Dy.CIT, Circle-3(3), Hyderabad V. M/s. Zen Insurance Services Pvt.Ltd., Hyderabad

ITA 977/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4825 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 22-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANJALA SAHU
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Business income; Competent authority
• Section: 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.555/HYD/10 &977/HYD/12 ASSTT. YEARS 2006-07&2008-09 DY. CIT, CIR-3(3), HYDERABAD V/S. M/S. ZEN INSURANCE SERVICES PVT. LTD., HYDERABAD. (PAN AAACZ 1624 Q) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. ANJALA SAHU (DR) ASSESSEE-RESPONDENT BY : SHRI V. RAGHAVENDRA RAO DATE OF HEARING 3-10-2013 DATE OF PRONOUNCEMENT 19.12.2013 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THESE TWO APPEALS BY THE DEPARTMENT IN THE CASE OF SAME ASSESSEE-RESPONDENT ARE DIRECTED AGAINST SEPARATE ORDERS OF CIT (A)-IV, HYDERABAD AND THEY PERTAIN TO THE ASSESSMENT YEARS 2006-07 AND 2008-09 . SINCE COMMON AND IDENTICAL ISSUES ARE INVOLVED IN THESE TWO APPEALS AND ASSESSEE-RESPONDENT IS ALSO COMMON, THESE ARE CLUBBED TOGETHER AND DISPOSED OF BY THIS COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ONLY COMMON ISSUE IN BOTH THE APPEALS OF THE DEPARTMENT IS WHETHER GAIN DERIVED BY THE ASSESSEE ON ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 2 SALE OF SHARES IS TO BE ASSESSED AS INCOME FROM BUSINESS OR CAPITAL GAIN. 3. WE WILL FIRST DEAL WITH ITA NO.555/HYD/2010. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A COMPANY FO RMED WITH THE OBJECT OF CARRYING ON THE BUSINESS OF INSU RANCE BROKING SERVICES AND FOR THAT PURPOSE IS IN THE PRO CESS OF SECURING APPROVAL FROM IRDA. FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE FILED ITS RETURN OF IN COME ON 23-11-2006 DECLARING TOTAL INCOME OF RS.59,07,331/-. THOUGH INITIALLY ASSESSEES RETURN WAS PROCESSED U/S 143(1), BUT SUBSEQUENTLY THE RETURN W AS SELECTED FOR SCRUTINY. DURING THE SCRUTINY ASSESSM ENT PROCEEDING THE ASSESSING OFFICER ON EXAMINING THE BOOKS OF ACCOUNTS AND OTHER DOCUMENTS NOTED THAT IN THE COMPUTATION OF TOTAL INCOME THE ASSESSEE HAS SHOWN NET PROFIT AS PER P & L ACCOUNT FOR THE YEAR AT RS.65,37,510 AND AFTER CLAIMING EXPENDITURE HAS SHO WN NET LOSS. THAT BESIDES, THE ASSESSEE HAS ALSO SHOW N SHORT TERM CAPITAL GAIN COVERED BY SECURITY TRANSAC TION TAX (STT) OF RS.60,79,903/-. 4. THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE DETAILS OF INVESTMENT MADE IN SHARES. IN RESPONSE TO THE QUERY MADE BY THE ASSESSING OFFICER THE ASSESSEE FURNISHED THE LIST OF INVESTMENT MAD E IN SHARES AND ALSO SHARES SOLD DURING THE FINANCIAL Y EAR 2005-06. ON VERIFICATION OF THE DETAILS SUBMITTED, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS MADE THE PURCHASES AND SALES OF SHARES VERY FREQUENTLY IN EV ERY MONTH. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE PURCHASED THE SHARES OF AUROVINDO PHARAMA ON 26-4-2005 UNDER SEVERAL BATCHES AND SOLD THE SAM E ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 3 ON 16-5-2005. SIMILARLY, IN THE CASE OF SHARES OF AVAYA GLOBAL THE ASSESSEE HAS PURCHASED THE SHARES ON 2-9-2005 AND HAD SOLD THE SAME ON 21-9-2005. FROM THIS, THE ASSESSING OFFICER FELT THAT THE ASSESSEE HAS NOT ENTERED INTO THE TRANSACTIONS IN SHARES AS INVESTMENTS BUT AS A SPECULATION BUSINESS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEES CLAIM O F INCOME DERIVED FROM SALE OF SHARES AS SHORT TERM CAPITAL GAIN CANNOT BE ACCEPTED DUE TO THE FOLLOWI NG REASONS:- I) BUSINESS WILL INCLUDE AN ADVENTURE IN THE NATURE OF TRADE II) THE PURCHASES ARE MADE SOLELY WITH THE INTAENTION OF RESALE AT A PROFIT III) THE SALE OF ACTIVITY IS SUBSTANTIAL IV) THE TRANSACTIONS WERE ENTERED INTO CONTINUOUSLY AND REGULARLY DURING THE ASSESSMENT YEARS V) PURCHASES ARE MADE OUT OF OWN FUNDS AND SHARE CAPITAL CONTRIBUTED BY OTHERS. VI) FULL TIME IS DEVOTED FOR THE ACTIVITY FOR PURCHASE AND SALE OF SHARE INDICATING IT IS THE MEANS OF LIVELIHOOD. 5. IN VIEW OF THE AFORESAID REASONS, THE ASSESSING OFFICER HELD THAT THE PROFIT DERIVED ON SALE OF SHA RES HAS TO BE TREATED AS BUSINESS INCOME. FOR COMING TO SUCH CONCLUSION, THE ASSESSING OFFICER ALSO RELIED UPON A DECISION OF M.P. HIGH COURT IN CASE OF CIT V/S. MOTLAY FINASNCAE (P) LTD., (290 ITR 719) WHEREIN IT WAS HELD THAT ANY INCOME DERIVED FROM SALE/PURCHAS E OF SHARES WHETHER QUOTED IN A STOCK EXCHANGE OR ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 4 UNQUOTED HAD TO BE HELD AS BUSINESS INCOME. THE ASSESSING OFFICER ALSO RELIED UPON A DECISION IN CA SE OF M.R.M. PLANTATION P. LTD. V/S. CIT (250 ITR 521). BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) . 