING BOOKS OF ACCOUNTS, THE MAGNITUDE OF PURCHASES AND SALES A ND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING WOULD 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 BEING IN TH E 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) WIL L 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. T HE FIRST PRINCIPLE REQUIRES US TO ASCERTAIN WHETHER THE PURCHASE OF SHARES BY A FII IN EXERCISE OF THE POWER IN THE MEMORANDUM OF ASSOCIATION/TRUST DEED WAS AS STOCKIN-TRADE AS THE MERE EXISTENCE OF THE POWER TO PURCHASE AND SELL SHARES WILL NOT BY ITSELF BE DECISIVE OF THE NATURE OF TRANSACTION. WE HAVE T O VERIFY AS TO HOW THE SHARES ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 5 WERE VALUED/HELD IN THE BOOKS OF ACCOUNT I.E. WHETH ER THEY WERE VALUED AS STOCK-IN-TRADE AT THE END OF THE FINANCIAL YEAR FOR THE PURPOSE OF ARRIVING AT BUSINESS INCOME OR HELD AS INVESTMENT IN CAPITAL ASSE TS. THE SECOND PRINCIPLE FURNISHES A GUIDE FOR DETERMINING THE NATURE OF TRA NSACTION BY VERIFYING WHETHER THERE ARE SUBSTANTIAL TRANSACTIONS, THEIR MA GNITUDE, ETC., MAINTENANCE OF BOOKS OF ACCOUNT AND FINDING THE RATI O BETWEEN PURCHASES AND SALES. IT WILL NOT BE OUT OF PLACE TO MENTION THAT REGULATION 18 OF THE SEBI REGULATIONS ENJOINS UPON EVERY FII TO KEEP AND MAINT AIN BOOKS OF ACCOUNT CONTAINING TRUE AND FAIR ACCOUNTS RELATING TO REMITT ANCE OF INITIAL CORPUS OF BUYING AND SELLING AND REALIZING CAPITAL GAINS ON I NVESTMENTS AND ACCOUNTS OF REMITTANCE TO INDIA FOR INVESTMENT IN INDIA AND REA LIZING CAPITAL GAINS ON INVESTMENT FROM SUCH REMITTANCES. THE THIRD PRINCIPLE SUGGESTS THAT ORDINARILY PURCHASES AND SALES OF SHARES WITH THE M OTIVE OF REALIZING PROFIT WOULD LEAD TO INFERENCE OF TRADE/ADVENTURE IN THE N ATURE 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 PROFITS. 10. CBDT ALSO WISHES TO EMPHASISE THAT IT IS POSSIB LE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I.E., AN INVESTMENT PORTFOLIO COMPRI SING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTF OLIO COMPRISING OF STOCK-IN- TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. WH ERE 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 P RINCIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE GIVING RISE TO CAPITAL GAI NS) OR AS STOCK-IN-TRADE (AND THEREFORE GIVING RISE TO BUSINESS PROFITS). TH E ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SINGLE PRINCIPLE WOULD BE D ECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETER MINE WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVEST MENT OR STOCK-IN-TRADE. 12. THESE INSTRUCTIONS SHALL SUPPLEMENT THE EARLIER INSTRUCTION NO. 1827 DATED AUGUST 31, 1989. (F.NO.149/287/2005-TPL) FURTHER, HE SUBMITTED THAT THE ASSESSEE NEVER TREAT ED ITS SHARES AS STOCK IN TRADE AND IT ALWAYS TREATED THE SAME AS IN VESTMENT IN THE BOOKS OF ACCOUNTS AND DISCLOSED THE INCOME THEREFRO M AS INCOME FROM INVESTMENT. THEY LEARNED AUTHORIZED REPRESENTATIVE RELIED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CAS E OF M/S.HITESH SATISHCHANDRA DOSHI, MUMBAI AND OTHERS DATED 15.6 .2011 IN ITA NO.6497 AND 6603/MUM/2009 FOR ASSESSMENT YEARS 2003 -04 AND 2006-07 RESPECTIVELY AND OTHERS, WHEREIN THE MUMBAI BENCH OF THE ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 6 TRIBUNAL AFTER REFERRING IN DETAIL TO THE CASE-LAW ON THE POINT, OBSERVING THAT THE NATURE OF INCOME RECEIVED ON SALE OF SHARE S DEPENDS ON THE FACTS AND CIRCUMSTANCES OF EACH CASE, HELD THAT THE ASSESSEE IN THAT CASE HELD THE SHARES AS INVESTMENT AND THE INCOME O N THE SALE OF THE SAME CANNOT BE TREATED AS BUSINESS INCOME. HE SUBM ITTED THAT THE RATIO OF THE SAID DECISION CLEARLY APPLIES TO THE F ACTS OF THE PRESENT CASE. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS CONS ISTENTLY ENGAGED IN THE BUSINESS OF BUYING AND SELLING OF SHARES AND IT CANNOT BE SAID THAT THE ASSESSEE HAS ONLY MADE INVESTMENTS IN SHAR ES AND HAS NOT CARRIED ANY BUSINESS. HE RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. SPECTRA SHARES AND SCRIPS HYDERABAD IN ITA NO748/HYD/2011 FOR THE ASSESSMENT YEAR 2006-07 DATE D 5 TH AUGUST, 2011 (62 DTR 41 = 142 TTJ 483(HYD)), WHEREIN IT HAS BEEN HELD AS UNDER- ASSESSEE COMPANY, HAVING CARRIED ON THE ACTIVITY O F BUYING AND SELLING OF SHARES IN A SYSTEMATIC AND REGULAR MANNE R WITH HIGH FREQUENCY AND VOLUMES, REPETITIVE PURCHASES AND SAL ES OF THE SAME SCRIPS THROUGHOUT THE YEAR, IT HAS TO BE HELD THAT IT WAS ENGAGED IN TRADING IN SHARES TO EARN PROFITS AND NO T BUYING SHARES FOR THE PURPOSE OF INVESTMENTS AND, THEREFOR E, INCOME EARNED BY THE ASSESSEE FALLS UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION AND NOT CAPITAL GAINS. 7. WE HEARD BOTH THE PARTIES AND PERUSED MATERIALS ON RECORD. THE CONTENTION OF THE ASSESSEE IS THAT IT ALWAYS TR EATED THE SHARES ASS INVESTMENT, AND THERE IS NO BUSINESS ACTIVITY WHATS OEVER CARRIED ON BY THE ASSESSEE WITH REFERENCE TO SHARES. HE FURTHER SUBMITTED THAT THE PRINCIPLE OF CONSISTENCY HAS TO BE FOLLOWED AND THE RE IS NO PURCHASE ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 7 MADE DURING THE YEARS UNDER APPEAL, AND ALL THAT TH E ASSESSEE HAS DEALT WITH ARE IN THE SHARES BROUGHT FORWARD FROM E ARLIER YEARS. 8. COMING TO THE FACTS OF THE PRESENT CASE, WE CO NSIDER THE FACTS RELATING TO THE ASSESSMENT YEAR 2008-09, AS T HE FACTS FOR ALL THE THREE YEARS ARE SIMILAR. FOR THE ASSESSMENT YEAR 2 008-09, THE FIGURES ARE AS FOLLOWS- PARTICULARS CURRENT YEAR INCOME 1,.4.2007 TO 31.03.2008 RS. SALE OF INVESTMENTS 244,311,161 DIVIDEND 4,382,774 INTEREST ON LOANS 806,852 BROKERAGE AND PROFESSIONAL FEES 836.400 RENTAL INCOME 96,000 250,233,187 EXPENDITURE COST OF INVESTMENTS SOLD 134,253,585 ADMINIS TRATIVE EXPENDITURE 1,430,747 MUNICIPAL TAXES 23,212 DEPRECIATION 150,451 SECURITIES TRANSACTION TAX 381,088 LOSS ON SALE OF CARS 233,665 SERVICE TAX --- 136,472,747 9. AGAINST THE ABOVE POSITION OF INCOME AND EXPEN DITURE, ASSESSEE DECLARED BUSINESS INCOME OF RS.1.56 LAKHS AND LONG TERM ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 8 CAPITAL GAINS OF RS.10.80 CORES AND SHORT TERM CAPI TAL GAINS OF RS.20 LAKHS. DURING THE ASSESSMENT YEAR 2008-09, ASSESSE E DEALT IN THE SHARES OF 49 COMPANIES ON WHICH ASSESSEE DECLARED L ONG TERM CAPITAL GAINS AND ALSO DEALT IN SHARES OF 20 