VISHAL DIPAK SHAH, MUMBAI V. ADDL CIT RG 19(2), MUMBAI

ITA 6530/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101091 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 04-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 06-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANDHIR KUMAR GUPTA
• Assessee Lawyers: RASHMIKANT D KUNDALIA
• Keywords: Capital asset; Business income; Rule of consistency; Source of fund; Cost of acquisition; Avoidance of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER ITA NO. 65 3 0/MUM/2010 (ASSESSMENT YEAR: 2006 - 07 ) SHRI VISHAL DIPAK SHAH, 503/B, GAZDAR APARTMENTS, JUHU TARA ROAD, SANTACRUZ - WEST, MUMBAI - 400 049. APPELLANT PAN: AALPS6882P VS. ADDIT I ONAL COMMISSIONER OF INCOME - TAX RANGE 19(2), MUMBAI. RESPONDENT APP ELLANT BY : SHRI RASHMIKANT D KUNDALIA. RESPONDENT BY: SHRI G.M.DOSS, CIT(DR) & SHRI RANDHIR KUMAR GUPTA DATE OF HEARING: 11 /08/2015 . DATE OF PRONOUNCEMENT : : 16 / 0 9 /2015 O R D E R PER VIJAY PAL RAO, JM: THIS APPEAL BY THE ASSESSEE IS DIR ECTED AGAINST THE ORDER DATED 28 / 06 /201 0 OF THE CIT(A) - 30, MUMBAI, FOR THE ASSESSMENT YEAR 200 6 - 07 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED C.I.T (A) HAS ERRED IN LAW IN CONFIRMING THE TREATMENT OF SHORT TERM CAPITAL GAIN AS TRADING PROFITS . ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 2 OF 21 2. THE LEARNED CIT - A HAS ERRED IN REJECTING THE ORDER FOR THE PRECEDING YEAR BY HIS PREDECESSOR WITHOUT ASSIGNING ANY SPECIFIC REASON. 3. THE LEARNED CIT - A HAS ERRED IN CONCLUDING THAT THE FACTS OF THE APPELLANT FOR THE ASSESSMENT YEAR UNDER APPEAL ARE DIFFERENT FROM THOSE IN THE PRECEDING PREVIOUS YEAR. 4.THE LEARNED CIT - A HAS ERRED IN UPHOLDING THE VOLUME - BASED - DIFFERENTIATIONS, WHICH ARE NOT EX - NECESSITATE - LEGIS. 5. THE LEARNED CIT - A HAS ERRED IN UPHOLDING EX - FACI E FALLACIOUS ASSESSMENT. 3. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30/10/2006 DISCLOSING TOTAL INCOME OF RS.2,54,17,781/ - INCLUDING SHORT - TERM CAPITAL GAINS (STCG) FROM PURCHASE AND SALE OF SHARES TO THE TUNE OF RS.2,34,38, 613/ - . THE ASSESSEE IS A PROPRIETOR OF M/S. V . J . INVESTMENTS AND ALSO RECEIVED INCOME FROM FUTURE A ND OPTIONS TO THE EXTENT OF RS.11,72,043/ - AS WELL AS SPECULATION PROFIT ON SALE OF SHARES TO THE EXTENT OF RS.6,23,123/ - . THE ASSESSEE HAS ALSO SHOW N INCOME FROM CONSULTANCY TO THE EXTENT OF RS.1,49,297/ - AGAINST THE TOTAL RECEIPTS OF RS.3,91,165/ - . THE AO NOTED THAT THE MAIN INCOME DECLARED BY THE ASSESSEE IS ON ACCOUNT OF STCG IN RELATION TO THE ACTIVITY OF PURCHASE AND SALE OF SECURITIES. THE AO NOTED THAT FOR THE ASSESSMENT YEAR 2005 - 06, THE SO - CALLED STCG WAS TREATED AS BUSINESS INCOME IN VIEW OF THE COLLECTIONS DECLARED PERIODICALLY, FREQUENCY AND MULTIPLICITY OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES AND SECURITIES. THE AO HELD THAT THE ASSESSEE S MAIN ACTIVITY IS DEALING IN SHARES BY ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 3 OF 21 WAY OF SPECULATION FUTURE END OPTION AND TRADING IN SHARES . ACCORDINGLY, STCG DECLARED BY THE ASSESSEE ON PURCHASE AND SALE OF SHARES WAS TREATED AS INCOME FROM BUSINESS AND ASSESSED TO TAX ACCORDINGLY. 4 . THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE CIT(A) AND CONTENDED THAT FOR THE ASSESSMENT YEAR 2005 - 06, THE CLAIM OF THE ASSESSEE WAS ALLOWED BY THE CIT(A) AND, THEREFORE, THE MATTER WAS CLAIMED TO BE COVERED IN FAVOUR OF THE ASSESSEE. TH E ASSESSEE ALSO SUBMITTED DETAILED SUBMISSIONS BEFORE THE CIT(A) RELATING TO THE TRANSACTIONS AS WELL AS THE AMENDMENT IN THE PROVISIONS OF THE I NCOME - TAX ACT , 1961 [HEREINAFTER REFERRED TO AS THE ACT ] IN RESPECT OF STCG AND LONG - TERM CAPITAL GAINS (LTC G) ARISING FROM THE SALE OF SHARES THROUGH STOCK EXCHANGE. THE ASSESSEE CONTENDED BEFORE THE CIT(A) THAT WHEN THE TRANSACTION TAX HAS BEEN LEVIED ON THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES THEN THE CONCESSIONAL TAX LEVIED ON STCG STAND COMPENSATE D BY THE SECURITIES TRANSACTION TAX (STT) ON PURCHASE AND SALE OF SHARES. THE CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND OBSERVED THAT THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE IN THE TAXATION MATTER AND FACTS OF THIS ASSESSMENT YEAR ARE DIFFERENT FROM THE FACTS FOR THE ASSESSMENT YEAR 2005 - 06. ACCORDINGLY, THE CIT(A) HAS CONFIRMED THE ACTION OF THE AO IN TREATING THE STCG AS BUSINESS INCOME. 