6. DURING THE COURSE OF HEARING BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE MAIN BUSINESS OF THE ASSESSEE IS NOT RELATING TO INVESTMENT IN SHARE S BUT INSURANCE BROKING SERVICES. DURING THE PENDENCY OF SECURING APPROVAL FROM IRDA, THE ASSESSEE HAD INVESTED ITS SURPLUS FUNDS INTO LONG TERM AND SORT TERM INVESTMENTS IN SHARES AND ALSO UNITS OF MUTUAL FUND S. IT WAS SUBMITTED THAT THE OPERATION OF THE COMPANY DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMEN T YEAR 2006-07 HAD RESULTED IN A LOSS OF RS.1,72,572/ -. HOWEVER, THE INVESTMENT OUT OF SURPLUS FUNDS IN LI STED SHARES COVERED BY STT HAD RESULTED IN SHORT TERM CAPITAL GAINS OF RS.60,79,903/- AND LONG TERM CAPIT AL GAINS RS.5,14,357/-. IT WAS SUBMITTED THAT THE ASSESSING OFFICER IGNORING THE BASIC NATURE OF G AINS ACCRUING TO THE ASSESSEE DENIED THE BENEFIT OF SPEC IAL RATE OF TAX ON SHORT TERM CAPITAL GAINS FROM SALE O F LISTED SHARES/SECURITIES AS PROVIDED U/S 111A OF TH E ACT. THE LEARNED AR SUBMITTED, THE ASSESSING OFFI CER HOWEVER ACCEPTED THE EXEMPTION CLAIMED IN RESPECT OF LONG TERM CAPITAL GAIN U/S 10(38) FROM SALE OF SHA RES. THE ASSESSEE SUBMITTED THAT THE INVESTMENT IN SHAR ES IS ONLY THE ANCILLARY ACTIVITY OF THE ASSESSEE AND IS ON CAPITAL ACCOUNT AS ITS PRIME BUSINESS ACTIVITY IS T O CARRY ON INSURANCE BROKING SERVICES. IT WAS SUBMI TTED THAT INVESTMENT ON CAPITAL ACCOUNT WOULD ONLY LEAD TO ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 5 CAPITAL GAINS AND NOT BUSINESS PROFIT IN VIEW OF TH E DECISION OF HONBLE SUPREME COURT IN CASE OF CIT V /S. SHUTLEJ COTTON MILLS SUPPLY (100 ITR 706) AND JAN AKI RAM BAHADUR RAM V/S. CIT (57 ITR 21). THE ASSESSE E SUBMITTED THAT THE ASSESSING OFFICER SHOULD HAVE SE EN THE CIRCUMSTANCES, THE INTENTION AND NATURE OF INVESTMENT, APART FROM THE OBJECT OF THE ASSESSEE. HE SUBMITTED THAT ONLY BECAUSE THE SHARES WERE SOLD AT A HIGHER VALUE WOULD NOT RESULT IN THE TRANSACTION IN SHARES AS A TRADING ACTIVITY. IN THIS CONTEXT, THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUPREM E COURT IN CASE OF RAJA BAHADUR KAMAKHYA NARAYAN SING H (41 ITR 685). IT WAS CONTENDED BY THE ASSESSEE THA T IT WAS NOT CARRYING ON ANY TRADING OR DEALINGS IN S HARES AND HAD ONLY INVESTED IN SHARES BOTH LONG TERM AND SHORT TERM SO AS TO PARK THE SURPLUS FUNDS TILL APP ROVAL IS RECEIVED FOR REGULAR BUSINESS OF INSURANCE BROK ING. 7. THE ASSESSEE SUBMITTED THAT THE CIRCULAR OF TH E BOARD ENABLES THE ASSESSEE ENGAGED IN THE BUSINESS OR TRADING IN SHARES ALSO FOR DISTINGUISHING THE TRANS ACTION IN STOCK IN TRADE AND INVESTMENT SO AS TO CLEARLY M ARK THE DIFFERENCE AND ESTABLISH THE FACT FOR CLAIMING THE BENEFIT OF SPECIAL RATE OF TAX. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAVING ACCEPTED THE LONG TERM CAPITAL GAIN SHOWN BY THE ASSESSEE SHOULD NOT HAVE CONSIDERED SHORT TERM CAPITAL GAINS AS BUSINESS INC OME FOR LEVYING TAX AT 30% INSTEAD OF 10% U/S 111A. I T WAS SUBMITTED BY THE ASSESSEE THAT IN THE ASSESSME NT YEAR 2005-06 ALSO THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAIN COVERED BY STT OF RS. 22,82,417/- AND SHOWN SHORT TERM CAPITAL GAINS OF RS.6,81,942/-. T HE ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 6 ASSESSEE HAS ALSO SHOWN GAINS NOT COVERED BY STT OF RS.6,33,507/- AND RS.3989 UNDER LONG TERM CAPITAL AND SHORT TERM CAPITAL GAINS RESPECTIVELY BESIDES DISCLOSING DIVIDEND OF RS.3,81,042/-. IT WAS SUBM ITTED THAT THE ASSESSEE HAS ALSO DECLARED SHORT TERM CAPI TAL GAIN AND DIVIDEND FOR THE ASSESSMENT YEAR 2004-05 ALSO. THE CIT (A) AFTER PERUSING THE MATERIALS ON RECORD IN THE LIGHT OF SUBMISSIONS MADE BY THE ASSESSEE NOTED THAT AS PER THE ANNUAL REPORT THE BA SIC BUSINESS OF THE ASSESSEE IS INSURANCE BROKING SERVI CES. ON VERIFYING THE DETAILS OF INVESTMENT MADE DURING THE FINANCIAL YEAR 2003-04 AND SUBSEQUENT ASSESSMENT YEARS, THE CIT(A) NOTED THAT RIGHT FROM THE ASSESSMENT YEAR 2004-05, THE ASSESSEE HAD BEEN SHOWING THE INCOME FROM SHARE TRANSACTION UNDER THE HEAD SHORT TERM CAPITAL GAIN AND ALSO DECLARING DIVIDEND INCOME. HE FURTHER NOTED THAT FOR THE PRECEDING TWO ASSESSMENT YEARS, THE DEPARTMENT HAS ACCEPTED THE ASSESSEES CLAIM OF SHORT TERM CAPITAL GAIN. 8. ON ANALYZING THE DETAILS OF SHARE TRANSACTION, A S RECORDED IN PARA 6.2 OF HIS ORDER, THE CIT(A) NOTED THAT THE ASSESSEE HAD BOUGHT THE SHARES ON A PARTICULA R DAY OR DURING A SHORT PERIOD AND SOLD ALL OF THEM O N A PARTICULAR DATE OR WITHIN A SHORT PERIOD. THE PATT ERN OF TRANSACTION ALSO REVEALS THAT WHATEVER SHARES WERE SO PURCHASED WAS SOLD AFTER ACHIEVING EXPECTED APPRECIATION. HE FURTHER NOTED THAT, EVEN THOUGH THERE WERE MULTIPLE TRANSACTIONS FOR SUCH PURCHASES , BUT MANY INDEPENDENT TRANSACTIONS WERE THERE FOR O NE SHARE, WHICH, ACCORDING TO THE CIT (A), CANNOT BE ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 7 REGARDED AS AN INDEPENDENT PURCHASE TRANSACTION, LI KE THE PURCHASE OF ONE SHARE OF AUROBINDO PHARMA FOR RS.28.7.72 ON 26-4-2009, BECAUSE EVEN THE ONLINE TRADING PLATFORMS DO NOT PERMIT ANY TRANSACTION B ELOW THE VALUE OF RS.1000 GENERALLY. THE CIT (A) THEREF ORE HELD THAT SUCH TRANSACTIONS ARE PART OF A SINGLE TRANSACTION WHICH WAS EXECUTED BY THE EXCHANGES THROUGH ITS MATCHING SOFTWARE IN SEVERAL DEALS. HE FURTHER NOTED THAT IN ASSESSEES CASE NO FREQUENT E NTRY AND EXIT IS MADE IN THE SAME SCRIP. HE FOUND THAT ASSESSEE HAD ENTERED IN ONE STRETCH AND ALSO EXITED MOSTLY IN ONE