COMPANIES AND DECLARED SHORT TERM CAPITAL GAINS AND VOLUME OF TRANSACTIONS RELATING T O THESE GAINS IS MULTIPLY LARGE. ASSESSEE STATED BEFORE US THAT IT H AS SOLD ONLY OUT OF OPENING BALANCE OF SHARES AND NOT PURCHASED ANY SHA RES. AGAINST THIS STATEMENT, WE FIND THAT THE ASSESSEE PURCHASED SHAR ES OF CITY UNION BANK IN SEPTEMBER/OCTOBER, 2007 AND ALSO PURCHASED SHARES OF FIRST LEASING COMPANY DURING THE PERIOD APRIL TO JULY, 20 07. ASSESSEE ALSO PURCHASED THE SHARES OF ALLAHABAD BANK IN THE MONTH OF JULY, 2007. ASSESSEE HAS ALSO PURCHASED THE SHARES OF HIMALAYA INTERNATIONAL IN THE MONTH OF SEPTEMBER, 2007. SIMILARLY, ASSESSEE P URCHASED SHARES OF ICSIS INDIA LTD. AND GMR INFRASTRUCTURE DURING THE MONTHS OF JANUARY AND FEBRUARY, 2008. IT IS ALSO OBSERVED THAT FROM THE STATEMENT OF PURCHASE AND SALE OF SHARES THAT THE ASSESSEE PURCH ASED THE SHARES OF GULF OIL CORPORATION, R.COM, ROYAL ARCADE HOTEL, VI CEROY HOTEL, GP ASSOCIATES, WHICH WERE BOUGHT AND SOLD WITHIN SHORT TIME. SIMI LARLY IN THE CASE OF JM SMALL AND MIDCAP MUTUAL FUND, THERE IS FREQUENT BUYING AND SELLING ACTIVITIES CARRIED ON BY THE ASSESSEE. 10. NOW THE QUESTION BEFORE US WHETHER THE ASSESSE E CARRIED ON THE INVESTMENT ACTIVITY OR BUSINESS ACTIVITY. O N THE OTHER HAND, THE QUESTION IS WHEN THE ASSESSEE CLASSIFIED THE SHARES IN THE BOOKS AS INVESTMENTS, WHETHER REALLY THEY ARE INVESTMENT O R STOCK IN TRADE. ONE OF THE RELEVANT TESTS FOR DETERMINING WHETHER IT IS IN THE NATURE OF FIXED ASSET OR CONSTITUTES STOCK IN TRADE OF THE AS SESSEES BUSINESS. FIXED ASSET IS WHAT THE OWNER TURNS TO PROFIT KEEPI NG THE ASSET IN HIS ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 9 OWN POSSESSION, STOCK IN TRADE IS WHAT HE MAKES PRO FIT OF BY PARTING WITH IT AND LETTING IT CHANGE MASTERS. IF THE EX PENDITURE IS MADE FOR ACQUIRING OR BRINGING INTO EXISTENCE AN ASSET OR A DVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS IT IS PROPERLY ATT RIBUTABLE TO CAPITAL. IF, ON THE OTHER HAND, IT IS MADE NOT FOR RUNNING THE B USINESS OF WORKING IT WITH A VIEW TO PRODUCE PROFITS IT IS RELATABLE TO S TOCK IN TRADE. IN DETERMINING THE QUESTION WHETHER AFTER ACQUIRING TH E SHARES, THE ASSESSEE DEALT WITH IT AS AN INVESTOR OR CARRIED ON BUSINESS WITH IT TREATING IT AS ITS STOCK-IN TRADE OR AS A TRADING A SSET, WHAT IS RELEVANT IS THAT, IF THE CASE FALLS WITHIN THE FORMER CATEGORY, RECEIPTS BY WAY OF SALE OF SUCH SHARES WILL BE CAPITAL RECEIPTS BUT IF IT F ALLS WITHIN THE LATTER THE RECEIPTS WILL BE TRADING RECEIPTS AND PROFITS THERE FROM BUSINESS INCOME. THE INTENTION WITH WHICH SUCH OPERATION IS CARRIED ON IS RELEVANT. IF A OWNER OF AN INVESTMENT REALIZES IT AND OBTAINED A G REATER PRICE FOR IT THAN THE PRICE AT WHICH HE ORIGINALLY ACQUIRED, IF THE ENHANCED VALUE OBTAINED FROM THE REALISATION OR CONVERSION OF SECU RITIES MAY BE PROFIT FROM BUSINESS. THE DISTINCTION WHETHER THE INVE STMENT TRANSACTION IS A MERE REALIZATION OF THE INVESTMENT OR AN ACT DONE FOR MAKING PROFIT DEPENDS ON THE QUESTION WHETHER EXCESS WAS AN ENHA NCEMENT OF THE VALUE FOR REALISING THE SHARES BY A GAIN IN AN OPE RATION OF MAKING PROFIT. IF THE TRANSACTION