5. BEFORE US, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE FAIRLY POINTED OUT T HAT THOUGH FOR THE ASSESSMENT YEAR ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 4 OF 21 2005 - 06, THE TRIBUNAL HAS DECIDED THE ISSUE AGAINST THE ASSESSEE IN THE APPEAL FILED BY THE REVENUE, HOWEVER, FOR THE YEAR UNDER CONSIDERATION, THE FACTS ARE DISTINGUISHABLE AND THEREFORE STCG OFFERED BY THE ASSESSEE SHOU LD HAVE BEEN ACCEPTED BY THE AUTHORITIES BELOW. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT VIDE FINANCE ACT,2004 NEW SCHEME OF TAX HAS BEEN BROUGHT INTO STATUTE WHEREIN NO TAX IS PROVIDED ON LTCG FROM LISTED SECURITIES. IT H AS ALSO REDUCED THE RATE OF TAX TO10% ON STCG FROM LISTED SECURITIES. THE DEFINITION OF SHORT - TERM CAPITAL ASSET BEING A SHARE AS PER THE PROVISIONS OF SEC.2(42A) REMAINS UNCHANGED DESPITE THE NEW SCHEME OF TAX ON THE CAPITAL GAIN FROM LISTED SECURITIES. THE HOLDING PERIOD FOR STCG AND LTCG REMAINS THE SAME. AS PER THE PROVISIONS OF THE IT ACT SUBSEQUENT TO AMENDMENT IN TAX ON CAPITAL GAINS FROM LISTED SECURITIES NOTHING HAS BEEN INTRODUCED REGARDING ANY VOLUME, FREQUENCY ETC., AS A TEST, BENCHMARK F OR TREATING THE TRANSACTION AS INVESTMENT OR TRADING. EVEN OTHERWISE, STT HAS BEEN INTRODUCED JUST A VOLUME BASED TAX ON PURCHASE OR SALE OF EQUITY SHARE. T HEREFORE, STT HAS RULED OUT ANY DIFFERENCE FOR THE PURPOSE OF TREATMENT OF TRANSACTION AS INVESTMENT OR TRADING. THE BENEFIT WHICH IS PROVIDED FOR CAPITAL GAINS ON LISTED SECURITIES IS ALSO COMPENSATED BY STT AND IN CASE OF TRADING REBATE IS PROVIDED AS P ER SEC.88E. THEREFORE, STCG ENJOYING CONCESSIONAL RATE OF TAX HAS BEEN DENIED THE BENEFIT OF REBATE UNDER SECTION 88E OF THE ACT. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS REFERRED TO THE FINANCE MINISTER S BUDGET SPEECH IN ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 5 OF 21 RESPECT OF THE AMENDMENT BROUGHT INTO STATUTE AND INTRODUCTION OF STT WHICH DEMONSTRATED THE OBJECT AND PURPOSE OF THE NEW SCHEME OF TAX OF CAPITAL GAINS ON LISTED SECURITIES. THUS, AFTER INTRODUCTION OF STT, IT IS EASY TO ADMINISTER THE TAX AND IT HAS AN ADVANTAGE OF ELIMINATING TAX AVOIDANCE ON THE TRANSACTION OF PURCHASE AND SALE OF LISTED SECURITIES. IN A NATURAL COROLLARY, THEREFORE, OUGHT NOT TO BE AN ATTEMPT TO DEEM OR VIEW CERTAIN STCG RETURNED BY THE ASSESSEE TO BE AN EXERCISE IN TAX AVOIDANCE OF TAX ON CAPITA L GAIN FROM LISTED SECURITIES BY INTRODUCTION OF STT. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT FOR ASSESSMENT YEAR 2005 - 06 ONLY A PART OF THE SAID YEAR WAS COVERED UNDER NEW TAX SCHEME W.E.F. 1/10/2004 AND PRIOR TO THAT THE TRA NSACTION WAS SUBJECTED TO TAX RATE PROVIDED UNDER THE UN - AMENDED PROVISIONS OF THE ACT WHEREAS FOR THE YEAR UNDER CONSIDERATION, THE TRANSACTIONS FOR THE WHOLE YEAR ARE GOVERNED UNDER THE AMENDED PROVISIONS OF THE ACT. HE HAS REFERRED TO THE DETAILS OF TH E TRANSACTION AND SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATION, MAJOR STCG EARNED FROM 11 SCRIPS AND THE HOLDING PERIOD OF THOSE 11 SCRIPS IS RANGING FROM MORE THAN A WEEK TO 344 DAYS AND THE AVERAGE HOLDING PERIOD OF THESE TRANSACTIONS IS 143 DAYS. SI MILARLY, THE MAJOR SHORT - TERM CAPITAL LOSS IS ARISING FROM ONLY TWO SCRIPS AND THE AVERAGE HOLDING PERIOD OF THE SHARES IS 200 DAYS . ON THE CONTRARY FOR THE ASSESSMENT YEAR 2005 - 06, THE MATERIAL STCG WAS FROM 24 SCRIPS IN COMPARISON TO 11 SCRIPS FOR THE YEAR UNDER CONSIDERATION AND THE AVERAGE HOLDING PERIOD IN THE ASSESSMENT YEAR 2005 - 06 IS 69 DAYS IN COMPARISON TO 143 ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 6 OF 21 DAYS FOR THE YEAR UNDER CONSIDERATION. LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS THEN SUBMITTED THAT THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE HAVE TO BE CONSIDERED IN THE LIGHT OF THE SUBSTANTIAL CHANGE IN THE STOCK MARKET AND THE SENSEX DURING THIS YEAR HAS ENORMOUSLY INCREASED FROM 800 POINTS TO 1000 POINTS. THEREFORE, IN A HIGHLY BULLION MARKET DURING THE YEAR IT WAS N ATURAL FOR CARRYING OUT THE BULK TRANSACTIONS AND EARNING MORE STCG. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE S MAIN ACTIVITY IS PROVIDING CONSULTANCY SERVICES AND HAS ENTRUSTED HIS PORTFOLIO TO THE MANAGER/BROKER, THE ASSESSEE HAS VALUED THE INVEST MENT AT COST AND SHOWN THE SAME AS INVESTMENT IN THE BALANCE - SHEET. THERE WAS NO OPENING OR CLOSING STOCK AS IN THE CASE OF HOLDING SHARES AS STOCK - IN - TRADE. THEREFORE, INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE WAS ONLY INVESTMENT AND NOT TRADING THO UGH THE ASSESSEE HAS ALSO CARRIED OUT TRADING ACTIVITY AS WELL AS FUTURE END OPTION ACTIVITY IN SEPARATE PORTFOLIO AND THERE IS NO BAR FOR HAVING TWO PORTFOLIOS ONE FOR TRADING AND ANOTHER FOR INVESTMENT. THE ASSESSEE IS KEEPING SEPARATE ACCOUNT FOR TRA DING AS WELL AS INVESTMENT ACTIVITY. HE HAS RELIED UPON THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (228 CTR 582). LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS A MANAG EMENT GRADUATE IN FINANCE AND RUNS HIS INDEPENDENT FINANCIAL CONSULTANCY PRACTICE FOR THE LAST THREE YEARS. THE ASSESSEE DEPENDS ON HIS CONSULTANCY PRACTICE FOR HIS LIVELIHOOD AND ENTRUSTED HIS SHARE PORTFOLIO TO ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 7 OF 21 INDEPENDENT PORTFOLIO MANAGER/BROKER THOUG H THE ASSESSEE IS KEEPING AN EYE ON CAPITAL APPRECIATION BEING A RETAIL INVESTOR AS AGAINST HIGH NET WORK INVESTOR OR INSTITUTIONAL INV ESTOR. AS A PRUDENT INVESTOR, ASSESSEE DOES NOT KEEP HIS INVESTMENT IN A FEW BASKETS AND THEREFORE, ASSESSEE HAS INVESTE D HIS FUND IN A DIVERSIFIED PORTFOLIO. THE ASSESSEE HAS USED HIS OWN FUNDS AND NO BORROWINGS HAVE BEEN MADE FOR THE PURPOSE OF PURCHASE OF SHARES. THE ENTIRE LOAN AVAILED BY THE ASSESSEE IS FOR THE PURCHASE OF MOTOR CAR AND THERE IS NO OTHER LOAN. THERE FORE, AUTHORITIES BELOW HAVE ASSUMED WRONG FACTS REGARDING THE USE OF BORROWED FUNDS THOUGH THERE MAY BE OUTSTANDING DUES TO THE PORTFOLIO MANAGER/BROKER BUT THERE IS NO LOAN FOR THE PURPOSE OF INVESTMENT IN SHARES. THUS, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE INTENTION OF THE ASSESSEE WAS INVESTMENT AND NOT TO EARN THE TRADING PROFIT. THE ASSESSEE USED HIS OWN SURPLUS FUND AND NO BORROWED FUND WAS USED. IN THE MAJORITY OF THE TRANSACTIONS, THE HOLDING PERIOD WAS SUBSTAN TIAL. RATHER SUBSTANTIAL STCG HAS BEEN EARNED BY THE ASSESSEE IN RESPECT OF TRANSACTIONS WHEREIN THE AVERAGE HOLDING PERIOD IS 143 DAYS. ALL THE TRANSACTIONS ARE DELIVERY - BASED AND TAKEN TO THE DMAT ACCOUNT OF THE ASSESSEE. THEREFORE, THE INTENTION OF T HE ASSESSEE WAS INVESTMENT AND NOT AN ADVENTURE IN THE NATURE OF TRADE. HE HAS FURTHER POINTED OUT THAT THE AO HAS WRONGLY STATED IN THE ORDER THAT THE ASSESSEE HAS CARRIED OUT REPETITIVE TRANSACTIONS IN NUMBER OF SCRIPS WHEREAS THE LARGE QUANTITY OF ONE SCRIP PURCHASED BY THE ASSESSEE ON A SINGLE DAY HAS BEEN ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 8 OF 21 CONSIDERED BY THE AO HAS MULTIPLE TRANSACTION WHICH IS CONTRARY TO THE ACTUAL FACT THAT SINGLE PURCHASE ORDER IS EXECUTED IN THE PIECE - MEAL AS PER THE AVAILABILITY OF SHARES FROM THE SELLER SIDE. I N SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE JUDGMENT OF THE HON BLE DELHI HIGH COURT IN THE CASE OF RADIAL INTERNATIONAL VS. ACIT (367 ITR 1). THUS LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT STCG OF THE ASSESSEE SHOULD B E ACCEPTED IN VIEW OF THE DISTINGUISHING FACT FOR THE YEAR UNDER CONSIDERATION. 6. O N THE OTHER HAND, LEARNED DR HAS SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THIS TRIBUNAL IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2005 - 06. THE TRIBUNAL HAS GIVEN THE FINDING FOR THE ASSESSMENT YEAR 2005 - 06 AFTER CONSIDERING THE NATURE OF TRANSACTION, FR EQUENCY, VOLUME, SALES, HOLDING PERIOD OF SHARES BY THE ASSESSEE. THEREFORE, IN THE ABSENCE OF ANY MATERIAL CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE YEAR UNDER CONSIDERATION, THE ISSUE IS COVERED BY THE DECISION OF THIS TRIBUNAL FOR THE A SSESSMENT YEAR 2005 - 06. HE HAS ALSO RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUN AL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2005 - 06 VIDE ORDER DATED 30/9/2010 IN ITA NO.5381/MUM/2009. THE TRIBUNAL HAS GIVEN ITS FINDING IN PARAGRAPHS 13 & 14 AS UNDER: ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 9 OF 21 . 13. WE FIND THAT THE ASSESSEE HAS TO BE TREATED ONLY AS A TRADER, THE TOTAL TR ANSACTIONS BEING 461 IN NUMBER. FURTHER THE DECISION OF THE MUMBAI BENCH OF THE ITAT IN THE CASE OF GOPAL PUROHIT 122 TTJ 97 WHERE IN RESPECT OF SHARE TRANSACTIONS THE ITAT ACCEPTED AS INVESTMENT AND ALSO ON THE PRINCIPLE OF CONSISTENCY IN THE MATTER OF ASSESSMENT. THE TRIBUNAL FOUND THAT THE SAID ASSESSEE HAS CONSISTENTLY BEEN INVESTING IN SHARES AND RATIO OF SALES TO INVESTMENT WAS VERY LESS. IN THE ABOVE REFERRED CASE, THERE WAS LONG TERM CAPITAL GAIN OF RS.1.12 CRORES WHICH WAS CLAIMED EXEMPT AND LONG TERM CAPITAL GAIN TAXABLE AT 10% TO THE TUNE OF RS.60 LAKHS IN ADDITION TO PROFIT FROM TRADING IN SHARES TAXABLE AT 10% AND SHORT TERM CAPITAL GAIN