STRETCH, BE IT IN DAYS, MONTHS OR YEA RS. FROM ALL THESE FACTS THE CIT(A) INFERRED THAT THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WERE IN TH E NATURE OF INVESTMENTS UNLIKE TRADING WHEREIN THE TRADERS GENERALLY MAKE MULTIPLE ENTRIES AND EXITS I N THE SAME SCRIP WITH GREAT FREQUENCY AND EVEN LESSER VOLUME. THE CIT (A), CONCLUDED THAT THE INVESTMENT IN SHARES OR DEALING IN SHARES IS NOT THE BUSINESS OF THE ASSESSEE AS THE BASIC ACTIVITY OF THE ASSESSEE IS INSURANCE BROKING. PENDING APPROVAL FROM THE COMPETENT AUTHORITY, THE ASSESSEE HAD BEEN INVESTIN G ITS SURPLUS FUNDS IN SHARES SINCE THE FINANCIAL YEA R 2003-04 ITSELF WITH A VIEW TO EARN DIVIDEND AS ALSO CAPITAL APPRECIATION. THE CIT (A) OPINED THAT THE CONDUCT OF THE ASSESSEE ALSO SHOWS THAT IT HAS ALL ALONG TREATED THE PURCHASE AND SALE OF SHARES AS INVESTMENTS ONLY. HE NOTED THAT SINCE THE ASSESSMEN T YEAR 2004-05, THE ASSESSEE HAD BEEN SHOWING THE PROFITS ARISING FROM SALE OF SHARE AS LONG TERM OR SHORT TERM CAPITAL GAIN IN ITS RETURNS. THE CIT (A) WAS OF THE ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 8 VIEW THAT INVESTMENTS OF SURPLUS FUNDS IN SHARES, PENDING APPROVAL FROM IRDA FOR ITS REGULAR BUSINES S ACTIVITY OF INSURANCE BROKING CANNOT BE TERMED AS TRADING ACTIVITY AS NO PRUDENT BUSINESS MAN WOULD L IKE TO ALLOW ITS FUNDS TO LIE IDLE BEING CONSCIOUS OF T HE FACT THAT AN OPPORTUNITY EXISTS TO GAIN APPRECIATION IN ITS CAPITAL TILL SUCH TIME THE CAPITAL IS ACTUALLY EMPL OYED FOR ITS BUSINESS. SIMILARLY ANY PRUDENT BUSINESS M AN WILL ALSO LIQUIDATE SUCH INVESTMENTS AT THE MOST OPPORTUNE MOMENT, SO AS TO KEEP ITS FUNDS READY FO R EMPLOYING IN ITS REGULAR BUSINESS. THE CIT (A) THEREFORE HELD THAT, UNDER SUCH CIRCUMSTANCES EVEN THE SALE OF INVESTMENTS AFTER A SHORT TIME CANNOT BE CONSIDERED AS A DECISIVE FACTOR TO SAY WHETHER IT H AD ACQUIRED THE SHARES AS INVESTMENT OR AS A PART OF I TS BUSINESS ACTIVITIES. HE THEREFORE WAS OF THE VIEW THAT AS IT WAS ONLY A MOBILISATION OF CAPITAL BY THE ASS ESSEE FOR THE REGULAR BUSINESS OF INSURANCE BROKING WHICH WAS TEMPORARILY DEPLOYED IN SHARES, THEREFORE ANY APPRECIATION ARISING THERE FROM WOULD BE IN THE NAT URE OF CAPITAL GAIN. 9. THE CIT (A) WAS OF THE VIEW THAT EVEN IF THE ASSESSEE PURCHASED SHARES IN SEVERAL BATCHES OR IT SOLD THE SHARES AFTER MERE 20 DAYS OF PURCHASE, STILL IT CANNOT BE SAID THAT THE MOTIVE OF PROFIT IN SUCH TRANSACTIONS WOULD MAKE SUCH TEMPORARY PARKING OF FUNDS BY THE ASSESSEE A BUSINESS ACTIVITY. IN THIS CONTEXT THE CIT (A) REFERRED TO A DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF JANAKIRAM BAHADURAM VS. CIT (57 ITR 21) WHEREIN IT WAS HELD THAT, PROFIT MOTIVE IN ENTERING INTO A TRANSACTION ALONE ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 9 CANNOT BE THE DECISIVE FACTOR IN DETERMINING THE NA TURE OF INVESTMENT. THE CIT (A) ALSO REFERRED TO THE DECISIONS OF HONBLE SUPREME COURT IN CASE OF RAJABAHADUR VISHWESWAR SINGH VS. CIT (41 ITR 685) WHEREIN IT IS HELD THAT SINCE THE ASSESSEE IS NOT D EALER IN SHARES, REALISATION OF ENHANCED PRICE DOES NOT R ENDER A TRANSACTION IN THE NATURE OF TRADE. IN CASE OF RAJABAHADUR KAMAKHYA NARAYAN SINGH VS. CIT (77 ITR 253) IT IS HELD THAT THE CONDUCT OF THE ASSESSEE WI LL DETERMINE THE NATURE OF INCOME AND IF THE SHARES AR E HELD AS INVESTMENT, SURPLUS REALISED ON SALE OF SUC H SHARES WOULD BE CAPITAL GAIN AND NOT TRADING PROFIT . THE CIT (A) FELT THAT IN SUCH TYPE OF CASES WHAT IS IMPORTANT IS THE INTENTION OF THE PARTY. THE FACT THAT THE ASSESSEE HAD BEEN CONSISTENTLY SHOWING ITS SHAR E TRANSACTIONS AS INVESTMENTS AND DECLARING THE PROF IT ON SALE OF SUCH INVESTMENTS AS SHORT TERM CAPITAL GAINS/LONG TERM CAPITAL GAINS IN ITS RETURNS, WHICH WERE ALSO ACCEPTED BY THE DEPARTMENT PROVES THE INTENTIO N OF THE ASSESSEE TO TREAT THE SHARE TRANSACTIONS AS INVESTMENTS ONLY. THE CIT (A) ALSO RELIED UPON TH E DECISION OF THE HONBLE BOMBAY HIGH COURT IN CASE O F CIT VS. GOPAL PUROHIT (228 CTR 582) WHEREIN IT IS H ELD THAT DELIVERY BASED TRANSACTIONS SHOULD BE TREATED AS IN THE NATURE OF INVESTMENTS AND PROFIT RECEIVED THERE FROM SHOULD BE TREATED AS EITHER SHORT TERM OR LONG TERM CAPITAL GAIN. 10. THE CIT (A) CONSIDERING THE ASSESSEES CASE IN THE LIGHT OF MANY OTHER DECISIONS OF HIGH COURTS AND ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 10 DIFFERENT BENCHES OF THE INCOME-TAX APPELLATE TRIBU NAL NOTED THE FOLLOWING FACTS: I) THE ASSESSEE HAS MADE THE INVESTMENTS OUT OF OWN FUNDS AND SHARE CAPITAL CONTRIBUTED BY OTHERS. II) SHARE TRANSACTION IS NOT PART OF THE NORMAL BUSINESS OPERATIONS OF THE ASSESSEE BUT ONLY A DEPLOYMENT OF CAPITAL. III) THERE ARE NO INTRA DAY TRANSACTIONS BUT SHARES WERE HELD FOR QUITE A NUMBER OF DAYS, TILL THE TIME THE ASSESSEE IN HIS OWN PRUDENCE WOULD HAVE DECIDED THAT A REASONABLE APPRECIATION HAS BEEN ACHIEVED. IV) THE FACT THAT THE ASSESSEE HAD BEEN EARNING DIVIDEND INCOME CONSISTENTLY SHOWS THAT THE PURPOSE OF ENTERING INTO SUCH TRANSACTIONS WAS NOT ONLY FOR APPRECIATION BUT ALSO EARNING OF DIVIDEND. V) IT IS NOT A CASE OF PURCHASE AND SALE OF SAME SHARES FREQUENTLY. VI) THE ASSESSEE HAD DULY TAKEN DELIVERY OF SHARES AND PAID THE FULL PURCHASE PRICE FOR THE SAME. VII) THE ASSESSEE HAS BEEN FROM THE VERY BEGINNING SHOWN IT AS INVESTMENTS ONLY. THE CIT (A) FURTHER TOOK NOTE OF THE FACT THAT THE ASSESSING OFFICER, FOR THE IMPUGNED ASSESSMENT YEAR ALSO HAD ACCEPTED THE ASSESSEES CLAIM OF EXEMPTION U/S 10(38) OF THE ACT IN RESPECT OF LONG TERM CAPITAL GAIN, ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 11 THEREBY INDICATING THAT THE ASSESSING OFFICER HIMSELF ACCEPTS THEM AS INVESTMENTS. 