IS IN THE ORDINARILY LI EN OF THE ASSESSEES BUSINESS, THERE WOULD HARDLY BE ANY DIFFICULTY IN CONCLUDING IT TO BE A TRADING TRANSACTION, BUT WHERE IT IS NOT, THE FACT MUST BE PROPERLY ASSESSED TO DETERMINE WHETHER IT IS IN THE NATURE OF TRADE. THE SURPLUS REALIZED ON THE SALE OF SHARE WOULD BE CAPI TAL, IF THE ASSESSEE AN ORDINARY INVESTOR REALISING HIS HOLDING, BUT IT WOULD BE REVENUE IF HE DEALS WITH THEM AS A TRADER. IF THE ASSESSEE IS AN ORDINARY INVESTOR, THE INCOME ARISING OUT OF SALE OF SHARES IS CAPITAL GAI N. ON THE OTHER HAND, ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 10 IF HE TRADES IN SHARES IN REGULAR MANNER, IT IS INC OME FROM BUSINESS. IF AN INDIVIDUAL INVESTS IN SHARES FOR THE PURPOSES OF EARNING DIVIDEND, HE IS NOT CARRYING ON A BUSINESS. IF THE ASSESSEE IS HOLDING SHARES AS INVESTMENT AND SOLD IT DUE TO CHANGE OF CIRCUMSTANC ES AND EARNS PROFITS, THAT PROFIT IS NOTHING BUT CAPITAL GAIN. W HETHER A PURCHASE IS MADE WITH AN INTENTION OF RESALE AND GAIN TO EARN P ROFIT, SUCH INCOME HAS TO BE TREATED AS INCOME FROM BUSINESS. 11. WHILE DECIDING WHETHER THE SALE OF SHARES IS INCOME FROM BUSINESS OR INCOME FROM CAPITAL GAIN, ONE HAS TO GO BY THE FOLLOWING CRITERIA, AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF P.V.S.RAJU & ANR. V/S. ADDL. COMMISSIONER OF INCOM E-TAX (340 ITR 75)-AP.- (A) THE FREQUENCY OF BUYING AND SELLING OF SHARES B Y THE APPELLANTS WERE HIGH; (B) THE PERIOD OF HOLDING WAS LESS; (C) THE QUANTUM OF TURNOVER WAS ON ACCOUNT OF FREQU ENCY OF TRANSACTIONS, AND NOT BECAUSE OF HUGE INVESTMENT; (D) THE INTENTION OF THE ASSESSEE TO MAKE QUICK PRO FITS ON A HUGE TURNOVER; (E) NO. OF SCRIPS SHARES HELD FOR FEWER DAYS; (F) WHETHER ENGAGED IN DEALING IN THES CAME SCRIPS FREQUENTLY; ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 11 (G) INTENTION OF THE ASSESSEE IN BUYING SHARES IS N OT TO DERIVCE INCOME BY WAY OF DIVIDEND ON SUCH SHARES, BUT TO EA RN PROFITS ON THE SALE OF THE SHARES; (H) WHETHER THE ASSESSEES HAD INDULGED IN MULTIPLE TRANSACTIONS OF LARGE QUANTITIES WITH HIGH PERIODIC ITY. THESE PERIODIC TRANSACTIONS SELECTING THE TIME OF ENTRY A ND EXIT IN EACH SCRIP, CALLED FOR REGULAR DIRECTION AND MANAGEMENT WHICH WOULD INDICATE THAT IT WAS IN THE NATURE OF TRADE; (I) REPEATED TRANSACTIONS, COUPLED WITH THE SUBSEQU ENT CONDUCT OF THE ASSESSEE TO RE-ENTER THE SAME SCRIP OR SOME OTHER SCRIP, IN ORDER TO TAKE ADVANTAGE OF MARKET FLUCTUATIONS LENT THE FLAVOUR OF TRADE TO SUCH TRANSACTIONS; (J) THE ASSESSEES WERE PURCHASING AND SELLING THE S AME SCRIPS REPEATEDLY, AND WERE SWITCHING FROM ONE SCRIP TO AN OTHER; (K) MERE CLASSIFICATION OF THESE SHARE TRANSACTIONS AS INVESTMENT IN THE ASSESSEES BOOKS OF ACCOUNTS WAS NOT CONCLUS IVE; (L) THE INTENTION OF THE ASSESSEES AT THE TIME OF P URCHASE WAS ONLY TO SELL THE SHARES IMMEDIATELY AFTER PURCHASE; (M) FREQUENCY OF PURCHASE AND SALE OF SHARES SHOWED THAT THE ASSESSEE NEVER INTENDED TO KEEP THESE SHARES AS INV ESTMENT; AND (O) IT IS ONLY FOR THE PURPOSE OF CLAMING BENEFIT O F LOWER RATE OF TAX, UNDER SECTION 111A OF THE ACT, THAT THEY HAD C LAIMED CERTAIN SHARES TO BE INVESTMENT, THOUGH THESE TRANSACTIONS WERE ONLY IN THE NATURE OF TRADE. ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 12 12. IN THE LIGHT OF THE ABOVE PARAMETERS AND THE DECISION OF THE JURISDICTIONAL HIGH COURT, ON PERUSAL OF THE STATEM ENTS INCORPORATED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2008-09, WE FIND THAT THE ASSESSEE HAS MADE SEVERAL TRANSACTIONS OF PURCHASE OF SHARES DURING THE RELEVANT YEAR UNDER C ONSIDERATION, AND IF THERE HIGH VOLUME, FREQUENCY AND REGULARITY OF THE ACTIVITY CARRIED ON BY THE ASSESSEE IN A SYSTEMATIC MANNER, IT WOULD PA RTAKE THE CHARACTER OF BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE I N SHARES, AND IT CANNOT BE SAID THAT THE ASSESSEE HAS MERELY MADE IN VESTMENTS IN SHARES. FURTHER, EVIDENCE BROUGHT ON RECORD SHOWS THAT THE ASSESSEE IS CARRYING ON BOTH PORTFOLIOS, VIZ. INVESTMENT AS WEL L AS BUSINESS AND FOR ARRIVING AT PROPER CONCLUSION, THE ASSESSEE HAS TO FURNISH THE RELEVANT DATA FOR ARRIVING AT THE NATURE OF THE RELEVANT TRA NSACTIONS, AND THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACC OUNT CANNOT BE CONCLUSIVE AND THE ASSESSING OFFICER HAS TO SEE THE REAL INTENTION OF THE ASSESSEE IN HOLDING THE RELEVANT SHARES. THE ASSES SEE IS ALSO DIRECTED TO FURNISH THE DETAILS OF SHARES HELD AS INVESTMENT AND AS STOCK IN TRADE. ON FURNISHING THE ENTIRE DATA BY THE ASSESSE E, THE ASSESSING OFFICER HAS TO REDETERMINE THE INCOME RELATING TO E ACH CATEGORY OF SHARES AS BUSINESS INCOME OR INCOME FROM CAPITAL GA INS AS THE CASE MAY BE, IN CONFORMITY WITH CIRCULAR NO.4 OF 2007 DA TED 15.6.2007 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E FOR THE ASSESSMENT YEARS 2007-08 AN 2008-09 AS WELL AS THE ONLY APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006-07, ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.803/HYD/11 & 452-453/HYD/2012 & SAS THEREI N M/S.SWARNIM MULTIVENTURES (P)LTD., HYDERABAD 13 S.A.NO.88/HYD/2012 (IN ITA NO.452/HYD/2012) : ASSESSMENT YEAR 2008-09 S.A.NO.89/HYD/2012 (IN ITA NO.453/HYD/2012) : ASSESSMENT YEAR 2007-08 14 SINCE THE VERY APPEALS OF THE ASSESSEE, GIVING RISE TO THESE STAY APPLICATIONS HAVE BEEN DISPOSED OFF IN THE FOR EGOING PARAS, THESE APPLICATIONS FOR STAY HAVE BECOME INFRUCTUOUS. THEY ARE ACCORDINGLY DISMISSED. 15 TO SUM UP, ASSESSEES APPEALS ITA NOS.452 AND 453/HYD/2012 AS WELL AS REVENUES APPEAL ITA NO.803 /HYD/2011 ARE ALLOWED FOR STATISTICAL PURPOSES, AND BOTH THE STAY APPLICATIONS OF THE ASSESSEE, BEING SA NOS.88 AND 89/HYD/2012, BEING IN FRUCTUOUS, ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 21.9.2012 SD/- SD/- (ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI) JUDICIAL MEMBER A CCOUNTANT MEMBER DT/- 21ST SEPTEMBER, 2012 COPY FORWARDED TO: 1. M/S. SWARNIM MULTIVENTURES P. LTD., C/O. M/S.P.MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-6755/2/3, 1ST FLOOR, SOMAJIGUDA, HYDERABAD-82 2. 3. 4 ASST. COMMISSIONER OF INCOME - TAX CIRCLE 3(3), HYDERABAD COMMISSIONER OF INCOME-TAX(APPEALS) GUNTUR. COMMISSIONER OF INCOME - TAX(APPEALS) IV, HYDERABAD . 5 COMMISSIONER OF INCOME - TAX IV HYDERABAD 6. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S.