AT 10% OF 57.31 LAKHS. IN THAT CASE, THE ASSESSEE WAS I NVESTING FOR A LONG PERIOD AND OFFERING THE LONG TERM CAPITAL GAIN WHICH IS MORE THAN SHORT TERM CAPITAL GAIN AND SHARE HOLDINGS VARIED FROM ONE YEAR TO 5 YEARS. NO SUCH FACTS EXIST IN THE PRESENT CASE. IN VIEW OF THE FACTS OF THE PRESENT CASE, WE ARE OF T HE OPINION THAT THE DECISION IN THE CASE OF GOPAL PUROHIT, UPHELD BY THE HON BLE BOMBAY HIGH COURT DOES NOT APPLY AT ALL. SIMILARLY, THE DECISION OF THE ITAT IN THE CASE OF JANAK S.RANGWALLA VS. ACIT 11 SOT 627 (MUM) RELIED ON BY THE LD.CIT(A) ARE NOT APP LICABLE TO THE FACTS OF THE PRESENT CASE. 14. IN THE CASE OF ACIT VS SHRI V. NAGESH IN 1TA NO. 3236 FOR A.Y. 2006 - 07, THE MUMBAI BENCH WHILE CONSIDERING SIMILAR ISSUE HELD AS FOLLOWS: 'NOW THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US ALBEIT FAIRLY CONCEDED THAT THE FACTS AND CIRCUMSTANCES OF THIS YEAR WERE SIMILAR TO THOSE OF THE PRECEDING YEAR BUT IMPRESSED UPON THE BENCH TO EITHER TREAT INCOME FROM SALE OF SHARE TRAMS - ACTION AS SHORT TERM CAPITAL GAIN OR REFER THE MATTER FOR THE CONSTITUTION OF SPECIAL BENCH DUE TO DIFFERING VIEW TAKEN BY VARIOUS BENCHES OF THE TRIBUNAL. WE ARE UNABLE TO ACCEPT EITHER OF THE CONTENTIONS PUT FORTH ON BEHALF OF THE ASSESSEE FOR THE REASON THAT THE QUESTION WHETHER THE SHARE TRANSACTIONS GIVE BUSINESS INCOME OR CAPITAL GAIN IS BASICALLY A MATTER OF FACT, WHICH HAS TO BE DECIDED BY CONSIDERING THE CUMULATIVE EFFECT OF VARIOUS FACTORS HAVING BEARING ON THE ISSUE. NO SINGLE DECISIVE TEST OR STRAITJACKET FORMULA CAN BE DEVISED FOR GETTING QUICK AN SWER TO SUCH QUESTION. IN FACT, IT IS A QUESTION OF FACT WHICH HAS TO BE DECIDED ON THE FACTS OF EACH CASE DISTINCTLY FOR IDENTIFYING WHETHER INCOME/LOSS FROM SALE OF SHARE TRANSACTIONS IS BUSINESS INCOME OR CAPITAL GAIN. AS THE TRIBUNAL IN ASSESSEE S OWN CASE HAS EXAMINED THE FACTS OF THE IMMEDIATELY PRECEDING YEAR, WHICH ARE ADMITTEDLY MUTATIS MUTANDIS SIMILAR TO THOSE OF THE INSTANT YEAR, AND HAS COME TO A POSITIVE CONCLUSION THAT THE SHARE TRANSACTIONS WERE IN THE NATURE OF BUSINESS TRANSACTIONS, WE AR E OF THE CONSIDERED OPINION THAT THERE IS NO QUESTION OF DEVIATING FROM THE VIEW TAKEN BY THE CO - ORDINATE BENCH. WE CONCUR WITH THE FINDINGS OF AO AND ALLOW THE REVENUE S APPEAL. ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 10 OF 21 I T IS CLEAR THAT THE TRIBUNAL HAS GIVEN FINDING ON THE BASIS OF PECULIAR F ACTS FOR THE ASSESSMENT YEAR 2005 - 06 BY CONSIDERING THE NUMBER OF TRANSACTIONS AS 461. THE TRIBUNAL ALSO RELIED UPON THE DECISION IN THE CASE OF ACIT VS. V.NAGESH (SUPRA) ON THE POINT THAT THE CASE AND ISSUE HAS TO BE DECIDED ON THE BASIS OF THE FACTS OF EACH CASE AND NO SINGLE DECISIVE TEST OR STRAIGHTJACKET FORMULA CAN BE DEVISED FOR GETTING QUICK ANSWER TO SUCH QUESTIONS. IT IS PERTINENT TO NOTE THAT FOR THE ASSESSMENT YEAR 2005 - 06, THE CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE ASS ESSEE, WHILE CHALLENGING THE ORDER OF THE AO FOR THE ASSESSMENT YEAR UNDER CONSIDERATION CONTENDED BEFORE THE CIT(A) THAT THE CASE OF THE ASSESSEE IS COVERED BY THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2005 - 06. HOWEVER, THE CIT(A) DID NOT ACCEPT TH IS CONTENTION OF THE ASSESSEE AND HELD IN PARAGRAPH 7.7 OF THE IMPUGNED ORDER AS UNDER: 7.7 THE CONTENTI O N OF THE APPELLANT ON THE OTHER HAND IS THAT IN THE PRECEDING YEAR, THE LEARNED CIT(A) - XIX HAD ALLOWED HIS APPEAL BY HOLDING THAT HE IS AN INVESTOR AND NOT TRADER DOES NOT HOLD MUCH OF GROUND IN THE BACKDROP OF DIFFERENT SET OF FACTS. IN ANY CASE, PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME - TAX PROCEEDINGS AND EACH ASSESSMENT YEAR IS A SEPARATE AND SELF CONTAINED ASSESSMENT YEAR. THEREFORE, THE PLEA OF THE APPELLANT THAT HE SHOULD BE ALLOWED A RELIEF ON THE SAME LINES AS HE WAS ALLOWED IN THE AY 2005 - 06 DOES NOT HOLD GOOD. THE SUBMISSIONS MADE BY THE APPELLANT VIDE LETTER DT.20/08/2009 A REFERENCE OF WHICH HAS ALREADY BEEN MADE IN THE PRECEDING PARAS ARE NOT CONVINCING AND TENABLE. 