11. TAKING INTO CONSIDERATION THE CUMULATIVE EFFECT OF THE AFORESAID FACTS AND APPLYING THE RATIO LAID DOW N IN VARIOUS JUDICIAL PRECEDENTS REFERRED TO BY HIM THE CIT (A) FINALLY CONCLUDED THAT TRANSACTIONS IN SHARES M ADE BY THE ASSESSEE IS NOT A TRADING ACTIVITY BUT INVESTMENTS ONLY, HENCE THE PROFIT DERIVED ON SALE OF SHARES HAVE TO BE TREATED AS SHORT TERM/LONG TERM CAPITAL GAIN ONLY. ACCORDINGLY, THE CIT (A) DIRECT ED THE ASSESSING OFFICER NOT TO CONSIDER THE SHORT TERM CA PITAL GAIN SHOWN BY THE ASSESSEE AS BUSINESS INCOME. 12. THE LEARNED DR SUPPORTING THE VIEW OF THE ASSESSING OFFICER SUBMITTED THAT THE FREQUENCY OF PURCHASE AND SALE OF SHARES AND VOLUME OF TRANSACTIONS DOES NOT PROVE THE TRANSACTIONS IN SHA RES TO BE INVESTMENTS. SHE SUBMITTED THAT, THE ORGANIS ED MANNER IN WHICH THE ASSESSEE HAD UNDERTAKEN THE SHARE TRANSACTIONS CLEARLY ESTABLISHED THAT IT IS A BUSINESS ACTIVITY OF THE ASSESSEE FOR EARNING PROFI T. THE LEARNED DR IN SUPPORT OF THE CONTENTION RELIED UPON THE DECISION OF THE HONBLE A.P. HIGH COURT IN CASE OF PVS RAJU VS. CIT (340 ITR 75). 13. THE LEARNED AR STRONGLY SUPPORTING THE REASONIN G ON WHICH THE CIT (A) HAS ALLOWED THE APPEAL, SUBMIT TED THAT THERE IS LITTLE SCOPE FOR INTERFERING WITH THE FINDING OF THE CIT (A) AS HE HAS CONSIDERED ALL THE ASPECTS OF THE MATTER AND SUCH FINDING IS IN TERMS WITH THE RA TIO ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 12 LAID DOWN BY THE HONBLE A,P. COURT IN CASE OF SPEC TRA SHARES & SCRIPS PVT. LTD. VS. CIT (354 ITR 35). TH E LEARNED AR SUBMITTED THAT IF TESTS LAID DOWN IN CA SE OF SPECTRA SHARES (SUPRA) IS APPLIED TO THE FACTS OF T HE ASSESSEES CASE, THEN FOLLOWING SIMILARITIES WILL B E NOTICED:- I. THE ASSESSEE THERE HAD NOT BORROWED ANY FUNDS FOR INVESTMENTS. HERE ALSO THE ASSESSEE HAS NOT BORROWED ANY MONEYS FOR INVESTMENTS. THE HIGH COURT OBSERVED THAT USUALLY BORROWALS WOULD BE MADE WHERE TRADING IS INTENDED OR PRACTICED. 11. THE CLOSING STOCK WAS VALUED IN THE BOOKS OF ACCOUNT CONSISTENTLY AT COST AND NOT AT COST OR MARKET PRICE WHICHEVER IS LOWER. IN THIS CASE ALSO THE ASSESSEE HAS CONSISTENTLY VALUED THE CLOSING STOCK OF SHARES AT COST AND NOT AT COST OR MARKET PRICE WHICHEVER IS LOWER. 111. THE ASSESSEE HAD NEVER DEALT IN FUTURES,' DERIVATIVES AND OPTIONS. HERE ALSO THE ASSESSEE HAD NEVER DEALT IN FUTURES, DERIVATIVES AND OPTIONS. 1V. ALL THE TRANSACTIONS OF PURCHASE AND SALE WERE DELIVERV BASED EXCEPT ONE SOLITARY INSTANCE. IN THE CASE OF THE CASE OF THE ASSESSEE ALSO ALL THE TRANSACTIONS OF PURCHASE AND SALE WERE BY DELIVERY ONLY EXCEPT IN TWO INSTANCES NOTICED IN 2008-09 WHICH WERE A RESULT OF ONLY MISCOMMUNICATION BETWEEN ASSESSEE AND BROKER. IN ANY CASE EXCEPTION CANNOT PROVE THE RULE. V. A TRADER IS UNLIKELY TO INVEST IN UNQUOTED SHARES OR IN MUTUAL FUNDS. HERE THE ASSESSEE INVESTED IN UNQUOTED SHARES AND IN MUTUAL FUNDS AS COULD BE SEEN FROM THE SCHEDULES TO THE BALANCE SHEETS FOR THE SEVERAL OF THE YEARS FROM 2003- 04 TO 2012-13 (PAGES 62-221 OF THE PE). V1. THE ASSESSEE COMPANY IN THE CASE BEFORE THE HIGH COURT HAD EARNED A DIVIDEND OF RS. 8,00,00,000/- FOR THE YEAR UNDER APPEAL I.E. ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 13 2006-07 AND TWO SUCCEEDING YEARS 2007-08, 2008-09. THAT COMPANY STARTED 'WITH AN INITIAL CAPITAL OF RS. 56.23 CRORES (PARA 2 OF THE JUDGEMENT). IN THE CASE HERE THE DIVIDENDS EARNED BY THE COMPANY WITH INITIAL CAPITAL OF RS. 50,00,000/- ARE AS FOLLOWS: DIVIDEND(RS.) ASSESSMENT YEAR PAGE OF PB 1,49,485 2006-07 168 3,47,597 2007-08 168 4,84,008 2008-09 148 3,09,057 2009-10 142 3,23,892 2010-11 109 FOR ANY PERIOD OF THREE YEARS THE DIVIDEND IS ABOVE RS.9 LAKHS. SEEN AGAINST THE INITIAL CAPITAL, THIS COMPARES FAVOURABLY WITH THE DIVIDENDS EARNED IN T HE CASE BEFORE THE HIGH COURT. THE HONBLE HIGH COURT HELD THAT THE FACT THAT THE ASSESSEE IS MONITORING THE STOCK MARKETS AND BUYING AT DIPS AND SELLING AND HIGHS WITH AN INTENTION TO MAKE PROFIT FROM THESE TRANSACTIONS IS NOT CONCLUSI VE OF THE FACT THAT THE ASSESSEE IS A TRADER BECAUSE E VEN AN INVESTOR WOULD NOT BUY OR SELL BLINDLY AND TAKE THE RISK OF SUFFERING LOSSES. 14. THE LEARNED AR FURTHER SUBMITTED THAT NOT ONLY THE ASSESSEE HAS BEEN CONSISTENTLY SHOWING THE PRO FITS FROM SALE OF SHARES AS SHORT/LONG TERM CAPITAL GAIN S FROM ITS VERY INCEPTION BUT THE DEPARTMENT ALSO ACCEPTED IT IN THE PRECEDING ASSESSMENT YEARS 2004- 05 AND 2005-06 AS WELL AS SUBSEQUENT ASSESSMENT YEARS 2009-10 ONWARDS. HE FURTHER SUBMITTED THAT FOR THE IMPUGNED ASSESSMENT YEARS ALSO THE ASSESSING OFFIC ER HAS ACCEPTED THE LONG TERM CAPITAL GAIN SHOWN FROM SALE OF SHARES. FROM THIS, IT WOULD BE CLEAR THAT ACCORDING TO THE ASSESSING OFFICER IF THE SHARES AR E ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 14 HELD FOR MORE THAN ONE YEAR, THEN IT IS INVESTMENT AND IF THE PERIOD OF HOLDING IS LESS THAN ONE YEAR IT I S TRADING ACTIVITY. THUS, THE ASSESSING OFFICER IS INFERRING THE INTENTION OF THE ASSESSEE NOT AT THE TIME OF PURCHASES BUT ON THE BASIS OF THE PERIOD FOR WHI CH SHARES WERE HELD. THE LEARNED AR SUBMITTED THAT ON E MOST SIGNIFICANT ASPECT WHICH CANNOT BE LOST SIGHT OF IS THAT THE ASSESSEE WAS INCORPORATED ONLY FOR THE PURPOSE OF INSURANCE BROKING BUSINESS AND BECAUSE T HE FUNDS WERE LYING IDLE, THEY WERE INVESTED IN SHARES BOTH QUOTED AND UNQUOTED AND MUTUAL FUNDS. THEREFORE, THE INTENTION OF THE ASSESSEE IS TO ENGA GE IN BROKING BUSINESS AND NOT IN TRADING IN SHARES. HE FURTHER SUBMITTED THAT THE JUDGMENT OF THE HONBLE A.P. HIGH COURT IN CASE OF PVS RAJU (SUPRA) IS DISTINGUISHABLE ON FACTS AS IN THAT CASE THE ASSESS EE HIMSELF WAS SHOWING IT AS BUSINESS INCOME AND SUDDENLY CHANGED TO INVESTMENTS FOR CLAIMING BENEFI T U/S 111-A. THAT BESIDES IN CASE OF PVS RAJU ALL TH E SHARES WERE HELD FOR LESS THAN TWO MONTHS AND SOME SHARES WAS SOLD EVEN BEFORE THE PURCHASE THEREBY INDICATING THE INTENTION OF THE ASSESSEE IN THAT CA SE. THE LEARNED AR SUBMITTED THAT THERE BEING NO SUCH F ACT HAPPENING IN ASSESSEES CASE, CIT(A)S ORDER IS MOS T REASONABLE AND HAS TO BE ACCEPTED. 15. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES. THE ISSUE BEFORE US PRECISELY IS, WHETHER THE PURCHASE AND SALE OF SHARES ARE INVESTMENTS AS CLAIMED BY THE ASSESSEE AND ACCEPTED BY THE CIT (A) . OR IT IS A TRADING ACTIVITY AS HELD BY THE ASSESSIN G ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 15 OFFICER. AT THE OUTSET, WE MAY MAKE IT CLEAR THAT, THERE IS NO STRAIGHT JACKET FORMULA TO DETERMINE TH IS ISSUE. IT HAS TO BE DECIDED CONSIDERING THE FACTS INVOLVED IN EACH CASE. EVEN THE JURISDICTIONAL HIG H COURT IN CASE OF PVS RAJU VS. ADDL. CIT (SUPRA) HAS HELD THAT THE CHARACTER OF TRANSACTION CANNOT BE DETERMINED SOLELY ON THE APPLICATION OF ANY ABSTRA CT RULE, PRINCIPLE OR TEST. NO SINGLE CRITERION IS DE CISIVE IN DETERMINING THE QUESTION WHETHER A PARTICULAR RECEI PT IS CAPITAL OR REVENUE. THE INTENTION OF THE PARTY, NA TURE OF TRANSACTION, AND VARIOUS OTHER FACTORS HAVE TO BE CONSIDERED CUMULATIVELY TO FIND OUT WHETHER IT IS INVESTMENT OR TRADING ACTIVITY. HAVING SAID SO, WE WILL NOW EXAMINE THE FACTS OF THE ASSESSEES CASE. UNDISPUTEDLY THE ASSESSEES BUSINESS ACTIVITY IS INSURANCE BROKING SERVICE AND NOT DEALING IN SHARES . IT IS ALSO NOT DENIED THAT THE ASSESSEE HAS UTILISED I TS OWN SURPLUS FUNDS IN INVESTING IN SHARES AND NO BORROW ED FUND IS UTILISED. FROM THE VERY BEGINNING THE ASSE SSEE IS TREATING THE SHARES AS INVESTMENTS ONLY AND DECLARING INCOME FROM SALE OF SHARES AS LONG/SHORT TERM CAPITAL GAINS. THE DEPARTMENT HAS ALSO ACCEPT ED THE CLAIM OF THE ASSESSEE IN ALL OTHER ASSESSMENT Y EARS EXCEPTING THE TWO IMPUGNED ASSESSMENT YEAR. IN FAC T, IN THE IMPUGNED ASSESSMENT YEARS ALSO THE ASSESSING OFFICER HAS ACCEPTED A PART OF THE TRANSACTION AS INVESTMENTS WHILE ALLOWING EXEMPTION OF LONG TERM CAPITAL GAIN CLAIMED BY THE ASSESSEE U/S 10(38) OF THE ACT. IN EVERY ASSESSMENT YEAR THE ASSESSEE HAS DECLARED DIVIDEND INCOME. IN THE AFORESAID FACTUAL BACK DROP WE HAVE TO EXAMINE THE RATIO LAID DOWN IN ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 16 JUDICIAL PRECEDENTS PLACED BEFORE US. IN THIS CONT EXT, TWO DECISIONS OF THE JURISDICTIONAL HIGH COURT ASSU ME IMPORTANCE. IN CASE OF PVS RAJU VS. ADDL. CIT (SUP RA) THE HONBLE A.P. HIGH COURT OBSERVED THAT FOR DECI DING WHETHER TRANSACTIONS IN SHARES ENTERED INTO BY THE ASSESSEE IS IN THE NATURE OF TRADE, CUMULATIVE EFFE CT OF THE FOLLOWING PARAMETERS HAVE TO BE LOOKED INTO:- (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 FREQUENCY OF TRANSACTIONS, AND NOT BECAUSE OF HUGE INVESTMENT; D) THE INTENTION OF THE ASSESSEE TO MAKE QUICK PROFITS ON A HUGE TURNOVER; E) NO. OF SCRIPS SHARES HELD FOR FEWER DAYS; F) WHETHER ENGAGED IN DEALING IN THE SAME SCRIPS FREQUENTLY; G) INTENTION OF THE ASSESSEE IN BUYING SHARES IS NOT T O DERIVE INCOME BY WAY OF DIVIDEND ON SUCH SHARES, BUT TO EARN 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 AND 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 SUBSEQUENT CONDUCT OF THE ASSESSEE TO RE-ENTER THE SAME SCRIP OR SOME OTHER SCRIP, IN ORDER TO TAKE ADVANTAGE OF ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 17 MARKET FLUCTUATIONS LENT THE FLAVOUR OF TRADE TO SU CH TRANSACTIONS; J) THE ASSESSEES WERE PURCHASING AND SELLING THE SAME SCRIPS REPEATEDLY, AND WERE SWITCHING FROM ONE SCRI P TO ANOTHER; K) MERE CLASSIFICATION OF THESE SHARE TRANSACTIONS AS INVESTMENT IN THE ASSESSEES BOOKS OF ACCOUNTS WAS NOT CONCLUSIVE. L) THE INTENTION OF THE ASSESSEES AT THE TIME OF PURCHASE WAS ONLY TO SELL THE SHARES IMMEDIATELY AFTER PURCHASES; M) FREQUENCY OF PURCHASE AND SALE OF SHARES SHOWED THAT THE ASSESSEE NEVER INTENDED TO KEEP THESE SHARES AS INVESTMENT; AND N) IT IS ONLY FOR THE PURPOSE OF CLAIMING BENEFIT OF L OWER RATE OF TAX, UNDER SEC. 111A OF THE ACT, THAT THEY HAD CLAIMED CERTAIN SHARES TO BE INVESTMENT, THOUGH THESE TRANSACTIONS WERE ONLY IN THE NATURE OF TRADE . 