8. THUS IT IS MANIFEST FROM THE IMPUGNED ORDER THAT THE CIT(A) DID NOT ACCEPT THE ORDER FOR THE ASSESSMENT YEAR 2005 - 06 AS ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 11 OF 21 OPERATING RES JUDICATA OR PRECEDENT ON THE GROUND THAT THE SAID ORDER WAS IN THE BACKDROP OF DIFFERENT SET OF FACTS. THE ORDER OF THE A O HAS GOT MERGED WITH THE IMPUGNED ORDER OF THE CIT(A) AND THE REVENUE HAS NOT CHALLENGED THE FINDING OF THE CIT(A) ON THIS POINT. THEREFORE, WHEN THE FINDING OF THE CIT(A) IS BASED ON THE PREMISE THAT FACTS OF THE ASSESSMENT YEAR 2005 - 06 ARE DIFFERENT FR OM FACTS OF THE ASSESSMENT YEAR UNDER CONSIDERATION, THEN WE HAVE TO EXAMINE THE FACTS OF THE ASSESSMENT YEAR UNDER CONSIDERATION INDEPENDENTLY TO DECIDE THE CONTROVERSY OF NATURE OF TRANSACTION, WHETHER INVESTMENT OR TRADING. EVEN OTHERWISE, WE FIND THA T THE AO HAS REPRODUCED THE DETAILS OF TRANSACTIONS IN TWO SCRIPS AT PAGE 6 OF THE ASSESSMENT ORDER AND FOUND THAT THESE TRANSACTIONS ARE REPETITIVE IN NATURE. FOR READY REFERENCE, WE REPRODUCE DETAILS OF THE TRANSACTIONS REPRODUCED AT PAGE 6 OF THE ASSES SMENT ORDER AS UNDER: NAME OF THE SCRIPS QUANTITY DATE OF PURCHASE DATE OF SALE PURCHASE COST SALE PROCEEDS GAIN LOSS NO. OF DAYS HELD AGROTECH FOODS 900 15/4/05 25/04/05 65392 70466 5074 10 AGROTECH FOODS 350 15/4/05 25/04/05 25457 27403 1946 10 AGROTECH FOODS 750 15/4/05 25/04/05 54551 58618 4067 10 AGROTECH FOODS 1000 15/4/05 26/04/05 72735 76776 4051 11 AGROTECH FOODS 400 15/4/05 26/04/05 29094 30882 1788 11 AGROTECH FOODS 1000 22/04/05 26/04/05 75890 77206 1316 4 JINDAL PHOTO 7603 7/4/05 13/4/05 1729650 2499411 769761 6 JINDAL PHOTO 933 7/4/05 13/4/05 212253 330384 118131 6 JINDAL PHOTO 100 7/4/05 15/4/05 23369 29504 6135 8 ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 12 OF 21 9. IT IS APPARENT THAT IN THE CASE OF SHARES OF M/S.AGROTECH FOODS THERE ARE ONLY TWO TRANSACTIONS ONE OF THE PURCHASE OF A LARGE QUANTITY ON 15/4/2005 AND ANOTHER TRANSACTION OF PURCHASE OF 1000 SHARES OF THE AGROTECH FOODS ON 22/4/2005. THESE TRANSACTIONS ARE FOR PURCHASE OF THE SAME SCRIP ON TWO DIFFERENT DATES AND THEREFORE, CANNOT BE CONSIDERED AS REPETITIVE TRANSACTIONS WHEN THERE IS NO SALE OF THE SAID SCRIP IN BETWEEN. THE SALE OF SHARES OF THE SAID SCRIP WAS SUBSEQUENT TO THE LAST PURCHASE ON 22/4/2005. THUS IT IS CLEAR THAT THE AO MISUNDERSTOOD THE CONCEPT OF REPETITIVE TRANSACTION OF SHARES IN SAME SCRIP. HOWEVER, WE FIND THAT IN CASE OF JINDAL PHOTO THERE ARE REPETITIVE TRANSACTIONS BECAUSE AFTER THE INITIAL PURCHASE OF SHARES ON 7/4/2005 THERE IS A SALE ON 13/4/2005 AND 15/4/2005 AND THEREAFTER AGAIN TH ERE IS A PURCHASE ON 18/4/2005 AND SO ON. THUS AS PER DETAILS GIVEN BY THE AO, ASSESSEE HAS CARRIED OUT REPETITIVE TRANSACTIONS ONLY IN ONE SCRIP I.E. JINDAL PHOTO. FURTHER, AS IT IS APPARENT FROM DETAILS OF TRANSACTIONS THAT THE AO HAS CONSIDERED A SINGL E TRANSACTION OF PURCHASE OR SALE IN ONE SCRIP ON A SINGLE DAY AS MULTIPLE TRANSACTION BECAUSE THE PURCHASE OR SALE ORDER OF A LARGE QUANTITY OF SHARES HAS BEEN EXECUTED IN THE MULTIPLE SMALL QUANTITIES AND THEREFORE, ONE SINGLE TRANSACTION IS REFLECTED AS MULTIPLE TRANSACTION IN THE SAME SCRIP WHEREAS THE TRANSACTION OF A LARGE QUANTITY OF SAME SCRIP ON A SINGLE DAY IS ONE TRANSACTION THOUGH IT MAY HAVE BEEN EXECUTED ON THE FLOOR OF THE STOCK EXCHANGE IN THE MULTIPLE SMALL QUANTITY AS PER THE DEMAND OR SU PPLY AS THE CASE MAY BE. THIS ASPECT HAS ALSO LED ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 13 OF 21 TO A MISLEADING FIGURE OF TOTAL NUMBER OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE TOTAL TRANSACTIONS AS CONSIDERED BY THE AO FOR THE YEAR UNDER CONSIDERATION AR E ARTIFICIALLY INFLATED FIGURES BECAUSE OF THE REASON THAT A SI NGLE TRANSACTION OF PURCHASE OR SALE OF A LARGE QUANTITY OF PARTICULAR SCRIP HAS BEEN EXECUTED BY A NUMBER OF SMALL QUANTITIES AS PER AVAILABILITY OF DEMAND AND SUPPLY ON THE STOCK EXCHANGE. T HUS, A SINGLE TRANSACTION OF PURCHASE AND SALE HAS BEEN FRAGMENTED INTO DIFFERENT TRANSACTION S, THOUGH TOTAL QUANTITY OF PURCHASE OR SALE REMAINS SAME BUT THE NUMBER OF TRANSACTIONS ARE REFLECTED AS MULTIPLE. THE AO S FINDING IS INFLUENCED BY THIS INFLATED NUMBER OF TRANSACTION WHICH IS NOT CORRECT NUMBER OF TRANSACTIONS AND ARE MUCH LESS THAN THE TRANSACTION APPEARS SO. WE FURTHER NOTE THAT THE AO AS WELL AS THE CIT(A) HAS ALSO IGNORED THE FACT THAT THE ASSESSEE HAS CARRIED OUT THESE TRANSACTIONS THROUGH PORTFOLIO MANAGER/AGENT AND NOT BY HIMSELF AND THEREFORE, THE NATURE OF TRANSACTION AND THE INTENTION OF THE ASSESSEE HAS TO BE LOOKED INTO AFTER CONSIDERING THIS FACT THAT THESE TRANSACTIONS ARE CARRIED OUT THROUGH PORTFOLIO MANAGER/AGENT. THERE IS NO DISPUTE THAT THE ASSESSEE IS HOLDING THE SHARES AS INVESTMENT IN THE BALANCE SHEET AND VALUED THE SAME AT COST AS AGAINST COST/REALIZATION WHICHEVER IS LESS IN CASE OF STOCK - IN - TRADE. IT IS ALSO NOT IN DISPUTE THAT ALL THESE TRANSACTIONS IN THE INVESTMEN T PORTFOLIO ARE DELIVERY - BASED AND