16. THE JURISDICTIONAL HIGH COURT AGAIN HAD AN OCCASION TO CONSIDER SIMILAR ISSUE IN CASE OF SPECT RA SHARES AND SCRIPS PVT. LTD. VS. CIT (SUPRA). THE HONBLE HIGH COURT AFTER TAKING NOTE OF ITS EARLIE R DECISION IN CASE OF PVS RAJU VS. ADDL. CIT (SUPRA) LAID DOWN CERTAIN TESTS WHICH COULD SHOW THAT THE SHARE S ARE HELD AS INVESTMENTS. THE HONBLE HIGH COURT AL SO TAKING NOTE OF BOARDS CIRCULAR NO.4 OF 2007 DATED 15- 6-2007, IN PARA- 47 OF THE JUDGMENT LAID DOWN THE PARAMETERS AS UNDER:- (A) INVESTMENTS ARE MADE WITH OWN FUNDS AND NOT WITH BORROWED FUNDS. ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 18 (B) THE CLOSING STOCK WAS VALUED IN THE BOOKS OF ACCOUNTS CONSISTENTLY AT COST AND NOT AT COST OR MARKET PRICE WHICHEVER IS LOWER. IT HAD EARNED SUBSTANTIAL DIVIDEND INCOME. (D) MORE THAN 99% OF THE TOTAL GAINS ARE LONG TERM CAPITAL GAINS AND LESS THAN 1% IS SHORT TERM CAPITAL GAIN, 40% OF THE INVESTMENTS ARE IN MUTUAL FUND. (E) THE ASSESSEE NEVER DEALT IN FUTURES, DERIVATIVE S AND OPTIONS. (F) ALL THE TRANSACTIONS OF PURCHASES AND SALES WER E DELIVERY BASE EXCEPTING ONE SOLITARY INSTANCE OF RELIANCE INDUSTRIES LTD. (G) THE ASSESSEE WAS REGISTERED AS NBFC WITH RBI. (H) THE ASSESSEE NEVER CLAIMED SET OFF OF THE LOSS ES ARISING FROM SALE OF INVESTMENTS AGAINST OTHER INCOME. (I) MERELY BECAUSE OF LARGE FREQUENCY OF VOLUME OF TRANSACSTION, A CONCLUSION THAT AN ASSESSEE IS A TRADER CANNOTBE DRAWN WITHOUT CONSIDERING THE PERIOD OF HOLDING OF THOSE SHARES BY THE ASSESSEE. (J) A TRADER IN SHARES NORMALLY HOLDS THEM FOR A SHORT TIME ONLY AND IS UNLIKELY TO INVEST IN UNQUOTED SHARES OR IN MUTUAL FUNDS HE IS LIKELY TO BORROW FUNDS FOR HIS TRADING ACTIVITY. (K) THE FACT THAT THE ASSESSEE IS MONITORING THE ST OCK MARKET AND BUYING AT DIPS AND SELLING AT HIGHS WITH AN INTENTION TO MAKE PROFIT FROM THESE TRANSACTIONS IS NOT CONCLUSIVE OF THE FACT THAT TH E ASSESSEE IS A TRADER BECAUSE EVEN AN INVESTOR ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 19 WOULD NOT BUY OR SELL BLINDLY AND TAKE THE RISK OF SUFFERING LOSSES. (L) THE FACT THAT THE ASSESSEE HAS A ADMINISTRATIVE SET UP AND INCURS CONSIDERABLE ADMINISTRATIVE COSTS IS NOT A FACTOR TO HOLD THAT THE ASSESSEE IS A TRADER. (M) THE FACT THAT THE ASSESSEE IS MAKING REPETITIVE PURCHASES AND SALES OF SAME SHARES IS A FACTOR IN FAVOUR OF HOLDING THAT THE ASSESSEE IS AN INVESTOR IN VIEW OF THE AMENDMENTS TO SECTION 10(38) AND SECTION 115JB OF THE ACT. (N) THE REVENUE HAD ACCEPTED THAT THE ASSESSEE WAS AN INVESTOR WHOSE INCOME IS CHARGEABLE UNDER THE HEAD CAPITAL GAINS FOR A NUMBER OF YEARS. 17. WE MAY ADD HERE THAT, THOUGH IN CASE OF SPECTRA SHARE (SUPRA) THE ISSUE AROSE IN THE CONTEXT OF CIT S JURISDICTION IN EXERCISING POWERS U/S 263 OF THE AC T, BUT STILL, THE PARAMETERS LAID DOWN BY THE HONBLE HIGH COURT AS AFORESAID ARE VERY IMPORTANT INDICATORS TO DECIDE THE BROADER ISSUE WHETHER HOLDING OF SHARES WERE FOR THE PURPOSE OF INVESTMENTS OR TRADING. THEREFORE IN OUR VIEW, TO THAT EXTENT THE DECISION OF THE HONBLE HIGH COURT IN CASE OF SPECTRA SHARES (SUPRA) IS A BINDING PRECEDENT TO BE FOLLOWED IN OT HER CASES INVOLVING SIMILAR ISSUE. THEREFORE, IF WE TES T THE ASSESEES CASE BY APPLYING THE PARAMETERS LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF SPECTRA SHARES (SUPRA), THE FOLLOWING PICTURE EMERGES:- ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 20 I) THE ASSESSEE HAS UTILISED ITS OWN FUNDS AND NOT BORROWED FUNDS. II) CLOSING STOCK IS VALUED AT COST AND NOT AT COST OR MARKET PRICE WHICHEVER IS LOWER. III) THE ASSESSEE HAS NOT DEALT IN FUTURE, DERIVATIVES AND OPTIONS. IV) ALL THE TRANSACTIONS ARE DELIVERY BASED. V) THE ASSESSEE HAS ALSO INVESTED IN UNQUOTED SHARES AND MUTUAL FUNDS. VI) ASSESSEE HAS EARNED DIVIDEND INCOME. VII) THE ASSESSEE HAS BEEN CONSISTENTLY SHOWING SHORT/LONG TERM CAPITAL GAIN IN THE RETURNS FILED FROM THE ASST. YEAR 2004-05 WHICH WERE ALSO ACCEPTED BY THE DEPARTMENT. 18. AS CAN BE SEEN FROM THE ABOVE, THE ASSESSEE FULFILS ALMOST ALL THE CRITERIA TO TREAT THE SHARES HELD BY IT AS INVESTMENTS. A PERUSAL OF THE ASSESSMENT ORD ER WOULD REVEAL THAT, THE ASSESSING OFFICER APART FROM POINTING OUT TWO INSTANCES OF SALE OF SHARE WITHIN A PERIOD OF ONE MONTH FROM THE DATE OF PURCHASE HAS N OT BEEN ABLE TO BRING ANY MATERIAL ON RECORD TO DISPRO VE THE ASSESSEES CLAIM WITH ANY COGENT OR VALID REASO NS. THE FACT THAT THE ASSESSING OFFICER ACCEPTS ASSESSE ES CLAIM OF EXEMPTION U/S 10(38) OF THE ACT SO FAR AS LONG TERM CAPITAL GAIN FURTHER WEAKENS THE REASONING OF THE ASSESSING OFFICER TO TREAT SHARE TRANSACTION AS TRA DING ACTIVITY. THE ASSESSING OFFICER CERTAINLY CANNOT D ECIDE THE NATURE OF SHARE TRANSACTION EITHER AS TRADING ACTIVITY OR INVESTMENTS SOLELY ON THE BASIS OF PERI OD OF HOLDING OF THE SHARES. IT HAS NOT BEEN DISPUTED TH AT ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 21 THE ASSESSEE COMPANY WAS SET UP WITH THE OBJECT OF CARRYING ON INSURANCE BROKING BUSINESS. IT IS ALSO A FACT THAT APPROVAL FROM IRDA IS PENDING, FOR WHATEV ER MAY BE THE REASON. THEREFORE, ASSESSEES CONTENTIO N THAT DURING THE INTERREGNUM IT HAS PARKED ITS SURP LUS BY INVESTING IN SHARES FOR APPRECIATION CANNOT JUST BE BRUSHED ASIDE. THE CIT (A) HAVING CONSIDERED ALL T HESE ASPECTS AND CAME TO AN APPROPRIATE AND REASONABLE CONCLUSION IN TREATING THE SHARE TRANSACTIONS AS INVESTMENT ACTIVITIES OF THE ASSESSEE, HIS DECISION DESERVES TO BE UPHELD. MORE SO, WHEN THE AFORESAID VIEW OF THE CIT (A) IS IN CONSONANCE WITH THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT (SUPRA) AND MANY OTHER DECISIONS RELIED UPON BY THE CIT (A) HIMSELF AS WELL AS THE ASSESSEE. 19. SO FAR AS THE DECISION OF THE JURISDICTIONAL HI GH COURT IN CASE OF PVS RAJU VS. ADDL. CIT (SUPRA) IS CONCERNED, NONE OF THE FACTORS CONSIDERED BY THE HONBLE HIGH COURT FOR TREATING THE SHARE TRANSACTI ONS AS TRADING ACTIVITY THEREIN ARE PRESENT IN ASSESSE ES CASE, AS WOULD BE VERY MUCH CLEAR FROM THE ORDER OF THE CIT (A). FURTHERMORE, IN CASE OF PVS RAJU (SUPR A) THE ASSESSEE HIMSELF WAS TREATING THE SHARE TRANSACTIONS AS A TRADING ACTIVITY IN EARLIER YEARS . ONLY AFTER INTRODUCTION OF SECTION 111A, THE ASSESSEE FO R AVAILING CONCESSION IN RATE OF TAX CLAIMED IT AS INVESTMENTS. THEREFORE, THE HONBLE HIGH COURT REJECTED ASSESSEES CLAIM AS HE DID NOT SATISFY THE TESTS LAID DOWN IN THE SAID JUDGMENT. THEREFORE, CONSIDE RING THE TOTALITY OF FACTS AND CIRCUMSTANCES, WE ARE INC LINED ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 22 TO UPHOLD THE CONCLUSION OF THE CIT (A) IN TREATING THE SHARE TRANSACTIONS AS INVESTMENTS AND DIRECTING TH E ASSESSING OFFICER TO TREAT THE INCOME THERE FROM AS SHORT TERM CAPITAL GAIN. THE GROUNDS RAISED ARE DISMISSED. 20. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ITA NO.977/HYD/12 ASST. YEAR 2008-09: - 21. FACTS BEING IDENTICAL TO ITA NO.555/HYD/2010, DEALT WITH BY US IN THE EARLIER PART OF THE ORDER, IT IS NOT NECESSARY TO DISCUSS THEM IN DETAIL AGAIN. SU FFICE IT TO SAY, IN THE IMPUGNED YEARR ALSO THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING SHORT TERM CAPITAL G AIN FROM SALE OF SHARES AT RS.1,09,78,887. THE ASSESSE E ALSO DECLARED LONG TERM CAPITAL GAIN OF RS.76,09,44 2/- ON SALE OF SHARES AND CLAIMED EXEMPTION U/S 10(38) OF THE ACT. THE ASSESSING OFFICER WHILE COMPLETING TH E ASSESSMENT THOUGH ACCEPTED ASSESSEES CLAIM OF EXEMPTION SO FAR AS LONG TERM CAPITAL GAIN IS CONCE RNED BUT HE DID NOT ACCEPT THE SHORT TERM CAPITAL GAIN AND TREATED IT AS BUSINESS INCOME OF THE ASSESSEE. THE REASON FOR NOT ACCEPTING ASSESSEES CLAIM SHORT TE RM CAPITAL GAIN ARE: (A) SCALE OF ACTIVITY IS SUBSTANTIAL (B) ASSESSEE MADE PURCHASE AND SALE TRANSACTIONS CONTINUOUSLY AND REGULARLY DURING THE YEAR. (C) HOLDING PERIOD IS LESS. ON TWO OCCASIONS SHARES WERE SOLD ON THE DATE OF PURCHASE. ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 23 (D) DIVIDEND INCOME EARNED OF RS.4,84,008/- IS NOT SUBSTANTIAL. (E) THE BUYING AND SELLING OF SHARES CANNO T BE TERMED AS AN OCCASIONAL IDEPENDENT ACTIVITY BUT CAN BE CONSIDERED AS A REGULAR BUSINESS ACTIVITY. 22. IN THE APPEAL PROCEEDING BEFORE HIM, THE CIT (A ) HOWEVER DID NOT AGREE WITH THE FINDING OF THE ASSES SING OFFICER. AS WAS THE CASE IN ASST. YEAR 2006-07, TH E CIT (A) ON CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF THE FACTS AND MATERIALS ON RECORD FOUN D THAT IN THE IMPUGNED YEAR ALSO THE ASSESSEE HAS TREATED DEALINGS IN SHARES AND MUTUAL FUNDS AS INVESTMENTS ONLY. HE FURTHER NOTED THAT DURING THI S YEAR ALSO THE ASSESSEE HAD NOT RECEIVED THE REQUISI TE APPROVAL. HENCE ASSESSEES CONTENTION REGARDING PARKING OF AVAILABLE FUNDS CANNOT BE BRUSHED ASIDE CONSIDERING THE FACT THAT SUCH ARGUMENT OF THE ASSESSEE IN RESPECT OF SHARE TRANSACTIONS RESULTIN G IN LONG TERM CAPITAL GAINS HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THE CIT (A) ALSO NOTICED THE FA CT THAT THE ASSESSEE HAD ALWAYS TAKEN AND GIVEN PHYSIC AL DELIVERY AND HAS NEVER TRADED IN FUTURES, DERIVAT IVES AND OPTIONS, IN SPITE OF THE FACT THAT IT HAD SURP LUS FUNDS WHICH IT ORIGINALLY INTENDED TO DEPLOY IN INSURANCE BROKING BUSINESS. 