ROUTED THROUGH THE DMAT ACCOUNT OF THE ASSESSEE. WE FURTHER NOTE THAT THE ASSESSEE HAS NOT USED ANY BORROWED FUND FOR THE ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 14 OF 21 PURPOSE OF INVESTMENT IN SHARES AND THE AUTHORITIES BELOW AGAIN ASSUMED WRONG FACT THAT THE ASSESS EE HAS USED THE BORROWED FUND FOR THE PURPOSE OF INVESTMENT. IT IS MANIFEST FROM RECORD THAT ALMOST THE ENTIRE CAPITAL GAIN FOR THE YEAR UNDER CONSIDERATION HAS BEEN EARNED BY THE ASSESSEE FROM THE TRANSACTION OF PURCHASE AND SALE OF 11 SCRIPS, THE DETA ILS OF WHICH ARE AS UNDER: MATERIAL SCRIPS FROM WHICH MOST OF THE STCG AROSE WITH HOLDING PERIOD NAME OF SCRIP PURCHASES SALE GAIN/LOSS HOLDING PERIOD IN DAYS 1 CYBER MEDIA LTD. 66,72,045 86,04,822 18,28,039 8 2 FORTUNE INFO LTD 62,80,882 77,02,659 13,23,179 147 3 GOVIND RUBBER LTD 2,31,06,538 3,12,55,143 77,85,876 84 4 IMP POWER LTD 64,28,187 92,61,936 23, 44, 683 312 5 JINDAL PHOTOFILMS LTD 73,55,136 87,42,526 11,49,860 308 6 SAKSOFT LTD 81,78,341 89,03,274 24,03,557 199 7 SYNERGY MULTI LTD 2,83,51,976 3,05,37,187 19,72,058 344 8 VIVIMED LABS LTD 1,49,97,439 1,73,96,293 21,63,423 16 9 BHAGIRATH ENGG LTD 12,12,992 22,52,482 10,39,490 45 10 GANESH FORGE LTD 58,00,538 71,16,479 13,15,941 16 11 MULTI ARC LTD 36,75,462 70,78,298 34,02,836 99 TOTAL 11,20,59,536 13,88,51,099 2,67,28,942 1578 BROKERAGE, STT, ETC NOT CONSIDERED IN P/S AVERAGE HOLDING PERIOD 143 1 AVON ORGANIC LTD. 2,07,83,846 1,60,39,559 (50,70,553) 159 2 KOPRAN LTD. 3,01,06,732 2,85,22,786 (20,56,565) 241 TOTAL MATERIAL LOSS 5,08,90,578 4,45,62,345 (71,27,118) AVERAGE HOLDING PERIOD 400 200 BROKERAGE, STT, ETC NOT CONSIDERED IN P/S THUS IT IS CLEAR THAT ALMOST THE ENTIRE STCG EARNED BY THE ASSESSEE IS FROM 11 SCRIPS IN COMPARISON TO 24 SCRIPS FOR THE ASSESSMENT YEAR 2005 - 06. THIS IS A SUBSTANTIVE DIFFERENCE IN THE FACTS REGARDING THE PATTERN OF PURCHASE AND SALE OF SHARES FOR THE YEAR UNDER CONSIDERATION. FURTHER, THE AVERAGE HOLDING PERIOD OF THESE 1 1 SCRIPS IS 143 DAYS IN COMPARISON TO 69 DAYS FOR THE ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 15 OF 21 ASSESSMENT YEAR 2005 - 06. THIS ALSO DEMONSTRATES A MAJOR CHANGE IN THE FACT AND PATTERN OF INVESTMENT IN SHARES BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS INCURRED LOSS OF RS .71,27,118/ - ON TWO SCRIPS AND THE AVERAGE HOLDING PERIOD OF THE SAME IS 200 DAYS. THEREFORE, MAJOR REVENUE FROM THE INVESTMENT PORTFOLIO COMES ONLY FROM 13 SCRIPS. BECAUSE OF THESE SUBSTANTIAL DIFFERENCE IN THE FACTS AND CIRCUMSTANCES FOR THE YEAR UNDER CONSIDERATION FROM THE ASSESSMENT YEAR 2005 - 06, WE DO AGREE WITH THE FINDING OF THE CIT(A) IN THE IMPUGNED ORDER THAT THE FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION ARE DIFFERENT AND THE ORDER FOR THE ASSESSMENT YEAR 2005 - 06 WILL NOT OPERATE AS RE S JUDICATA. 10. THE ASSESSEE HAS GIVEN MUCH EMPHASIS IN SUPPORT OF HIS CLAIM ON THE AMENDED PROVISIONS OF THE ACT WHEREBY A NEW SCHEME OF TAX OF CAPITAL GAINS FROM LISTED SECURITIES HAS BEEN INTRODUCED BY THE FINANCE ACT, 2004. IN SUPPORT OF HIS CO NTENTION, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS REFERRED TO THE FINANCE MINISTER S SPEECH ON THIS POINT WHICH READS AS UNDER: 1 1 1. CAPITAL GAINS TAX IS ANOTHER VEXED ISSUE. WHEN APPLIED TO CAPITAL MARKET TRANSACTIONS, THE ISSUE BECOMES MORE COMPLEX. QUESTIONS HAVE BEEN RAISED ABOUT THE DEFINITIONS OF LONG - TERM AND SHORT - TERM, AND THE DIFFERENTIAL TAX TREATMENT METED TO THE TWO KINDS OF GAINS. THERE ARE NO EASY ANSWERS, BUT I HAVE DECIDED TO MAKE A BEGINNING BY REVAMPING TAXES ON SECURITI ES TRANSACTIONS. OUR FOUNDING FATHERS HAD WISELY INCLUDED ENTRY 90 IN THE UNION LIST IN THE SEVENTH SCHEDULE OF THE CONSTITUTION OF INDIA. TAKING A CUE FROM THAT ENTRY, I PROPOSE TO ABOLISH THE TAX ON LONG - TERM CAPITAL GAINS FROM J SECURITIES TRANSACTIONS ALTOGETHER. INSTEAD, I PROPOSE TO LEVY A SMALL TAX ON TRANSACTIONS IN SECURITIES ON STOCK EXCHANGES. ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 16 OF 21 THE RATE WILL BE 0.15 PER CENT OF THE VALUE OF SECURITY. THUS, A TRANSACTION INVOLVING SECURITIES VALUED AT, SAY, RS. 100,000 WILL NOW BEAR A SMALL TAX OF RS. 150. THE TAX WILL BE LEVIED ON THE BUYER. IN THE CASE OF SHORT - TERM CAPITAL GAINS FROM SECURITIES, I PROPOSE TO REDUCE THE RATE OF TAX TO A FLAT RATE OF 10 PER CENT. MY CALCULATION SHOWS THAT THE NEW TAX REGIME WILL BE A WIN - WIN SITUATION FOR ALL CONCERNED . BY INTRODUCTION OF THIS NEW TAX SCHEME FOR CAPITAL GAIN FROM LISTED SECURITIES, THE LEGISLATURE HAS TAKEN DUE CARE TO GET COMPENSATORY TAX RECOVERY BY LEVYING STT ON SALE AND PURCHASE OF THE SECURITIES ON STOCK EXCHANGE IRRESPECTIVE OF THE OUT COME OF THE SALE AND PURCHASE IN THE HANDS OF THE BUYER AND THE SELLER. THEREFORE, THE TAX CONCESSION AND EXEMPTION PROVIDED ON LTCG AND STCG ON LISTED SECURITIES WAS CONSIDERED TO BE MADE UP FROM THE STT. THEREFORE, THE OBJECT OF THE NEW TAX SCHEME IS T O MINIMIZE TAX AVOIDANCE ON THE INCOME ARISING FROM TRANSACTION OF PURCHASE AND SALE OF LISTED SECURITIES. THERE WAS ANOTHER OBJECT TO BE ACHIEVED BY THE INTRODUCTION OF THIS NEW SCHEME OF TAX THAT IS TO PROMOTE MORE AND MORE TRANSACTIONS IN THE CAPITAL M ARKET AND IN THE LISTED SECURITIES THROUGH STOCK EXCHANGE. THEREFORE, ONCE THE LEGISLATURE HAS THE OBJECT TO PROMOTE MORE AND MORE TRANSACTIONS IN THE CAPITAL MARKET AND PARTICULARLY IN THE LISTED SECURITIES ON THE STOCK EXCHANGE BY GIVING TAX CONCESSION ON THE INCOME ARISING FROM THE SAID TRANSACTION AND LEVYING STT INSTEAD OF LEVYING FULL TAX ON THE INCOME, THEN VOLUME OF TRANSACTIONS IN THE LISTED SECURITIES HAS TO BE VIEWED IN THE LIGHT OF THE SCHEME AND THE OBJECT OF AMENDED PROVISIONS OF THE ACT PROM OTING SUCH TRANSACTIONS. ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 17 OF 21 11. THERE IS NO QUARREL THAT THERE CANNOT BE A SINGLE CRITERIA OR STRAIGHTJACKET FORMULA TO DETERMINE THE NATURE OF TRANSACTION OF PURCHASE AND SALE OF SHARES WHETHER INVESTMENT OR TRADING. THERE ARE VARIOUS FACTORS TO BE T AKEN INTO CONSIDERATION IN ORDER TO DETERMINE THE REAL NATURE OF TRANSACTION AND THE INTENTION OF THE ASSESSEE WHILE CARRYING OUT SUCH TRANSACTION. IN THE CASE IN HAND, VARIOUS FACTS AND FACTORS WHICH EMERGE FROM RECORD ARE SUMMARIZED AS UNDER: I. THE ASSESS EE HAS CARRIED OUT THE TRANSACTIONS THROUGH PORTFOLIO MANAGER/AGENT AND NOT BY IT SELF . II. ASSESSEE IS A QUALIFIED FINANCIAL CONSULTANT AND EARNING HIS INCOME BY PROVIDING CONSULTANCY SERVICES. III. THE ASSESSEE HAS HIS OWN HUGE FUND AND HAD NOT UTILIZED ANY BORR OWED FUND FOR THE PURPOSE OF PURCHASE OF SHARES IN QUESTION. IV. THE ASSESSEE IS MAINTAINING TWO SEPARATE PORTFOLIOS ONE FOR INVESTMENT AND ANOTHER FOR TRADING. V. THE SHARES HELD IN INVESTMENT PORTFOLIO ARE VALUED AT COST AND SHOWN IN THE BALANCE SHEET AS IN VESTMENT. VI. THE SUBSTANTIAL CAPITAL GAIN EARNED BY THE ASSESSEE FROM 11 SCRIPS HAVING THE AVERAGE HOLDING PERIOD OF 143 DAYS. THE MAJORITY OF SHARES HELD BY THE ASSESSEE ARE FROM THESE 11 SCR I PS WHICH HAVE YIELDED SUBSTANTIAL CAPITAL GAIN. VII. THE ASSESSEE HAS PAID STT AND THE SAME HAS NOT BEEN CLAIMED AS AN EXPENDITURE OR REBATE UNDER SECTION 88E. THERE IS NO OPENING STOCK OR CLOSING STOCK SHOWN IN THE ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 18 OF 21 BOOKS OF ACCOUNT IN RESPECT OF SHARES HELD IN THE INVESTMENT PORTFOLIO. 12 . THUS, ALL THESE ABOVEMENTIONED FACTS AND FACTORS ARE RELEVANT FOR EVALUATING THE NATURE OF TRANSACTION AND INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE AND SALE OF SHARES HELD IN INVESTMENT PORTFOLIO. THOUGH THE ASSESSEE HAS CARRIED OUT THE TRANSACTIONS IN LARGE VOL UME AND FREQUENCY, HOWEVER, THE VOLUME ITSELF IS NOT A DETERMINING FACTOR OF THE REAL NATURE OF TRANSACTION. IF HUGE MONEY IS INVESTED IN ONE GO, THEN THE VOLUME , SCRIPS AND TRANSACTIONS WILL BE LARGE AND IT IS ALWAYS ADVISABLE FOR INVESTOR TO DIVERSIFY TH E PORTFOLIO INSTEAD OF GOING FOR A LIMITED NUMBER OF SCRIPS INVOLVING MORE RISK. THEREFORE, TO MITIGATE THE RISK AND EROSION OF CAPITAL BASE, IT IS A PRUDENT DECISION TO DIVERSIFY THE PORTFOLIO BY INVESTING IN THE MULTIPLE SCRIPS. FURTHER CARRYING OUT TH E TRADING AND SPECULATIVE TRANSACTION UNDER A SEPARATE PORTFOLIO WILL NOT CHANGE THE CHARACTER AND THE NATURE OF THE TRANSACTION HELD IN THE INVESTMENT PORTFOLIO. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (SUPRA) HAS HELD THAT THE ASSESSEE CAN HAVE TWO PORTFOLIOS ONE IN TRADING AND ANOTHER INVESTMENT. EVEN OTHERWISE, THERE IS NO BAR ON A TRADER OR DEALER OF SHARES HAVING INVESTMENT IN SHARES. THEREFORE, THE TRADING CARRYI ED OUT BY THE ASSESSEE IN A SEPARATE PORTFOLIO WI LL NOT HAVE ANY IMPACT OR BEARING IN DETERMINING THE NATURE OF TRANSACTION UNDER THE INVESTMENT PORTFOLIO. WE FURTHER NOTE THAT EXCEPT IN ONE SCRIP , THERE ARE NO REPETITIVE TRANSACTION S CARRIED OUT BY THE ASSESSEE. THEREFORE, IN THE OVERALL FACTS AND CIRC UMSTANCES OF THE ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 19 OF 21 CASE, WE FIND THAT THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN THE INVESTMENT PORTFOLIO CANNOT BE GIVEN A COLOUR OF TRADING. 13. THE HON BLE DELHI HIGH COURT IN THE CASE OF RADIAL INTERNATIONAL (SUPRA) WHILE DEALING WITH AN IDENTIC AL ISSUE, HAS OBSERVED IN PARAGRAPH 15 TO 20 AS UNDER: 15. IT WAS ALSO HELD IN P.M. MOHAMMED MEERAKHAN V CIT - KERALA, (1969)2SCC25 = (1969) 73 ITR 735 (SC) : '...IT IS NOT POSSIBLE TO EVOLVE ANY SINGLE LEGAL TEST OR FORMULA WHICH CAN BE APPLIED IN DETERMINING WHETHER A TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE OR NOT. THE ANSWER TO THE QUESTION MUST NECESSARILY DEPEND IN EACH CASE ON THE TOTAL IMPRESSION AND EFFECT OF ALL THE RELEVANT FACTORS AND CIRCUMSTANCES PROVED THEREIN AND WHICH DETER MINE THE CHARACTER OF THE TRANSACTION..' 16. THEREFORE, IT IS LEGALLY UNTENABLE TO FOCUS SINGULARLY ON THE INTENTION OR MOTIVE OF THE ASSESSEE WITHOUT LOOKING AT THE SUBSTANTIAL NATURE OF THE TRANSACTIONS, IN TERMS OF THEIR FREQUENCY, VOLUME, ETC. 17. T HIS COURT THUS CONCLUDES THAT: (A) . THE PMS AGREEMENT IN THIS CASE WAS A MERE AGREEMENT OF AGENCY AND CANNOT BE USED TO INFER ANY INTENTION TO MAKE PROFIT. (B) THE INTENTION OF AN ASSESSEE MUST BE INFERRED HOLISTICALLY, FROM THE CONDUCT OF THE ASSESSEE, T HE CIRCUMSTANCES OF THE TRANSACTIONS, AND NOT JUST FROM THE SEEMING MOTIVE AT THE TIME OF DEPOSITING THE MONEY . (C) ALONG WITH THE INTENTION OF THE ASSESSEE, OTHER CRUCIAL FACTORS LIKE THE SUBSTANTIAL NATURE OF THE TRANSACTIONS, ITA NO.485/2012 PAGE 12 FR EQUENCY, VOLUME ETC. MUST BE TAKEN INTO ACCOUNT TO EVALUATE WHETHER THE TRANSACTIONS ARE ADVENTURE IN THE NATURE OF TRADE . 18. THEREFORE THE BLOCK OF TRANSACTIONS ENTERED INTO BY THE PORTFOLIO MANAGER MUST BE TESTED AGAINST THE PRINCIPLES LAID DOWN, IN OR DER TO EVALUATE WHETHER THEY ARE INVESTMENTS OR ADVENTURES IN THE NATURE OF TRADE. ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 20 OF 21 19. COMING TO THE FACTS OF THIS CASE, IT IS NOT CONTESTED THAT THE SOURCE OF FUNDS OF THE ASSESSEE WERE ITS OWN SURPLUS FUNDS AND NOT BORROWED FUNDS. THIS COURT NOTICES FROM ANNEXURE 4 (P. 90) THAT THE FOLLOWING IS THE VOLUME OF TRANSACTIONS ON THE BASIS OF HOLDING PERIOD. 20. IT IS CLEAR THUS, THAT ABOUT 71% OF THE TOTAL SHARES HAVE BEEN HELD FOR A PERIOD LONGER THAN 6 MONTHS, AND HAVE RESULTED IN AN ACCRUAL OF ABOUT 81% OF THE TOTAL GAINS TO THE ASSESSEE. ONLY 18% OF THE TOTAL ITA NO.485/2012 PAGE 13 SHARES ARE HELD FOR A PERIOD LESS THAN 90 DAYS, RESULTING IN THE ACCRUAL OF ONLY 4% OF THE TOTAL PROFITS. THIS SHOWS THAT A LARGE VOLUME OF THE SHARES PURCHASED WERE, AS REF LECTED FROM THE HOLDING PERIOD, INTENDED TOWARDS THE END OF INVESTMENT. THIS COURT IS NOT PERSUADED BY THE ARGUMENT OF THE REVENUE THAT AN AVERAGE OF 4 - 5 TRANSACTIONS WERE MADE DAILY, AND THAT ONLY EIGHT TRANSACTIONS RESULTED IN A HOLDING PERIOD LONGER THA N ONE YEAR. THIS IS BECAUSE THE NUMBER OF TRANSACTIONS PER DAY, AS DETERMINED BY AN AVERAGE, CANNOT BE AN ACCURATE REFLECTION OF THE HOLDING PERIOD/FREQUENCY OF TRANSACTIONS. MOREOVER, EVEN IF ONLY A SMALL NUMBER OF TRANSACTIONS RESULTED IN A HOLDING FOR A PERIOD LONGER THAN A YEAR, THE NUMBER BECOMES IRRELEVANT WHEN IT IS CLEAR THAT A SIGNIFICANT VOLUME OF SHARES WAS SOLD/PURCHASED IN THOSE TRANSACTIONS. THUS IT IS CLEAR THAT FOR THE PURPOSE OF EVALUATING THE NATURE OF TRANSACTION AND INTENTION OF THE ASS ESSEE, PREDOMINANT FACTS ARE TO BE TAKEN INTO ACCOUNT. IT IS PERTINENT TO NOTE THAT WHEN THE ASSESSEE HAS GIVEN A TREATMENT OF THESE SHARES HELD UNDER THE INVESTMENT PORTFOLIO IN THE BOOKS OF ACCOUNT AS INVESTMENT, THEN, IN ABSENCE OF ANY THING CONTRARY BROUGHT ON RECORD TO DISPROVE THE PRIMARY EVIDENCE TO REFLECT THE INTENTION OF THE ASSESSEE IN CARRYING OUT THE TRANSACTION THE NATURE TRANSACTION BEING INVESTMENT CANNOT BE TREATED AS TRADING . IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT THE SHARES HELD BY THE ASSESSEE IN THE INVESTMENT PORTFOLIO CANNOT BE TREATED AS STOCK - IN - TRADE AND CONSEQUENTLY THE TRANSACTIONS ARE IN THE ITA NO .6530/MUM/2010 SHRI VISHAL DIPAK SHAH PAGE 21 OF 21 NATURE OF INVESTMENT AND NOT TRADING. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND ALLOW THE CLAIM OF THE ASSESSEE OF STCG. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 1 6 TH SEPTEMBER , 2015. S D / - S D / - (N.K.BILLAIYA) (VIJAY PAL RAO) ACCOUNANT MEMBER JUDICIAL MEMBER EKSRINIVASULU, SR.PS COPY TO: 1. A PPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, MUMBAI. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL MUMBAI