23. WHILE EXAMINING THE ASSESSING OFFICERS ALLEGAT ION OF VOLUME AND MAGNITUDE OF TRANSACTION AND HOLDING PERIOD OF SHARES, THE CIT (A) NOTED THAT DURING THE YEAR THE ASSESSEE HAD TRANSACTED IN SHARES OF 54 ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 24 COMPANIES. BUT THE PATTERN OF TRANSACTION WOULD SH OW THAT THE ASSESSEE KEPT INCREASING ITS HOLDING IN VA RIOUS SCRIPS BY MAKING CONTINUOUS PURCHASES TILL THE TIME IT ACCUMULATED THE TARGETED NUMBER OF SHARES WITHIN AN IDENTIFIED PRICE RANGE. SIMILARLY, ONCE THE ASSESS EE STARTED SELLING A PARTICULAR SCRIP, IT COMPLETELY E XITED FROM THEM AS AND WHEN IT GOT THE APPROPRIATE PRICE, EVEN IF THE HOLDING PERIOD IS LESS THAN 12 MONTHS. THIS IS ONLY AIMED AT REALISING THE APPRECIATION OR VARY ING INVESTMENTS AND NOT AT ROTATING THE CAPITAL AS THE ASSESSEE WAS NOT FOUND TO BE FREQUENTLY JUMPING IN AND OUT OF THE SAME SCRIP. THE CIT (A) AFTER EXAMI NING THE SHARE TRANSACTIONS MADE BY THE ASSESSEE NOTED THAT, EVEN IF PURCHASES WERE MADE ON A NUMBER OF OCCASIONS BUT THEY WERE MADE WITHIN A LIMITED PRICE RANGE. LIKEWISE, EVEN IF SALES WERE MADE ON A NUMB ER OF DAYS BUT THEY WERE SOLD OFF WHEN THE ASSESSEE WA S GETTING APPROPRIATE PRICE. THE CIT (A) SPECIFICALL Y ENUMERATING THE PURCHASE AND SALE OF CERTAIN SHARE S BY THE ASSESSEE OBSERVED THAT, IT CANNOT BE SAID TH AT THEY WERE TIMED WITH MARKET TREND. HE FURTHER NOT ED THAT, IT IS NOT THE CASE THAT THE ASSESSEE WAS FREQ UENTLY PURCHASING AND SELLING THE SHARES. RATHER, THE ASSESSEE WAS BUYING THEM CONSISTENTLY WITHIN A PRIC E RANGE AND SELLING THEM IN A LIKE MANNER. THIS, ACCORDING TO THE CIT (A), SHOWS THAT THE PERIOD OF HOLDING DEPENDED ON THE EXPECTATIONS OF THE ASSESSE E FROM A PARTICULAR SCRIP WHICH WERE REVISED FROM TIM E TO TIME RESULTING IN A DECISION TO SELL OR HOLD FURTH ER. THE CIT (A) NOTED THAT THE PATTERN OF TRANSACTION WOUL D SHOW THAT THERE ARE RARE OCCASIONS OF RE-ENTRIES I N THE ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 25 SAME SCRIPS BY THE ASSESSEE WHICH MAKES IT CLEAR TH AT RE-ENTRIES INTO ANY SCRIP WERE NOT MADE WITH AN INTENTION TO EARN ANY QUICK PROFITS, WHICH IS THE HALL MARK OF TRADERS. THE CIT (A) FURTHER TOOK NOTE OF THE FACT THAT, AT THE YEAR END THE ASSESSEE HAS VALUED THE SHARES AT COST ONLY AND NOT AT COST OR MARKET VALUE , WHICHEVER IS LESS, AS IS DONE IN CASE OF BUSINESS. THE CIT (A) ON CONSIDERING THE AFORESAID FACTS AND FOLL OWING THE RATIO LAID DOWN IN SEVERAL DECISIONS ALLOWED TH E APPEAL OF THE ASSESSEE BY ACCEPTING ASSESSEES CLAI M OF SHORT TERM CAPITAL GAIN. 24. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIALS ON RECORD. ON A PERUSAL OF THE ORDER PAS SED BY THE CIT (A), WE ARE OF THE VIEW THAT THE CIT (A ) AFTER THOROUGHLY EXAMINING ALL ASPECTS OF THE MAT TER HAS ARRIVED AT A MOST REASONABLE CONCLUSION. FROM THE ELABORATE DISCUSSION MADE BY THE CIT (A) IT BECOME S CLEAR THAT ON APPLYING ALL THE TESTS AS LAID DOWN BY TAHE JURISDICTIONAL HIGH COURT (SUPRA) AND CONSIDE RING THEIR CUMULATIVE EFFECT, THE DEALING IN SHARES BY ASSESSEE CANNOT BE CONSIDERED TO BE A TRADING ACTIV ITY. AS AGAINST THIS, THE REASONS ON WHICH THE ASSESSIN G OFFICER HAS CONSIDERED IT TO BE A TRADING ACTIVITY CANNOT ALONE BE SUFFICIENT ENOUGH TO TREAT IT AS TRADING ACTIVITY. IT IS NOT DISPUTED THAT THE ASSESSEE FRO M THE VERY BEGINNING CONSISTENTLY SHOWN IT AS INVESTMENT AND THE DEPARTMENT ALSO ACCEPTED IT. THE ASSESSEE ALSO HAS UTILISED ITS OWN FUNDS AND NO BORROWED FUNDS HA VE BEEN UTILISED IN INVESTING IN SHARES. THE SHARES WERE ALSO VALUED BY THE ASSESSEE AT COST IN ITS BOOKS. THE ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 26 FACTS ON RECORD ALSO MAKE IT CLEAR THAT DEALING IN SHARES IS NOT THE BUSINESS ACTIVITY OF THE ASSESSEE AS PER ITS OBJECTS. THE MOST CRUCIAL FACTOR WHICH TIL TS THE SCALE IN FAVOUR OF THE ASSESSEE IS THE FACT THAT TH E ASSESSEE HAS SHOWN QUITE SUBSTANTIAL AMOUNT OF PRECISELY RS.76,09,442/- AS LONG TERM CAPITAL GAIN FROM SALE OF SHARE AND THE ASSESSING OFFICER HAS ABSOLU TELY NO PROBLEM ACCEPTING THE LONG TERM CAPITAL GAIN AS INVESTMENTS OF THE ASSESSEE. ONLY BECAUSE SHARES WERE SOLD BEFORE TWELVE MONTHS FROM THE DATE OF T HEIR PURCHASE CANNOT BE A GROUND TO TREAT THEM AS TRADI NG ACTIVITY. IF WE ACCEPT THIS LOGIC OF THE ASSESSING OFFICER, THEN ASSESSEES ACTIVITY OF DEALING IN SHA RES COULD BE ACCEPTED AS INVESTMENT ONLY IF ALL THE SHA RES HELD BY THE ASSESSEE WOULD BE SOLD AFTER ONE YEAR F ROM THE DATE OF THEIR PURCHASE. THIS, IN OUR VIEW, CAN NOT BE ACCEPTED. IN THAT CASE, THE PROVISIONS RELATING SHORT TERM CAPITAL GAIN BECOMES REDUNDANT. ON EXAMINING THE FACTS ON RECORD, WE ARE OF THE VIEW THAT THE ASSESSEE HAS SATISFIED ALL THE TESTS LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF SPECTR A SHARES AND SCRIPS (SUPRA) TO TREAT THE TRANSACTION IN SHARES AS INVESTMENTS. THEREFORE, FOLLOWING OUR DETAILED FINDING IN ITA NO.555/HYD/2010, WE UPHOLD THE ORDER OF THE CIT (A). THE GROUNDS RAISED BY TH E DEPARTMENT ARE DISMISSED. ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 27 25. IN THE RESULT, BOTH THE DEPARTMENTAL APPEALS AR E DISMISSED. ODER PRONOUNCED IN OPEN COURT ON 19.12.2013. SD/-(CHANDRA POOJARI) SD/- (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED/-19 TH DECEMBER, 2013 COPY FORWARDED TO: 1 DCIT, CIR-3(3), HYDERABAD. 2 M/S. ZEN INSURANCAE SERVICES PVT. LTD., NAGARJUNA APARTMENTS, NAGARJUNA COLONY, AMEERPET, HYDERABAD. 3 CIT(A)-IV, HYDERABAD 4 CIT-III, HYDERABAD. 5. ITAT, DEPARTMENTAL REPRESENTATIVE, HYDERABAD ITA NOS. 555 OF 2010 AND 977 OF 2012 ZEN INSURANCE SERVICES PVT. LTD. HYDERABAD.. ====================== 28 NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER