The DCIT, Central Circle-1(3), Ahmedabad V. Shri Hasmukhbhai Nyalchand Vora, Ahmedabad

ITSSA 699/AHD/2010

• Counselvise Citation: [2014] 121 COUNSELVISE.COM (IT) 9981 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 28-01-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 21-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 27-09-2010
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Business income; Salary income; Additional evidence; Advance ruling; Question of law; Cost of acquisition
• Section: 2(14); 28

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI N. S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA(SS)/CO NO. ASSESSMENT YEAR APPELLANT RESPONDENT ITA(SS) NO.533/AHD/2010 2005-06 ACIT, CENTRAL CIRCLE-1(3) AHMEDABAD SHRI HSMUKHBHAI NYALCHAND VORA, 302, ANAND CHAMBERS, NR. HIGH COURT RAILWAY CROSSING, NAVRANGPURA, AHMEDABAD. PAN: ACFPV5649F ITA(SS) NO.699/AHD/2010 2006-07 DCIT, CENTRAL CIRCLE-1(3) AHMEDABAD ASSESSEE CO NO. 229/AHD/2010 2005-06 ASSESSEE ACIT, CENTRAL CIRCLE-1(3) AHMEDABAD CO NO. 312/AHD/2010 2006-07 ASSESSEE DCIT, CENTRAL CIRCLE-1(3) AHMEDABAD REVENUE BY : SH. O.P. VAISHNAV, SR. D.R. ASSESSEE(S) BY : SH. S.N. SOPARKAR, AR / // / DATE OF HEARING : 21/01/2014 !' / DATE OF PRONOUNCEMENT : 28/01/2014 #$ #$ #$ #$/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) DATED 23.03.2010 PASSED IN ASSESSMENT YE AR 2005-06 AND ORDER DATED 04.08.2010 PASSED IN THE ASSESSMENT YEAR 2006- ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 2 - 07 AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE A GAINST THE ORDERS OF THE LD. CIT(A). 2. THE LD. DR SUBMITTED THAT AS THE FACTS AND ISSUE INVOLVED IN BOTH THE APPEALS ARE THE SAME, THEREFORE HE IS ARGUING T HE APPEAL FOR ASSESSMENT YEAR 2005-06 AND THE SAME ARGUMENT MAY B E CONSIDERED FOR DECIDING APPEAL IN ASSESSMENT YEAR 2 006-07. THE LD. AR OF THE ASSESSEE ALSO CONCURRED WITH THE SUBM ISSIONS OF THE LD. DR AND FURTHER SUBMITTED THAT IN THE CROSS OBJE CTIONS FILED BY THE ASSESSEE ALSO, THE ISSUE AND FACTS ARE THE SAME AND THE ASSESSEE IS IN CROSS OBJECTION AGAINST THE ORDER OF THE LD. CIT(A) IN PARTLY HOLDING INCOME FROM SHARES AS BUSINESS INCOME AND N OT SHORT TERM CAPITAL GAIN. 3. IN BOTH THE YEARS UNDER CONSIDERATION, THE SOLE ISSUE INVOLVED IS THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DI RECTING THE ASSESSING OFFICER TO TAX THE SURPLUS OF RS 3,20,50, 904/- IN ASSESSMENT YEAR 2005-06 AND RS 7,75,15,539/- IN THE ASSESSMENT YEAR 2006-07 ARISING FROM SALES OF SHARES AND SECUR ITIES AS SHORT TERM CAPITAL GAINS AS PER PROVISIONS OF SECTION 111 A OF THE ACT AND NOT AS BUSINESS INCOME. IN THE CROSS OBJECTIONS FI LED BY THE ASSESSEE, THE ASSESSEE IS AGAINST THE ORDER OF THE LD. CIT(A) HOLDING THAT INCOME FROM SHARES OF RS 26,04,736/- I N ASSESSMENT YEAR 2005-06 AND RS 28,20,270/- IN ASSESSMENT YEAR 2006-07 AS BUSINESS INCOME IN PLACE OF SHORT TERM CAPITAL GAIN S OF THE ASSESSEE. ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 3 - 4. THE FACTS OF THE CASE AS STATED IN THE ASSESSMEN T ORDER ARE AS FOLLOWS: 3. INCOME UNDER THE HEAD 'CAPITAL GAIN 3.1 DURING THE YEAR, THE ASSESSEE HAS DECLARED INCO ME UNDER THE HEAD 'SHORT TERM CAPITAL GAIN' (STCG) ON SALE OF SHARES. THE DETAILS OF PURCHASE AND SALES ARE SUMMARIZED AS UNDER: (RS.) CAPITAL GAIN PURCHASE COST CLOSING STOCK SALE VALUE PROFIT/LOSS STCG ON SHARES 64428692 26111511 72972011 34654829 3.2 DURING THE YEAR, THE ASSESSEE HAS SUBSCRIBED TO VARIOUS IPOS IN HNI CATEGORY. THE DETAILS OF APPLICATIONS MADE AND SHARES OBTAINED ARE SUMMARIZED AS UNDER: SR.NO. NAME OF IPO DATE OF APPLICATION OWN FUND BORROWED FUNDS NO. OF SHARES APPLIED NO. OF SHARES ALLOTTED DATE OF ALLOTMENT 1 JAI PRAKASH HYDRO 29.03.2005 28000000 0 2808200 300000 12.04.2005 2 NTPC 12.10.2004 32625000 237075000 4350000 364502 03.11.2004 3 TCS 02.08.2004 33895400 155820350 223195 11655 23.08.2004 3.2.1 THE ASSESSEE HAS CAPITALIZED THE INTEREST PAI D TO IL&FS, WHO PROVIDED THE FUNDS FOR MAKING APPLICATIONS IN IPOS. DURING THE YEAR THE ASSESSEE HAS ALSO MADE TRANSACTIONS IN SHARES OF CE RTAIN OTHER COMPANIES. CONSIDERING THE FREQUENCY IN PURCHASE AND SALE OF S HARES AND BORROWED CAPITAL, VIDE ORDER SHEET ENTRY DATED 04.12.2007, T HE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SURPLUS ARISING FROM PURCHASE AND SALE OF SHARES SHOULD NOT BE TAXED AS BUSINESS INCOME. 3.3 THE ASSESSEE VIDE HIS WRITTEN SUBMISSIONS DATED 24.12.2007 SUBMITTED AS UNDER: ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 4 - '1.1 WITH REFERENCE TO THE SAME, THE ASSESSEE SUBM ITS THAT ALL THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE DURING TH E PERIOD UNDER CONSIDERATION -WERE MADE WITH AN INTENTION OF INVES TMENT. MERELY THE FACT THAT THE ASSESSEE HAS EARNED PROFITS ON THE SAID TRANSAC TIONS DOES NOT RENDER THE SAME AS OF A TRADING NATURE. FURTHER, THE ASSESSEE -WOULD LIKE TO SUBMIT THAT MERELY ON THE BASIS OF FREQUENCY OF THE TRANSACTION S AND THE HOLDING PERIOD THEREOF, TO TREAT THE SAME AS OF BEING IN THE NATUR E OF BUSINESS, WITHOUT GIVING DUE CONSIDERATION TO THE REAL INTENTION OF THE ASSE SSEE BEHIND THE EXECUTION OF SUCH TRANSACTIONS WOULD BE CAUSING GRAVE INJUSTICE TO THE ASSESSEE. THE ASSESSEE WOULD LIKE TO POINT OUT THAT THERE IS NO S INGULAR GENERAL PRINCIPLE WHICH CAN BE LAID DOWN FOR DETERMINING WHETHER A TR ANSACTION SHOULD BE TREATED AS TRADING OR INVESTMENT ACTIVITY, BUT IT I S THE TOTALITY OF ALL SUCH CIRCUMSTANCES. IN FACT, THE INTENTION OF THE ASSESS EE TO TREAT THIS AS INVESTMENT IS WELL SPELT OUT BY THE ACCOUNTING ENTRIES AND ALS O TREATMENT GIVEN IN BOOKS OF ACCOUNT. HOWEVER, IF YOU HONOUR SO DESIRES, AN AFFI DAVIT CAN ALSO BE SWORN IN AND CAN BE FILED. 1.2 YOU HAVE SUGGESTED THAT LOOKING TO THE FREQUENC Y OF TRANSACTIONS THE SAME IS ONLY A TRADING ACTIVITY FOR THE ASSESSEE. T HE ASSESSEE HERE SUBMITS THAT THE NUMBER AND FREQUENCY OF TRANSACTIONS CANNOT BE CONSIDERED AS A SOLE PARAMETER TO TREAT THE ASSESSEE AS A TRADER. IN SPI TE OF THE SAME, THE ASSESSEE SUBMITS THAT THE NUMBERS OF TRANSACTIONS ARE VERY M UCH WITHIN THE LIMITS. YOUR GOOD SELVES WOULD ALSO APPRECIATE THE FACT THAT THE ASSESSEE HAS DEALT WITH IN THE SHARES OF ONLY A FEW COMPANIES. THE ASSESSEE AL SO FIRMLY BELIEVES THAT THE INVESTMENT IS MADE EITHER FOR WEALTH MAXIMIZATION T HROUGH RISE IN THE MARKET PRICE OF THE INVESTMENT OR FOR EARNING REGULAR DIVI DEND INCOME. FURTHER, EVERY INVESTOR MAKES ANY INVESTMENT KEEPING IN MIND CERTA IN RETURN HE EXPECTS TO EARN ON HIS INVESTMENT. IN THE GIVEN CASE AS WELL, ONE CAN ESTABLISH THAT THE MOTIVE BEHIND MAKING SUCH INVESTMENT WAS WEALTH MAX IMIZATION AND THE ASSESSEE ONLY DISPOSED THE INVESTMENTS ON PROPER AD VICE. THEREFORE, THE SAID TRANSACTION SHOULD NOT BE TREATED AS BEING PURCHASE D AND SOLD FOR TRADING PURPOSE; RATHER THE TRANSACTION SHOULD BE CONSTRUED IN THEIR TRUE SENSE AS MADE FOR INVESTMENT ONLY. CONCEPT OF WEALTH MAXIMIZ ATION, IN THE PROCESS OF INVESTMENT DECISION, SHOULD NOT BE GIVEN LESS IMPORTANCE AS AGAINST THE INTENTION TO EARN THE DIVIDEND. DIVIDEND EARNING IS CONSEQUENTIAL AND WEALTH MAXIMIZATION, EITHER BY WAY OF HOLDING OR BY WAY OF DISPOSAL, AT PROPER ADVICE, SHOULD BE CONSIDERED. 1.3 QUESTION MAY ARISE TO THE FACT THAT IF SUC H SHARES WERE MEANT ONLY AS AN INVESTMENT FOR THE ASSESSEE, WHY THE SAME WERE S UBSEQUENTLY DISPOSED OFF. HOWEVER, THE FOLLOWING ARE SOME OF THE REASONS, WHI CH NECESSITATED DISPOSAL OF SUCH SHARES: A) IT MAY BE NOTED THAT THE SHARES WHICH WERE ALREA DY HELD BY THE ASSESSEE HAD SEEN A DECENT UPSWING AND THE ASSESSEE HAD ALREADY ACHIEVED HIS TARGETED RETURN ON SUCH SHARES. ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 5 - B) IT MAY ALSO BE NOTED THAT AS THE SAID SHARES HAD ALREADY SEEN INCREASE IN ITS VALUE AND THEIR P/E RATIO WAS ALREA DY SIGNIFICANTLY HIGHER; IT IS A PRUDENT DECISION TO EXIT SUCH SHARE S AND RATHER INVEST IN OTHER SHARES WITH A LOWER P/E RATIO WHICH HAD YE T TO SEE AN UPSWING. BY DOING SO THE ASSESSEE IS ONLY ACTING PR UDENTLY WITH A VIEW TO MAXIMIZE HIS GAINS ON INVESTMENTS. IT MAY ALSO BE BORNE IN MIND THAT EVERY INVESTOR MA KES INVESTMENT KEEPING IN MIND THE RETURN HE WOULD LIKE TO EARN ON THE SAM E. AS SOON AS HE IS ABLE TO EARN SUCH RETURN, HE IS LIKELY TO LIQUIDATE HIS HOLDINGS. IT MAY ALSO BE POINTED OUT THAT THOUGH THE PERIOD O F HOLDING MAY BE CONSIDERED AS AN IMPORTANT POINT WHILE DECIDING THE INTENTION OF THE ASSESSEE MAKING INVESTMENT IN SHARES, IT CAN NEVER BE CONSIDERED AS OVERRIDING CRITERIA TO JUDGE THE INTENTION OF THE A SSESSEE. ON THE OTHER HAND, THE LAW HAS RECOGNIZED AND ACCEPTED SHORT HOL DING PERIOD. SOMETIMES, IT MAY BE POSSIBLE THAT THE ASSESSEE WIL L BE ABLE TO EARN HIS THRESHOLD RETURN WITHIN A SHORT DURATION OF TIME AL SO. IT MAY ALSO BE BORNE IN MIND THAT AN INVESTMENT DOES NOT LOSE ITS NATURE OF BEING AN INVESTMENT EVEN IF THE RESALE WAS FORESEEN AND CONTEMPLATED, W HEN THE INVESTMENT WAS MADE AND IT WAS THE POSSIBILITY OF THE ENHANCED VAL UE THAT MOTIVATED THE INVESTMENT. FURTHER, YOU WILL APPRECIATE THAT THE S HARES HAVE BEEN PURCHASED FIRST WITH THE INTENTION TO HOLD THEM FOR APPROPRIATE TIME. YOU WILL ALSO APPRECIATE THE FACT THAT DURING THE PERIO D UNDER CONSIDERATION, THE STOCK MARKETS SHOWED A SUSTAINED UPSWING AND TH EREFORE IT IS ONLY JUSTIFIABLE BEHAVIOR ON THE PART OF THE ASSESSEE, W HO IS ACTING AS A PRUDENT INVESTOR TO LIQUIDATE HIS HOLDING AND MAXIMIZE HIS WEALTH AS IT IS NOT CERTAIN WHETHER THIS UPSWING WILL CONTINUE AND IF I T WAS SO, UP TO WHAT PERIOD. 1.4 FURTHER, YOU HAVE ALSO QUERIED ON THE USE OF BO RROWED FUNDS FOR MAKING SUCH INVESTMENT. THE ASSESSES WOULD LIKE TO BRING TO YOUR NOTICE THAT THE SHARES WERE ACQUIRED WITH THE SOLE INTENTI ON TO MAKING AN INVESTMENT. IT MAY BE -NOTED THAT THE ASSESSEE HAS USED HIS OWN FUNDS AS WELL AS BORROWED FUNDS TO MAKE THE INVESTMENT. HOWE VER, THE USE OF BORROWED FUNDS HAS BEEN MADE ONLY WITH THE INTENTIO N OF ACQUIRING THE SHARES AS AN EFFECTIVE RETURN YIELDING INVESTMENT. IT MAY BE FARTHER POINTED OUT THAT DURING THE PERIOD UNDER CONSIDERATION; STO CK MARKETS WITNESSED A SUSTAINED UPSWING. FOR ANY INVESTOR IT IS OF THE UTMOST IMPORTANCE TO MAKE HIS INVESTMENT AT THE RIGHT TIME AND AT THE RI GHT PRICE. IT MAY BE NOTED THAT IF INVESTMENT IS NOT MADE AT THE RIGHT P OINT OF TIME, .SUCH AN OPPORTUNITY CAN BE LOST FOREVER. THEREFORE, IT MAY BE APPRECIATED THAT SUCH USE OF BORROWED FUNDS BY THE ASSESSEE IS ONLY TO EN SURE THAT HE IS ABLE TO MAKE THE BEST UTILIZATION OF SUCH OPPORTUNITY WHEN IT PRESENTED ITSELF AS ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 6 - WELL AS MAKING INVESTMENT IN LARGE QUANTITY SO THAT THERE CAN BE EFFECTIVE INVESTMENT PLANNING DECISION. IT MAY ALSO BE NOTED THAT IN MANY CASES IT IS SEEN PERSONS INVEST IN HOUSING PROPERTY AND OTHER ASSETS BY MAKING USE OF BORROWED FUNDS. BY DOING SO, THE NATURE OF TRANSACTION DOES NOT CHANGE AND IT RE TAINS ITS BASIC CHARACTER OF THAT BEING A TRANSACTION IN NATURE OF AN INVESTM ENT. BY BORROWING FUNDS TO INVEST IN PROPERTY THE SAID PROPERTY DOES NOT BE COME STOCK IN TRADE FOR THE PERSON, IT REMAINS INVESTMENT ONLY. WHEN THE PR OPERTY MAY BE DISPOSED OFF AT A FUTURE DATE, THE GAINS ARISING FROM THE SA ME ARE CHARGED UNDER-THE HEAD OF CAPITAL-GAINS ONLY. IF THAT BE THE CASE FOR HOUSING AND OTHER PROPERTY, THEN THE SAME ALSO HOLDS TRUE FOR SHARES AND SECURITIES. THEREFORE, WHAT IS NECESSARY TO TAKE INTO CONSIDERA TION IS THE REAL INTENTION OF THE ASSESSEE BEHIND ENTERING INTO SUCH TRANSACTI ON, WHICH IN THE PRESENT CASE, IS THAT OF INVESTMENT ACTIVITY. FURTHER, AS ALREADY STATED ABOVE, THE SHARES ARE RE FLECTED IN THE BALANCE SHEET OF THE ASSESSEE UNDER THE HEAD OF INVESTMENT. THEREFORE, LOOKING AT THE INTENTION OF THE ASSESSEE AND THE TREATMENT ACC ORDED BY THE ASSESSEE IN RECOGNIZING THE SAME IN THE BOOKS OF ACCOUNTS, THE SAME SHOULD ONLY BE CONSIDERED AS INVESTMENT. 1.5 YOU HAVE ALSO SUGGESTED THAT THE ASSESSEE DERIV ES ITS MAIN INCOME FROM THE BUSINESS OF TRADING IN SHARES. YOU HAVE TH EREFORE SUGGESTED THAT IT IS ONLY THE INCOME GENERATED FROM TRADING SHARES HA S BEEN SHOWN AS CAPITAL GAINS. WITH REGARDS TO THE SAME, THE ASSESSEE SUBMITS THAT HE HAD ENTERED IN TO TRANSACTION ONLY -WITH THE MOTIVE OF INVESTMENTS AN D THE SAME IS REFLECTED FROM THE ENTRIES MADE IN THE BOOKS OF ACCOUNTS, AS EXPLAINED HEREINABOVE. APART FROM AND WITHOUT PREJUDICE TO WHAT IS STATED HEREINABOVE, THE ASSESSEE SUBMITS THAT IT IS NOT NECESSARY THAT AN A SSESSEE CANNOT SIMULTANEOUSLY HAVE INCOME ARISING AS BUSINESS GAIN S FROM TRADING OF SHARES AND CAPITAL GAINS FROM INVESTMENT IN SHARES. EVEN THE CBDT CIRCULAR NO. 4/2007 MAKES IT CLEAR THAT AN ASSESSEE CAN SIMULTANEOUSLY EARN INCOME FROM TRADING IN SHARES AS WELL AS CAPIT AL GAINS FROM INVESTMENT IN SHARES SO LONG AS THE ASSESSEE IS ABL E TO CLEARLY IDENTIFY AND DEMARCATE THE SHARES WHICH HE HAS HELD FOR TRADING PURPOSE FROM THE SHARES WHICH HE HAS HELD AS INVESTMENT. THE QUESTIO N OF DISTINGUISHING THE SHARES INTO THOSE HELD FOR TRADING PURPOSE AND THOS E HELD FOR INVESTMENT PURPOSE IS THE PREROGATIVE OF THE ASSESSEE. THE ASS ESSEE HAS BEEN ADVISED THAT THE MOTIVE OF HOLDING SUCH INVESTMENT BE CONSI DERED, WHICH IN THE ASSESSEE'S CASE HAS BEEN SOLELY TO MAKE AN INVESTME NT. ON THE OTHER HAND, THE DISTINCTION MADE BY THE ASSESSEE HIMSELF AT THE THRESHOLD LEVEL ITSELF IS ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 7 - SUGGESTING OF THE FACT THAT THE PRIMARY INTENTION A ND THE ENTRIES PASSED IN ACCORDANCE WITH THIS INTENTION ARE MAIN FACTORS AND ASSESSEE HAS BEEN VERY CLEAR FROM HIS INTENTIONS/MOTIVES FROM VE RY BEGINNING._ 3.4 TH E CONTENTIONS OF THE ASSESSEE ARE NOT ACCEPTABLE DU E TO FOLLOWING REASONS: IT IS TRUE THAT IN EACH CASE, IT IS THE TOTAL EFFEC T OF ALL RELEVANT FACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION. THE ISSUE OF TAXING THE SURPLUS ARISING OUT OF A TRANSACTION TREATING IT AS A TRADING TRANSACTION OR CAPITAL CONSIDERED BY VARIOUS COURTS . HOWEVER, THE HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX, BOMBAY V. H. HOLCK LARSON 160 ITR 67 HAS DISCUSSED THIS ISSUE IN DETAIL. THOUGH ON THE FACTS OF THE CASE THE HONBLE SC HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BUT LAID DOWN CERTAIN TESTS TO BE A PPLIED TO THE FACTS OF EACH CASE FOR DETERMINING THE NATURE OF TRANSACTION . THE RELEVANT PORTION IS REPRODUCED HEREUNDER: 'THE ROYAL COMMISSION AT PAGE 39 OF THE REPORT OBSE RVED THAT THERE SHOULD BE NO SINGLE FIXED RULE, I.E., EACH CASE MUS T BE DECIDED ACCORDING TO ITS OWN CIRCUMSTANCES. THE GENERAL LINE OF ENQUIRY THAT HAD BEEN FAVOURED BY SPECIAL COMMISSIONERS AND ENCOURAGED BY THE COUR TS, ACCORDING TO THE ROYAL COMMISSION, WAS TO SEE WHETHER A TRANSACTION THAT IS SAID TO HAVE GIVEN RISE TO A TAXABLE PROFIT BEARS ANY OF THE ' B ADGES OF TRADE '. THE ROYAL COMMISSION WAS OF THE VIEW THAT SEEMED TO THE M THE RIGHT LINE, AND IT HAD THE ADVANTAGE THAT IT BASED ITSELF ON OBJECT IVE TESTS OF WHAT WAS TRADING ADVENTURE INSTEAD OF CONCERNING ITSELF DIRE CTLY WITH THE UNRAVELLING OF MOTIVE. AT THE SAME TIME, THE ROYAL COMMISSION W AS OF THE VIEW THAT THERE WAS SOME LACK OF UNIFORMITY IN THE TREATMENT OF DIFFERENT CASES ACCORDING TO THE TRIBUNALS BEFORE WHICH THESE HAD B EEN BROUGHT. THE ROYAL COMMISSION SOUGHT TO IDENTIFY THESE BADGES O F TRADE AS FOLLOWS: '(1) THE SUBJECT-MATTER OF THE REALISATION. WHILE A LMOST ANY FORM OF PROPERTY CAN BE ACQUIRED TO BE DEALT IN, THOSE FORM S OF PROPERTY SUCH AS COMMODITIES OR MANUFACTURED ARTICLES, -WHICH ARE NO RMALLY THE SUBJECT OF TRADING ARE ONLY VERY EXCEPTIONALLY THE SUBJECT OF INVESTMENT. AGAIN PROPERTY -WHICH DOES NOT YIELD TO ITS OWNER AN INCO ME OR PERSONAL ENJOYMENT MERELY BY VIRTUE, OF ITS OWNERSHIP IS MOR E LIKELY TO HAVE BEEN ACQUIRED -WITH THE OBJECT OF A DEAL THAN PROPERTY T HAT DOES. (2) THE LENGTH OF THE PERIOD OF OWNERSHIP. GENERALL Y SPEAKING, PROPERTY MEANT TO BE DEALT IN IS REALISED WITHIN A SHORT TIM E AFTER ACQUISITION. BUT THERE ARE MANY EXCEPTIONS TO THIS AS A UNIVERSAL RU LE. (3) THE FREQUENCY OR NUMBER OF SIMILAR TRANSACTIONS BY THE SAME PERSON. IF REALIZATIONS OF THE SAME SORT OF PROPERT Y OCCUR IN SUCCESSION OVER A PERIOD OF YEARS OR THERE ARE SEVERAL SUCH RE ALIZATIONS AT ABOUT THE ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 8 - SAME DATE, A PRESUMPTION ARISES THAT THERE HAS BEEN DEALING IN RESPECT OF EACH. (4) SUPPLEMENTARY WORK ON OR IN CONNECTION WITH THE PROPERTY REALISED. IF THE PROPERTY IS WORKED UP IN ANY WAY DURING THE OWNERSHIP SO AS TO BRING IT INTO A MORE MARKETABLE CONDITION; OR IF AN Y SPECIAL EXERTIONS ARE MADE TO FIND OR ATTRACT PURCHASERS, SUCH AS THE OPE NING OF AN OFFICE OR LARGE-SCALE ADVERTISING, THERE IS SOME EVIDENCE OF DEALING. FOR, WHEN THERE IS AN ORGANIZED EFFORT TO OBTAIN PROFIT, THERE IS A SOURCE OF TAXABLE INCOME. BUT IF NOTHING AT ALL IS DONE, THE SUGGESTION TENDS THE OTHER WAY. (5) THE CIRCUMSTANCES THAT WERE RESPONSIBLE FOR THE REALIZATION. THERE MAY BE SOME EXPLANATION, SUCH AS A SUDDEN EMERGENCY OR OPPORTUNITY CALLING FOR READY MONEY, THAT NEGATIVES THE IDEA TH AT ANY PLAN OF DEALING PROMPTED THE ORIGINAL PURCHASE. (6) MOTIVE. THERE ARE CASES IN WHICH THE PURPOSE OF THE TRANSACTION OF PURCHASE AND SALE IS CLEARLY DISCERNIBLE. MOTIVE IS NEVER IRRELEVANT IN ANY OF THESE CASES. WHAT IS DESIRABLE IS THAT IT SHOULD BE REALISED CLEARLY THAT IT CAN BE INFERRED FROM SURROUNDING CIRCUMSTANCES IN T HE ABSENCE OF DIRECT EVIDENCE OF SELLER'S INTENTIONS AND EVEN, IF NECESS ARY, IN THE FACE OF HIS OWN EVIDENCE. ' 3.5 THE FACTS OF THE ASSESSEE'S CASE ARE DISCUSSED WITH REFERENCE TO THE ABOVE TESTS HEREUNDER: (I) THE SUBJECT MATTER OF REALISATION : AS MENTIONED IN PARA 3.1 ABOVE, THE DETAILS OF TURN OVER MADE IN SHARES AND MUTUAL FUND IS REPRODUCED HEREUNDER: (RS.) CAPITAL GAIN PURCHASE COST CLOSING STOCK SALE VALUE PROFIT/LOSS STCG ON SHARES 64428692 26111511 72972011 34654829 THUS THE SUBJECT MATTER OF REALIZATION IS SHARES/MU TUAL FUNDS. CONSIDERING THE VOLUME INVOLVED, AS STATED ABOVE, I T CANNOT BE TREATED AS INVESTMENT. ON THE FACTS OF THE CASE, THE SHARES AND UNITS OF MUTUAL FUND BECAME COMMODITY FOR THE ASSESSEE. IN THE CASE OF H. MOHAMMED & CO. V. CIT 107 ITR 637 (GUJ.), THE HON'BLE HIGH C OURT HAS OBSERVED THAT A STOCK-IN-TRADE IS SOMETHING IN WHICH A TRADE R OR A BUSINESSMAN DEALS WHEREAS HIS CAPITAL ASSET IS SOMETHING WITH W HICH HE DEALS. IT WAS FURTHER HELD BY THE HON'BLE HIGH COURT THAT THE DIS TINCTION BETWEEN STOCK-IN-TRADE AND INVESTMENT IS THAT OF SELLING OU TRIGHT IN THE COURSE OF BUSINESS ACTIVITY AND DERIVING INCOME FROM EXPLOITA TION OF ONE'S OWN ASSETS. FURTHER, ON THE FACTS OF THE CASE, THE HON' BLE SUPREME COURT IN ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 9 - THE CASE OF SARDAR INDRASIGH AND SONS LTD. 24 ITR 4 15, IT WAS OBSERVED THAT THE PRINCIPLE APPLICABLE IN ALL SUCH CASES WAS WELL SETTLED AND THE QUESTION ALWAYS WAS WHETHER THE SALES WHICH PRODUCE THE SURPLUS WERE SO CONNECTED WITH THE CARRYING ON OF THE ASSESSEE'S BUSINESS THAT IT COULD FAIRLY BE SAID THAT THE SURPLUS WAS THE PROFI T AND GAINS OF SUCH BUSINESS. ON THE FACTS OF THAT CASE, IT WAS HELD TH AT THE SURPLUS RESULTING FROM SALE OF SHARES AND SECURITIES CONSTITUTED BUSI NESS INCOME. THUS APPLYING THE ABOVE TEST IT PROVES THAT THE ASS ESSEE IS A TRADER AND NOT INVESTOR IN SHARES AND MUTUAL FUNDS. (II) THE LENGTH OF THE PERIOD OF OWNERSHIP : ON GOING THROUGH THE DETAILS FILED, IT IS NOTICED THAT THE ASSESSEE HAS SOLD THE SHARES WITHIN A SHORT PERIOD. THE DETAILS ARE SUMMARIZED AS UNDER: SCRIPT NAME DATE OF PURCHASE NO. OF DATE OF SHARES SALE NO. OF SHARES TCS 23-08-2004 11655 30-08-2004 11655 NALCO 21-02-2005 13200 18-03-2005 13200 NTPC 03-11-2004 364502 09-11-2004 265279 11-11-2004 99223 ONGC 07-02-2005 5000 17-02-2005 5000 WELOVDM 10-09-2004 114000 13-12-2004 2777450 14-09-2004 495000 15-09-2004 63450 16-09-2004 490000 29-09-2004 496000 30-09-2004 495000 01-10-2004 495000 04-10-2004 129000 THE ABOVE DATA INDICATES THAT THE ASSESSEE'S PERIOD OF HOLDING REMAINED SHORT IN MOST OF THE CASES. THUS, THE RESU LT OF THIS TEST IS NOT IN FAVOUR OF ASSESSEE. (III) THE FREQUENCY OR NUMBER OF TRANSACTIONS BY THE SAME PERSON : IT CAN BE VERIFIED FROM THE DETAILS OF PURCHASE AND SALE OF SHARES AS MENTIONED IN PARA 3.5(I) &(II) ABOVE, THE ASSESSEE INDULGED INTO SIMILAR TRANSACTIONS VERY FREQUENTLY. THUS, THE MAIN SOURCE OF INCOME REMAINS - CAPITAL GAIN ON SALE OF SHARES FOR THE YEAR UNDER C ONSIDERATION. SIMILAR ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 10 - TREND IS OBSERVED IN EARLIER YEARS ALSO. THUS, IT I S CLEAR THAT THE ASSESSEE IS A DEALER IN SHARES AND SECURITIES AND NOT AN INVEST OR. IN THE CASE OF THE CIT VS. ASSOCIATED INDUSTRIAL DE VELOPMENT CO. (1971) 82 ITR 586 (SC) THE HONORABLE APEX COURT HAS OBSERVED THAT THE MULTIPLICITY OF THE TRANSACTIONS OCCURRING SUCCESSI VELY OVER THE YEARS SUPPORTED THE DEPARTMENTAL STAND THAT THE ASSESSEE HAD CEASED TO BE AN INVESTOR AND HAD BECOME A DEALER, (IV) SUPPLEMENTARY WORK ON OR IN CONNECTION WITH THE PRO PERTY REALISED : NO SUPPLEMENTARY WORK IN RESPECT OF SHARES AND MUTU AL FUND FOUND TO HAVE BEEN CARRIED OUT BY THE ASSESSEE. (V) THE CIRCUMSTANCES THAT WERE RESPONSIBLE FOR THE REA LIZATION : AS ADMITTED BY THE ASSESSEE, WHEN THE PRICES OF THE SHARES REACHED THE TARGETED PRICE, THE SAME HAVE BEEN SOLD. THERE WAS NO EMERGENCY OR OPPORTUNITY CALLING FOR READY MONEY. (VI) MOTIVE : (A) THE MOTIVE OF THE ASSESSEE IS ONLY TO EARN MAXI MUM PROFIT AND NOT THE INVESTMENTS. THE INTENTION TO HOLD THE SHARES FOR A LONGER PERIOD AND ENJOYING THE BENEFITS OF THE OWNERSHIP OF THE ASSET S IS MISSING. IN THE CASE OF G.VENKATA SWAMI NAIDU & CO. VS. CIT( 1959) 35 ITR 594, THE SUPREME COURT IN THIS CASE DISCUSSED THE T EST OF INTENTION. IT HELD THAT IN CASES WHERE THE PURCHASE HAS BEEN MADE SOLE LY AND EXCLUSIVELY WITH THE INTENTION OF RESALE AT A PROFIT AND THE PU RCHASER HAS NO INTENTION OF HOLDING THE PROPERTY FOR HIMSELF OR OTHERWISE EN JOYING IT OR USING IT, THE PRESENCE OF SUCH INTENTION IS A RELEVANT FACTOR AND UNLESS IT IS OFF-SET BY THE PRESENCE OF OTHER FACTORS, IT WOULD RAISE A STRONG PRESUMPTION THAT A TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRAD E. (B) THE SHARES HI LARGE QUANTITY OF VARIOUS IPOS HA S BEEN PURCHASED BY MAKING APPLICATION UNDER HNI CATEGORY. THROUGH THIS ACTIVITY, THE ASSESSEE MANAGED TO BUY SHARES AT THE LOWEST POSSIB LE PRICE WITH A CLEAR CUT INTENTION TO SALE THEM AT PROFIT. BUYING OF SHA RES AT THE TIME WHEN PRICE WAS LOW AND SELLING THEM ON PROFIT SUBSEQUENTLY IS CONSIDERED TO BE THE ACTIVITY AS ADVENTURE IN NATURE OF TRADE DALHOUSIE INVESTMENT TRUST CO. LTD. 68 ITR.486 (SC) (VII) UTILISATION OF BORROWED FUNDS FOR PURCHASE OF SHARE S AND MUTUAL FUNDS ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 11 - THE ASSESSEE HAD TAKEN LOAN FROM IL&FS FOR MAKING P URCHASING OF SHARES. THE INTEREST PAID HAS EITHER BEEN ADDED TO THE COST OF SHARES/UNITS. HON'BLE SUPREME COURT IN THE CASE OF DALHOUSIE INVE STMENT TRUST CO. LTD. (SUPRA) HAS OBSERVED THAT SHARES PURCHASED OUT OF B ORROWED FUNDS ON INTEREST CANNOT BE FOR EARNING DIVIDEND WHICH WOULD BE VERY NOMINAL AS COMPARED TO THE INTEREST. THEREFORE, THE PURCHASE O F SHARES MUST BE FOR PURPOSE OF EARNING PROFIT ON THEIR SALE AND HENCE T HE TRANSACTION OF SUCH NATURE AMOUNTED TO ADVENTURE IN THE NATURE OF TRADE . SINCE HNI APPLICATIONS HAVE BEEN MADE AND BORROWED FUNDS HAVE BEEN USED FOR ACQUIRING MAXIMUM NUMBER OF SHARES, THE ASSESSEE CA NNOT BE AN INVESTOR BUT IS FOUND TO BE A TRADER. IN THE CASE OF H. MOHANIINAD & CO. VS. CIT (1977) 107 ITR 637, THE GUJARAT HIGH COURT OBSERVED THAT IT IS POSSIBLE THAT ONE AND THE SAME COMMODITY MAY IN THE CASE OF ONE ASSESSEE BE HIS STOCK-IN-TRADE, WHEREAS IN THE CASE OF ANOTHER ASSE SSEE IT MAY BE HIS CAPITAL ASSET. FOR EXAMPLE, IN THE CASE OF AN ASSES SEE WHO CARRIES ON THE BUSINESS OF BUYING AND SELLING LAND, LAND MAY BE HI S STOCK-IN-TRADE BUT IN THE CASE OF AN ASSESSEE WHO HAS INVESTED HIS SAVING S IN LAND AND GETS INCOME FROM THE LAND OR THE STRUCTURES PUT UP ON TH E LAND, THE LAND IS HIS CAPITAL ASSET. THEREFORE, ONE OF THE INDICATIONS FO R DECIDING AS TO WHAT IS STOCK-IN-TRADE IS WHETHER A PARTICULAR ASSESSEE IS BUYING OR SELLING THE COMMODITY OR WHETHER HE HAS MERELY INVESTED HIS AMO UNT WITH A VIEW TO EARN FURTHER INCOME OR WITH A VIEW TO CARRY ON HIS OTHER BUSINESS. IT MAY BE POINTED OUT THAT 'TRADE' MEANS THAT PARTICULAR B USINESS ACTIVITY WHERE THE PERSON ENGAGED IN THE PROFESSION BUYS OR SELLS. ALL BUSINESSES MAY BE CARRIED ON FOR THE PURPOSE OF EARNING A PROFIT BUT THAT PARTICULAR KIND OF BUSINESS WHERE THE BUSINESSMAN BUYS AND SELLS A COM MODITY CAN ONLY BE DESIGNATED AS 'TRADE'. 3.6 ON GOING THROUGH THE PROFIT AND LOSS ACCOUNT, I T IS NOTED THAT THE ASSESSEE HAS DEBITED SHARE INVESTMENT CHARGES OF RS . 21539/-, DEMAT CHARGES RS. 771/- AND SECURITIES TRANSACTION TAX RS . 753177- AS AN ALLOWABLE EXPENDITURE WHILE COMPUTING THE TAXABLE I NCOME. THE INTEREST ON BORROWED FUNDS HAS ALSO BEEN CLAIMED BY ASSESSEE BY CAPITALIZING THE SAME IN THE COST OF SHARES. THESE EXPENSES ARE RELATED T O SHARE TRADING ACTIVITY ONLY. IN FACT, SECURITIES TRANSACTION TAX CANNOT BE CLAIMED AS DEDUCTION. IT SHOULD HAVE BEEN CLAIMED AS REBATE U/S. 88E OF THE ACT IF THE FORM NO. 10DB IS FILED. THUS, ON ONE HAND THE ASSESSEE IS CL AIMING THE SURPLUS AS CAPITAL GAIN WHICH IS EITHER EXEMPT FROM TAX OR TAX ED AT A LOWER RATE AND ON THE OTHER HAND, THE EXPENSES HAVE BEEN CLAIMED F ROM THE BUSINESS INCOME. THIS PROVES THAT THE SURPLUS ON SHORT TERM SHARE TRANSACTIONS IS NOTHING BUT BUSINESS INCOME. 3 .7 IT IS ALSO NOTED THAT UPTO A.Y. 2004-05, THE ASS ESSEE HIMSELF WAS SHOWING THE SURPLUS ARISING ON PURCHASE AND SALE OF SHARES AS TRADING ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 12 - RECEIPT. FROM A.Y. 2005-06, THE ASSESSEE HAS CHANGE D HIS STAND ANDL DISCLOSED THE SURPLUS UNDER THE HEAD 'CAPITAL GAIN' . 3.8 APPLYING THE ABOVE TESTS TO THE TRANSACTIONS EN TERED INTO BY THE ASSESSEE AS DISCUSSED ABOVE, IT IS CLEAR THAT THE S URPLUS ARISING OUT OF SALE OF SHARES AND MUTUAL FUND IS NOTHING BUT THE BUSINE SS INCOME AS THE ASSESSEE HELD THE SHARES AS TRADING ASSETS. THIS VI EW ALSO FINDS SUPPORT FROM THE CBDT INSTRUCTION NO. 1827 DATED 31.08.1989 AND SUPPLEMENTARY INSTRUCTIONS IN THE FORM OF CIRCULAR NO. 4 OF 2007 DATED 15.06.2007. THE MAGNITUDE OF THE ACTIVITY INDICATES THAT THE ASSESS EE CONTINUED TO BE A TRADER AND NOT THE INVESTOR. THE SHORT TERM CAPITA L GAIN ON SALE OF SHARES/SECURITIES AND MUTUAL FUND AS DECLARED, FOR THE REASONS DISCUSSED IN DETAIL IN FOREGOING PARAS, IS TAXED AS BUSINESS INC OME OF THE ASSESSEE. 3.9 IN VIEW OF THE STATED FACTS, THE SHORT TERM CAP ITAL GAIN OF RS 34923199/- ON SALE OF SHARES IS TAXED AS BUSINESS I NCOME OF THE ASSESSEE. IT IS FURTHER CLARIFIED THAT PROFIT ON SALE OF THE SHARES ACQUIRED IN VARIOUS IPOS BY MAKING APPLICATIONS I HNI CATEGORY AND NOT SOLD DURING THE YEAR WILL BE TAXED AS BUSINESS INCOME IN THE YEAR OF ITS SALE. 5. BEING AGGRIEVED BY THE SAID ORDER, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). BEFORE LD. CIT(A), THE ASSESSEE SU BMITTED AS UNDER: 6. WITH REFERENCE TO THE ABOVE FINDINGS OF THE ASS ESSING OFFICER, THE APPELLANT HAS GIVEN HIS SUBMISSIONS AS UNDER: I) THE ASSESSING OFFICER HAS FAILED TO APPREC IATE THE SUBMISSIONS MADE BEFORE HIM. AS THE SUBMISSIONS ARE REPRODUCED IN THE ASSESSMENT ORDER, THE SAME IS NOT REPRODUCED HERE, IN ORDER TO AVOID REPETITION OF THE SAME IN THIS APPEAL. HOWEVER, THE APPELLANT RELIES UPON THE SAID SUBMISSIONS. II) IN SO FAR AS THE FACTS OF THE PRESENT YEA R ARE CONCERNED, IT IS ALWAYS CLAIMED THAT THE APPELLANT HAD MADE APPLICAT ION IN IPOS AND ALSO PURCHASED SHARES FROM THE MARKET IN ORDER TO H AVE INVESTMENT IN SUCH SHARES. THERE WAS NO ACQUISITION OF MUTUAL FUN D AS IS PRESUMED BY THE A.O. THE FACT THAT THE SHARES WERE APPLIED F OR OR ACQUIRED FOR THE PURPOSE OF MAKING INVESTMENT CAN BE APPRECIATED IN VIEW OF THE FACT THAT THE APPELLANT HOLDS ON THE CLOSE OF THE Y EAR INVESTMENT IN SHARES OF THE VALUE OF RS.2,61,11,5117- WHICH WERE ACQUIRED DURING THE YEAR. APART FROM THIS THE APPELLANT ALSO HOLDS SHARES OF H. NYALCHAND FINANCIAL SERVICES PVT. LTD. AS INVESTMEN T OF THE VALUE OF RS.75.26 LAKH WHICH WERE BEING HELD IN THE PAST ALS O THUS IT IS INCORRECT TO PRESUME THAT THE APPELLANT IS A TRADER . ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 13 - III) MERELY BECAUSE IN THE PAST THE APPELLANT HAD BEEN SHOWING THE PROFIT ON PURCHASE AND SALE OF SHARES AS A BUSINESS PROFIT IT DOES NOT APPLY TO THE SUBSEQUENT YEAR, PARTICULARLY WHEN IN THE PRESENT CASE IT IS SUBSEQUENTLY STATED THAT THE APPELLANT MADE INVESTM ENT IN SHARES BY APPLYING TO IPOS AND ALSO BY PURCHASING SUCH SHARES FROM THE MARKET. THE INVESTMENT IS ALSO HELD AT THE END OF THE YEAR. IV) MERELY BECAUSE THE APPELLANT HAS BEEN BENE FITED BY WAY OF CAPITAL GAIN, IT IS INCORRECT TO PRESUME THAT INTEN TION OF APPELLANT WAS THAT OF TRADING IN SHARES. V) THE ASSESSING OFFICER HAS WRONGLY PRESUMED THAT THE APPELLANT HAD UTILIZED BORROWED FUNDS FOR ACQUIRING SUCH SHAR ES. IT MAY BE NOTED THAT THE APPLICATIONS IN THE SHARES OF TCS AND NTPC WERE MADE BY THE APPELLANT THROUGH FUNDS .MADE AVAILABLE BY IL & 'F ON MARGIN MONEY 'FINANCE PROVIDED BY THEM. THAT, THE FINANCE WAS OBTAINED TO PROCURE A HIGHER ALLOTMENT WHICH IS CONSIDERABLY LO WER THAN WHAT WAS APPLIED FOR AND ALSO THE COST OF SUCH ACQUISITION W AS WELL COVERED BY THE ASSESSEE'S OWN FUNDS .MOREOVER, SUCH FUNDS WERE REPAID DURING THE YEAR UNDER CONSIDERATION WITHIN A SHORT SPAN AN D SUCH ADVANCES ARE NOT OUTSTANDING AT THE CLOSE OF THE YEAR. SUCH REPAYMENTS WERE MADE OUT OF APPELLANT'S OWN FUND. IN SO FAR AS APPL ICATION FOR SHARES OF JAIPRAKASH HYDO INDUSTRIES IS CONCERNED, SAME WAS M ADE OUT OF APPELLANT'S OWN FUNDS. THE APPELLANT ALSO ACQUIRED SHARES BY PURCHASING FROM THE MARKET IN THE FOLLOWING SCRIPTS : (A) NATCO 41,58,410/- (B) JAIPRAKASH 11,502/- (C) JAYPEE HOTEL 2,582/- (D) VISHAL EXPO 2,60,97,426/- (E) ONGC 41,29,962/- (F) WELODVM 94,13,095/- OUT OF THE ABOVE SHARES, THE APPELLANT STILL HOLDS SHARES OF JAIPRA, JAYPEE HOTEL AND VILSHAL EXPORTS AT THE END OF THE YEAR. THE ABOVE SHARES WERE ACQUIRED OUT OF APPELLANT'S OWN FUNDS. VI) IT IS SUBMITTED THAT MERELY BECAUSE THE APPELLA NT HAD SOLD OUT THE SHARES AND SHOWN SHORT TERM CAPITAL GAIN IT IS INCORRECT TO PRESUME THAT IT WAS A BUSINESS TRANSACTION. IT IS SUBMITTED THAT THE LENGTH OF PERIOD OF HOLDING OF SHARES DOES NOT ESTABLISH THAT THE TRANSACTION WAS THAT OF A TRADER. IF SUCH WAS THE SITUATION, THE IN COME-TAX ACT WOULD NOT HAVE PROVIDED FOR TAXING SHORT TERM CAPITAL GAIN IN RESPECT OF PURCHASE AND SALE OF SHARES WITHIN A PERIOD OF ONE YEAR. IN SO FAR AS THE ARGUMENT OF THE ASSESSING OFFICER ABOUT MOTIVE IS CONCERNED, IT IS SUBMITTED THAT NOTHING COULD BE ES TABLISHED BY SIMPLE ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 14 - STATEMENT UNLESS MOTIVE IS ESTABLISHED BY WAY OF EV IDENCES. ON THE CONTRARY, THE APPELLANTS HAVE SHOWN THE MOTIVE THAT SHARES WERE ACQUIRED IN ORDER TO MAKE INVESTMENT. APART FROM THE ABOVE SUBMISSIONS ON FACTS OF THE CA SE, APPELLANT SUBMITTED THAT THE LEGAL POSITION AS LAID DOWN IN . VARIOUS CASE LAWS, HAS TO BE CONSIDERED SO-AS TO DETERMINE WHETHER THE INCOME ON SALE OF SHARES COULD BE TREATED AS CAPITAL GAIN OR BUSIN ESS INCOME. IN THIS CONNECTION, THE APPELLANT REFERS TO THE FOLLOWING C ASES: I) REVA SHANKER KOTHARI 283 ITR 338 (SC) II) KETHANKUMAR SHAH 242 ITR 83 (KERALA) III) RAJA BAHADUR KAMAKHYA NARAYANSING 77 ITR 253 ( SC) IV) RAJA JAGDISHPRATAP SAHI 70 ITR 235 THE APPELLANT THEREAFTER REFERRED TO CIRCULAR NO. 4 OF 2007 DATED 15-6- 2007 AND STATED THAT AS LAID DOWN IN THE DECISION Q UOTED IN THE CIRCULAR IT WAS WITHIN THE KNOWLEDGE OF THE ASSESSEE AS TO WHETHER PARTICULAR SHARES WERE HELD BY HIM AS INVESTMENT OR IT FORMS PART OF STOCK IN TRADE. IT IS SUBMITTED THAT THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT IN THE APPELLANT'S CASE ITSELF SUGGEST THAT THE SHARES WERE HELD AS IN VESTMENT IN THE BOOKS. IT IS SUBMITTED THAT THUS CONSIDERING VARIOUS DECISIONS A ND THE CBDT CIRCULAR, IT WAS NOT CORRECT TO SAY THAT THE APPELLANT WAS DEALI NG IN SHARES MERELY BY OBSERVING THAT THE APPELLANT .HAD CARRIED OUT NUMBE R OF TRANSACTIONS. THE APPELLANT HAD CLEARLY EXPLAINED BEFORE THE A.O. THA T THE MOTIVE OF THE ASSESSEE WAS ONLY TO MAKE INVESTMENT AND THAT WHEN OPPORTUNI TY HAD ARISEN, IN ORDER TO MAXIMIZE THE WEALTH; IT HAD SOLD THE EXISTING IN VESTMENT IN SHARES WHEN SHARE MARKET WAS IN VOLATILE CONDITION AND SO SHOWI NG BOOM PERIOD. THE APPELLANT HAD THUS EXERCISED HIS DISCRETION AS TO W HETHER IT WAS A RIGHT TIME TO EXIT FROM THE INVESTMENT AND ENCASH THE SAME. THUS IT WAS THE DECISION NOT AS A TRADER BUT AS AN INVESTOR. 7. THE A.R. OF THE APPELLANT DURING THE COURSE OF H EARING FURTHER STATED THAT THE APPELLANT HAD NO INTENTION IN TRADE IN SHA RES BUT TO MAKE INVESTMENTS WAS ALSO REFLECTED IN THE ACCOUNTING TREATMENT GIVE N IN THE BOOKS. ON THIS BASIS THE SURPLUS ON SALE OF INVESTMENT SHOULD NOT BE CONSIDERED AS INCOME FROM BUSINESS OR PROFESSION. THE APPELLANT REFERRED TO THE FOLLOWING CASE '(I) MADRAS HIGH COURT DECISION IN CIT V. TRI SHUL INVESTMENTS LTD. (305 ITR 434) WHEREIN COURT HAS HELD AS UNDER: 'THE ASSESSEE-COMPANY CARRYING ON THE BUSINESS OF I NVESTMENT IN SHARES AND SECURITIES FILED ITS RETURN OF INCOME DECLARING FOR THE ASSESSMENT YEAR 2000- 01, LOSS OF RS. 15,62,90,890. ICL AND RCL WERE MANU FACTURERS OF CEMENT. ICL, FOR THE PURPOSE OF TAKING OVER THE CEMENT DIVI SION OF RCL, IN CONCERT WITH TWO OF ITS SUBSIDIARIES AND ONE OF ITS ASSOCIA TE CONCERNS, THE ASSESSEE, CAME OUT WITH AN OPEN OFFER TO THE .SHAREHOLDERS OF RCL FOR PURCHASE OF ITS ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 15 - SHARES AT A PRICE OF RS. 300 PER SHARE. .AS THE ASS ESSEE DID NOT HAVE SUFFICIENT FUNDS TO PURCHASE THE SHARES OF RCL, FUNDS WERE PRO VIDED BY ICL EITHER DIRECTLY OR BY ARRANGING BRIDGE LOANS FROM A BANK. THE INTEREST LIABILITY ON THOSE BORROWED FUNDS WAS DEBITED IN THE BOOKS OF TH E ASSESSEE ONLY. UNDER THIS SCHEME, FOR EVERY SHARE HELD IN RCL, THE SHARE HOLDERS WERE PAID A SUM OF RS. 300 PER SHARE BY ICL AND THE PAID UP VALUE OF S HARES OF RCL WAS REDUCED TO RE. 0.05 PER SHARE. THE ASSESSEE WORKED OUT THE CAPITAL GAINS WHICH AROSE FROM THE RESTRUCTURING BY TAKING THE TOTAL AMOUNT R ECEIVED AS CONSIDERATION AND REDUCING THEREFROM THE COST OF ACQUISITION OF T HE SHARES. WHILE DOING SO, IT EXCLUDED THE FACE VALUE OF THE RESIDUARY AMOUNT OF SHARES. THIS RESULTED IN LONG-TERM CAPITAL LOSS AS WELL AS SHORT-TERM CAPITA L LOSS. THE ASSESSING OFFICER DID NOT ACCEPT THIS UNDER THE HEAD 'CAPITAL GAIN' AND HELD THAT THE ENTIRE SHAREHOLDING WOULD CONSTITUTE BUSINESS ASSET S OF THE ASSESSEE AND HENCE REFUSED TO ALLOW THE ASSESSEE THE BENEFIT OF INTEREST LIABILITY ON THE GROUND THAT THE ENTIRE TRANSACTION WAS CARRIED OUT ON BEHA LF OF ICL. THE APPEAL FILED BY THE ASSESSEE WAS DISMISSED BY THE COMMISSI ONER (APPEALS). ON FURTHER APPEAL FILED BY THE ASSESSEE, THE TRIBUN AL FOUND THAT THE ASSESSEE HAD NO INTENTION TO TRADE IN SHARES AND SO THE PURCHASE OF SHARES COULD NOT BE A BUSINESS ASSET IN THE HANDS O F THE ASSESSEE AND IT HAD BEEN RIGHTLY OFFERED UNDER THE HEAD 'CAPITAL GAINS', THAT IT WAS ONLY AN INVESTMENT ACTIVITY, THAT THE INTEREST PAID FOR ACQUISITION OF SHARES WOULD PARTAKE OF THE CHARACTER OF COST OF TH E SHARES AND THEREFORE IT WAS RIGHTLY CAPITALIZED ALONG WITH THE COST OF ACQUISITION OF SHARES, THERE BEING NO DENIAL REGARDING THE MONEY B ORROWED FOR THE ACQUISITION OF SHARES BY THE ASSESSEE. ON APPEAL BY THE REVENUE: HELD, DISMISSING THE APPEAL, THAT THE REASONS GIVEN BY THE TRIBUNAL WERE BASED ON VALID MATERIALS AND EVIDENCE NOT WARRANTING INTERFERENCE. [THE SUPREME COURT HAS DISMISSED THE SPECIAL LEAVE PETITION FILED BY THE DEPARTMENT AGAINST THIS DECISION.ED.]' (II) THE APPELLANT ALSO RELIES ON DECISION OF MADRA S HIGH COURT IN CASE OF CIT VS. N. S. S. INVESTMENTS (P) LIMITED 15 8 TAXMAN 13 WHEREIN HIGH COURT HAS HELD AS UNDER. 'SECTION 45, READ WITH SECTION 28(I), OF THE INCOME -TAX ACT, 1961 - CAPITAL GAINS - CHARGEABLE AS - WHETHER WHERE SHARE S WERE NEVER TREATED BY ASSESSEE AS STOCK-IN-TRADE AND THEY WERE HELD FOR EARNING DIVIDEND ONLY, PROFIT ON SALE OF SHARES IN QUESTION WAS TO.BE TREATED AS CAPITAL GAINS INSTEAD OF AS BUSINESS INCOME, AS ADO PTED BY ASSESSING OFFICER - HELD, YES * (III) THE APPELLANT ALSO RELIES ON DECISION OF MUMB AI ITAT IN CASE OF GOPAL PUROHIT VS. JCIT 29 SOT 117 WHEREIN ITAT AFTE R CONSIDERING CIRCULAR NO 4/2007 VIDE ITS ORDER DATED 10/02/2009 HAS HELD AS UNDER: ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 16 - SECTION 45, READ WITH SECTION 10(38), OF THE INCOM E-TAX ACT, 1961 - CAPITAL GAINS CHARGEABLE AS - ASSESSMENT YEAR 200 5-06 - ASSESSEE WAS ENGAGED IN ACTIVITY OF SALE AND PURCHASE OF SHA RES - IT ENTERED INTO TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN TWO FORMS, I.E.,. DELIVERY BASED TRANSACTION AND NON-DELIVERY BASED TRANSACTIO N - NON-DELIVERY BASED TRANSACTIONS HAD BEEN TREATED 'BY ASSESSEE AS BUSINESS ACTIVITY AND INCOME EARNED FROM DELIVERY BASED TRANSACTION W AS SHOWN EITHER AS SHORT-TERM CAPITAL GAIN OR LONG-TERM CAPITAL GAI N DEPENDING UPON PERIOD OF HOLDING OF SHARES AND FURTHER ASSESSEE HA D ALSO PAID SECURITIES TRANSACTION TAX IN RESPECT OF SUCH TRANS ACTION -ASSESSEE CLAIMED EXEMPTION UNDER SECTION 10(38) IN RESPECT O F SAID TRANSACTION IN RELEVANT ASSESSMENT YEAR - ASSESSING OFFICER HEL D THAT ASSESSEE WAS ENGAGED IN ONLY ONE ACTIVITY, I.E., ACTIVITY OF EARNING PROFIT THROUGH SALE AND PURCHASE OF SHARES OR PURCHASE AND SALE WI THIN SHORT PERIOD OR LONG PERIOD AND EXPENSES INCURRED THEREON WERE A LSO INSEPARABLE AND, HENCE, ENTIRE PROFITS ARISING OUT OF SUCH TRAN SACTIONS WERE TO BE ASSESSED AS INCOME FROM BUSINESS AND PROFESSION AND , CONSEQUENTLY HE DISALLOWED CLAIM OF ASSESSEE - WHETHER DELIVERY BASED TRANSACTIONS SHOULD BE TREATED AS OF NATURE OF INVESTMENT TRANSA CTIONS AND PROFIT THEREFROM SHOULD BE TREATED AS SHORT-TERM CAPITAL G AIN OR LONG-TERM CAPITAL GAIN DEPENDING UPON PERIOD OF HOLDING - HELD, YES - WHETHER, THEREFORE, ASSESSING OFFICER WAS NOT JUSTIFIED IN T REATING PROFIT ARISING FROM SUCH TRANSACTIONS AS INCOME FROM BUSINESS OR P ROFESSION - HELD, YES.' THE A.R. OF THE APPELLANT FURTHER SUBMITTED THAT ME RELY BECAUSE THE A.O. CONSIDERS THE MAGNITUDE OF TRANSACTION AS LARG E THE SAME DOES NOT CHANGE THE CHARACTER OF TRANSACTIONS I.E. INVES TMENT INTO TRADING. IN THIS CONNECTION, RELIANCE IS PLACED ON THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF JANAK RANGWALA 11 SOT 627. 8. DURING THE COURSE OF HEARING, THE COUNSEL OF THE APPELLANT WAS REQUESTED TO CLARIFY AS TO HOW THE PROFIT ON SALE O F SHARES HAS BEEN CLAIMED TO BE TAXED AS SHORT TERM CAPITAL GAIN THOU GH, SUCH INCOME WAS OFFERED TO TAX AS BUSINESS INCOME IN THE EARLIE R YEARS. IN RESPONSE TO IT, THE COUNSEL OF THE APPELLANT FILED LETTER DA TED 22.03.2010, WHEREIN, IT EXPLAINED AS UNDER: '1. IN THE COURSE OF HEARING OF THE ABOVE APPEAL, THE APPELLANT HAS SUBMITTED DETAILS OF PROFIT ON SALE OF SHARES HELD AS INVESTMENT AND ALSO EXPLAINED THAT SUCH PROFIT IS REQUIRED TO BE T AXED AS INCOME FROM CAPITAL GAIN AS AGAINST INCOME FROM BUSINESS & PROF ESSION AS HELD BY ASSESSING OFFICER. 2.1 WITH REGARDS TO OBSERVATION OF ASSESSING OFFICE R THAT IN A.Y. 2004-05 THE APPELLANT HAD SHOWN SUCH SURPLUS AS TRADING REC EIPT AND IN A. Y. ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 17 - 2005-06, IT HAS TAKEN A DIFFERENT STAND, APPELLANT STATES THAT HE ALONGWITH HIS GROUP MEMBERS TILL ASSESSMENT YEAR 20 04-05, WAS INVOLVED IN SHARE TRADING ACTIVITY. HOWEVER, FROM A SSESSMENT YEAR 2005-06. THE APPELLANT HAS DECIDED NOT TO BE INVOLV ED IN ' SHARE 'TRADING ACTIVITY, AS SUCH NO SYSTEMATIC ACTIVITY OF SHARE TRADING IS CARRIED OUT. IN FACT APPELLANT HAS NOT CARRIED OUT ANY SYSTEMATIC ACTIVITY AND HAS NO PERSONNEL IN THIS RESPECT OR IN FRASTRUCTURE. FURTHER, THE APPELLANT HAD DECIDED NOT TO CARRY OUT ANY SUCH ACTIVITY. THE ASSESSEE FARTHER SUBMITS THAT PAR MIGHT SECURIT IES AND PARLKLIGHT INVESTMENTS PVT. LTD. WHO WERE BROKERS A T AHMEDABAD STOCK EXCHANGE AND ITS DIRECTORS BEING FAMILY MEMBE RS OF THE APPELLANT WERE SUBJECT MATTER OF ENQUIRY IN SEBI AN D NOTICES WERE ISSUED BY SEBI AND IT WAS ORDERED IN JANUARY 2004 T HAT PARKLIGHT INVESTMENT PVT. LTD. AND ITS ASSOCIATES AND DIRECTO RS WERE PROHIBITED FROM TRADING IN SHARES IN THE STOCK EXCHANGE. THUS THE ASSESSEE CLOSED DOWN THE ACTIVITY OF TRADING IN SHARES AND S ECURITIES. THE APPELLANT THEREAFTER STARTED INVESTING THE FUNDS FO R INVESTMENT IN SHARES AND SECURITIES AND THEREFORE THE GAINS RESUL TING FRONT SUCH INVESTMENT HAS BEEN OFFERED TO TAX AS LONG TERM AND SHORT TERM CAPITAL GAINS. OUR FAMILY DECIDED ACCORDINGLY NOT T O TRADE IN PERSONAL ACCOUNTS. FURTHER, EVEN AFTER THE IMPUGNED ORDER OF SEBI WAS CHALLENGED, IT WAS DECIDED BY THE ASSESSEE NOT TO TRADE IN SHARES AND SECURITIES TO AVOID ANY FUTURE LITIGATION. THE ASSESSEE ACCORDINGLY T HEREAFTER ONLY ACQUIRED IN SHARES FOR THE PURPOSE OF INVESTMENT. IT MAY BE NOTICED THAT IT WAS THE DECISION OF THE F AMILY OF MAKING INVESTMENT AND THEREAFTER THE INTENTION WAS ONLY TO INVEST AND NOT TO TRADE IN SHARES. IN VIEW OF SUCH FACTS, APPELLANT S UBMITS THAT PROFIT ON SALE OF SHARES IS REQUIRED TO BE TAXED AS INCOME FR OM CAPITAL GAIN AS SHOWN IN RETURN. 2.2 APART FROM ABOVE, APPELLANT INVITES REFERENCE TO DECISION OF MUMBAI IT AT IN CASE OF SMT NEERJA BIRLA 62 JTD 39 FOR A.Y . 1991-92 WHEREIN ITAT HAS HELD AS UNDER: 'SECTION 45 OF THE INCOME-TAX ACT, 1961 - CAPITAL G AINS - CHARGEABLE AS -ASSESSMENT YEAR 1991-92 - ASSESSEE HELD 2.50 LA KH SHARES OF A COMPANY. 'IG' - WITH A VIEW 'TO PAY CONSIDERATION FOR PURCHASE, OF 7 LAKH, SHARES OF SAME COMPANY, ASSESSEE SOLD OFF SAI D 2.50 LAKH SHARES AND DISCLOSED CAPITAL GAIN THEREON - ASSESSING OFFI CER ACCEPTED ASSESSEE'S VERSION BUT COMMISSIONER, EXERCISING HIS JURISDICTION UNDER SECTION 263, HELD THAT SUCH GAIN ON SALE OF SHARES WAS A BUSINESS INCOME - HE, ACCORDINGLY, SET ASIDE ASSESSMENT - WH ETHER, SINCE ASSESSEE'S DESIRE WAS TO HOLD LARGER NUMBER OF SHAR ES BY FUNDING ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 18 - PURCHASE THEREOF BY SALE OF LESSER NUMBER OF SHARES , TAKING INTO ACCOUNT THAT VALUE OF SHARES WAS GOING UP IN MARKET , SUCH TRANSACTION OF SALE WAS ONE OF CAPITAL NATURE AND NOT OF BUSINE SS - HELD, YES - WHETHER, THEREFORE, RESULT OF SUCH TRANSACTION WAS RIGHTLY TREATED AS CAPITAL GAIN BY ASSESSING OFFICER - HELD, YES '.... THE SOURCE FROM WHICH THE PURCHASE WAS MADE WAS FROM HER INDIVIDUAL CURRENT ACCOUNT WITH HER PARENTS FAMILY CONCERN, SKRS. THE COPIES OF THE LEDGER ACCOUNT OF THE ASSESSEE IN THE BOOKS OF SKRS HAVE BEEN PROVIDED WHICH GO TO SHOW THAT ALL THE AC COUNTS WERE MERGED INTO SKRS AND IT WAS ACCORDINGLY THE SOURCE FROM WHICH THE INITIAL INVESTMENT IN 2,50,000 SHARES WAS MADE. 7,0 0,000 SHARES CAME TO BE PURCHASED IN JUNE, 1990, AT AN AVERAGE RATE O F RSL8,87 PER SHARE AND THE TOTAL PURCHASE VALUE WAS RSL,32,08,5007-. T HE ASSESSEE NECESSARILY HAD TO FIND SOURCES FROM WHICH SHE COUL D PAY. OFF THIS AMOUNT. SHE WAITED FOR AN OPPORTUNE TIME WHEN THE S HARE VALUE PROPPED UP AND THE VALUE THAT WAS FOUND TO BE REASO NABLE IN SEPTEMBER WAS ACCEPTED AS THE VALUE WOULD SUBSTANTI ALLY COVER THE PURCHASE LIABILITY. ON THE FACE OF IT, IT IS CLEAR THAT THE DESIRE TO HOLD LARGER NUMBER OF SHARES WAS THE REASON BEHIND THE T RANSACTION OF PURCHASE AND THE SALE OF THE EARLIER HOLDINGS. THE RESULTANT EFFECT, OF COURSE, IS THAT THE CAPITAL WORTH OF THE PERSON ALS O GOES UP SUBSTANTIALLY. BUT TO CONCLUDE THAT THE SAID TRANSA CTION WAS INTENDED WITH A PROFIT MOTIVE IN THE CIRCUMSTANCES OF THE CA SE IS NOT CORRECT BECAUSE, AS OBSERVED EARLIER, THE DESIRE WAS TO HOL D LARGER NUMBER OF SHARES BY FUNDING THE PURCHASE BY SALE OF LESSER NU MBER OF SHARES TAKING INTO ACCOUNT THE SHARE VALUE AS GOING UP IN THE MARKET. IN THE CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE TRANSACTION WAS ONE OF CAPITAL TRANSACTION AND NOT OF BUSINESS AND, THEREFORE, THE RESULT OF THE TRANSACTION, THE 'GAIN THEREOF, IS OBVIOUSLY A LONG-TERM CAPITAL GAIN BECAUSE IT SUFFICES THE CONDITION OF HOLDING O F SHARES. FURTHER, IN A.Y. 1992-93, JTAT IN 66ITD 148 HELD TH AT SINCE SHARES WERE PURCHASED BY THE APPELLANT OUT OF BORROWED FUN DS, THE PROFIT DERIVED BY HER IS ASSESSABLE AS BUSINESS INCOME. TH E RELEVANT PARA OF SAID DECISION IS AS UNDER: 'BUSINESS INCOME' - ADVENTURE IN THE NATURE OF TRAD E-PURCHASE AND SALE OF. SHARES-MATTER COULD NOT BE DECIDED ON THE BASIS OF THE ORDER OF THE TRIBUNAL RELATING TO PURCHASE AND SALE OF ANOTH ER LOT OF SHARES- SUCH AN ISSUE HAS TO BE EXAMINED SEPARATELY FOR EAC H ASSESSMENT YEAR- SHARES WERE BOUGHT OUT OF BORROWED FUNDS BY ASSESSE E FROM HER FAMILY CONCERNS AND OUTSIDERS-INCREASE IN PRICE OF SHARES WAS NOT ANTICIPATED AT THAT TIME- IT IS INCONCEIVABLE THAT A YOUNG LADY WOULD HAVE TAKEN UP ON HERSELF AN INTEREST BEARING LIABILITY EXCEEDING RSL CRORE UNLESS SHE INTENDED TO TRADE IN SHARES-CUMULATIVE EFFECT OF AL L THE FACTORS INDICATE THAT ASSESSEE BOUGHT THE SHARES AS HER TRADING ASSE TS-PROFIT DERIVED BY HER IS ASSESSABLE AS BUSINESS INCOME. ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 19 - IT CAN BE SEEN FROM AFORESAID DECISION OF THE I.T.A .T., MUMBAI, IN CASE OF NEERJA BIRLA FOR ASSESSMENT YEARS 1991-92 AND 19 92-93, WHEREIN THE HONOURABLE I.T.A.T. HAS HELD THAT IF INTEREST B EARING FUNDS WERE UTILISED FOR THE PURCHASE OF SHARES, LIKE IN ASSESS MENT YEAR 1992-93, THEN INCOME FROM SALE OF SHARES IS TAXABLE AS INCOM E FROM BUSINESS OR PROFESSION AND IF ASSESSEE PURCHASE THE SHARES OUT OF NON INTEREST BEARING FUNDS, LIKE IN ASSESSMENT YEAR 1991-92, THE N INCOME FROM SALE OF SHARE IS TAXABLE UNDER THE HEAD 'CAPITAL GAINS'. IN VIEW OF SUCH DECISION, TO DECIDE WHETHER PROFIT ON SALE OF SHARE FOR CURRENT YEAR IS BUSINESS INCOME OR CAPITAL GAIN, TREATMENT GIVEN IN EARLIER YEARS IS NOT DECISIVE. 2.3 APART FROM ABOVE, THE ASSESSEE RELIES ON DECIS ION OFJURISDICTIONAL GUJARAT HIGH COURT IN CASE OF PARI MANGALDAS GIRDHA RDAS VS CIT 6 CTR 647 (1977) HAS HELD AS UNDER; 'BUSINESS SALE OF SHARES CAPITAL GAINS ADDITI ONAL EVIDENCE FIRM OF MONEY LENDERS HAVING ACQUIRED SHARES OF C ERTAIN FIRMS IN THE LAST 22 YEARS OCCASIONAL SALE OF SOME SHARES INVOLVING SMALL PROFITS AND LOSSES IN THE EARLIER YEARS CLAIMED A ND ALLOWED AS BUSINESS INCOME AND BUSINESS LOSSES IN THE RESPECTI VE ASSESSMENTS - SALE OF A LARGE NUMBER OF SHARES IN THE RELEVANT YE AR RESULTING IN A LARGE INCOME - RETURNED IN THE ORIGINAL RETURN, AS BUSINESS INCOME - SAME HOWEVER, CLAIMED AS CAPITAL GAINS LIT THE REVI SED RETURN TRIBUNAL HOLDING IT AS BUSINESS INCOME QUESTION W HETHER TRIBUNAL APPLIED THE RIGHT TESTS FOR ASCERTAINING WHETHER TH E SALE OF SHARES CONSTITUTED 'BUSINESS' TESTS OF SUCH AN ASCERTAIN MENT ASSESSEE PRODUCING ADDITIONAL EVIDENCE BEFORE TRIBUNAL REF USAL TO ENTERTAIN THE SAME JUSTIFIABLY CRITERIA FOR ADMISSION R ULE 29 OF IT (APPELLATE TRIBUNAL) RULES, 1963 IMPLICATIONS AND APPLICABILITY MATERIAL FOR DECIDING THE CASE QUESTION OF AVAILABILITY THEREOF ON THE FACTS OF THE CASE - ALTERNATIVE CONTENTION BY REVENUE - SUGGESTING THAT PURCHASE OF SHARES WITH MONEY INVOLVED IN THE MONEY LENDING BUSINESS AMOUNTED TO PURCHASE IN THE COURSE OF BUSI NESS AND SALE THEREBY CONSTITUTING BUSINESS INCOME ADMISSIBILIT Y THEREOF AT SUCH A LATE STAGE.' IN VIEW OF AFORESAID DECISION, APPELLANT STATES THA T MERELY IN EARLIER ASSESSMENT, INCOME WAS ASSESSED AS BUSINESS INCOME; THIS DOES NOT MEAN THAT IN SUBSEQUENT YEARS ALSO THE SALE OF SHAR ES HAS TO BE ADDED AS INCOME. THE RELEVANT PART OF AFORESAID DECISION IS REPRODUCED HEREIN UNDER: 'SECONDLY, ON THE -WELL-SETTLED LEGAL POSITION, THA T MERELY BECAUSE THE ASSESSEE CONTENDED AND THE DEPARTMENT ACCEPTED IN T HE COURSE OF THE ASSESSMENT TO INCOME TAX FOR THE PRECEDING YEARS TH AT THE ASSESSEE WAS ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 20 - A DEALER IN SHARES AND THAT ITS INCOME FROM SALE OF SHARES WAS LIABLE TO BE TAXED AS BUSINESS INCOME, NEITHER THE ASSESSEE N OR THE DEPARTMENT WAS PRECLUDED FROM CHANGING ITS RESPECTIVE POSITION IN THE PROCEEDINGS FOR ASSESSMENT DURING THE CURRENT ASSES SMENT YEAR. IF THERE -WAS MATERIAL BEFORE THE TRIBUNAL WHICH THREW LIGHT ON THE TRUE NATURE OF THE ACTIVITIES OF THE ASSESSEE OVER A NUM BER OF YEARS, IT WAS ITS DUTY TO, CONSIDER SUCH MATERIAL ARID ARRIVE AT A PROPER FINDING IN RESPECT OF THE NATURE AND CHARACTER OF THE INCOME F ROM SALE OF SHARES IN THE ASSESSMENT YEAR IN QUESTION WITHOUT IN ANY M ANNER BEING OVER- WEIGHTED BY THE CONSIDERATION AS TO WHAT HAPPENED I N THE PAST YEARS. THE TRIBUNAL COULD NOT HAVE SHUT UP THE PLEA OF THE ASSESSEE, PLACED FOR ITS CONSIDERATION IN THE COURSE OF THE PRESENT ASSESSMENT PROCEEDINGS, ON THE GROUND THAT IT WAS NOT OPEN TO THE ASSESSEE TO MAKE A VOLTE FACE AND TO TAKE UP AN INCONSISTENT ST AND. THE TRIBUNAL, IN THE LAST PLACE, ERRED IN LAW IN FA ILING TO PROPERLY APPRECIATE AND VIEWING IN CORRECT PERSPECTIVE, THE EXPLANATION OFFERED BY THE ASSESSEE WITH REGARD TO ITS CONDUCT IN THE P AST YEARS. THE CONDUCT OF THE ASSESSEE IN RELATION TO PAST YEARS W OULD BE RELEVANT IF HE FAILS TO FURNISH ANY SATISFACTORY EXPLANATION. T HE ASSESSEE WAS ENTITLED TO GIVE AN EXPLANATION AS TO ITS EARLIER C ONDUCT AND TO URGE THAT IT HAD TAKEN THE STAND THAT IT DID UNDER A MIS TAKE OR ERROR. THIS IS WHAT THE ASSESSEE ACTUALLY DID. THE TRIBUNAL OMITTED TO APPLY ITS MIND TO THE MERITS OR DEMERITS OF THE SAID EXPLANATION S TANDING BY ITSELF AND DIVORCED FROM THE CONSIDERATION OF THE PRINCIPLE OF APPROBATE AND REPROBATE. IT WOULD THUS APPEAR THAT THE FINDING OF THE TRIBUNAL ON THIS RELEVANT ASPECT IS VITIATED IN AS SUCH AS THE TRIBUNAL MISDI RECTED ITSELF IN LAW FELL IN ERROR OF LAW WHILE CONSIDERING AND WEIGHING THE LEGAL AND FACTUAL EFFECT OF THE SAID ASPECT.' 2.4 SIMILAR VIEW WAS EXPRESSED BY THE 'HONOURABLE ALLAHABAD HIGH COURT IN CASE OF KUNJILAL GUPTA VS CH 52ITR 27, WHE REIN THE COURT HELD AS UNDER: 'BUSINESS INCOME - TRADING RECEIPT SALE PROCEEDS OF BONUS SHARES RECEIVED IN RESPECT OF ORDINARY SHARES HELD BY ASSE SSEE AS PART OF HIS STOCK IN TRADE. EVERYTHING POSSESSED BY A BUSINESSM AN IS NOT NECESSARILY HIS STOCK-IN-TRADE SIMPLY BECAUSE IT IS OF SAME NATURE AS HIS STOCK-IN-TRADE -ACQUISITION OF BONUS SHARES IS INVOLUNTARY ACQUISITION AND HENCE THERE IS NO QUESTION OF ANY I NTENTION BEHIND SUCH ACQUISITION THERE IS NOTHING TO SHOW THAT AS SESSEE TREATED SHARES AS STOCK-IN-TRADE THERE IS NO NEXUS BETWEE N ORIGINAL HOLDING AND RECEIPT OF BONUS SHARES PROCEEDS OF SALES WER E NOT REVENUE INCOME, ' ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 21 - 2.5 IN VIEW OF WHAT IS STATED HEREIN ABOVE, TREATME NT GIVEN FOR SALE OF SHARES IN EARLIER YEARS IS NOT A DECISIVE FACTOR FO R DETERMINING INCOME FROM SALE OF SHARES FOR CURRENT ASSESSMENT YEAR. IT IS FURTHER STATED THAT AS HELD IN DIFFERENT CASES, PRINCIPLE RES JU DICATOR DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS. 3. WITHOUT PREJUDICE TO ABOVE, APPELLANT STATES THAT VARIOUS COURTS HAVE HELD THAT A TRADER CAN ALSO HOLD THE SHARES IN THE COMPANY AS INVESTOR. IN OTHER WORDS, BESIDES HOLDING A SHARE AS STOCK IN TRADE, ANY ASSESSEE CAN ALSO HOLD OTHER SHARES AS SHARES. IN THIS CONNE CTION, APPELLANT INVITES REFERENCE TO CIRCULAR NO 4/2007 DATED 15/06 /2007 WHICH ALSO RECOGNIZES THE POINT. THE RELEVANT PARA OF SAID SUB MISSION IS AS UNDER: '5. IN THE CASE OF COMMISSIONER OF INCOME TAX (CENT RAL), CALCUTTA VS ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD (82 JTR 586), THE SUPREME COURT OBSERVED THAT:' WHETHER A P ARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSES SEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE I N 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.' 10. CBDT ALSO WISHES TO EMPHASIZE THAT IT IS POSSI BLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I.E., AN INVESTMENT P ORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL AS SETS AND A-TRADING PORTFOLIO COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIO S, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E., CAPITAL GAINS AS WELL AS BUSINESS INCOME. APART FROM ABOVE, IT IS SUBMITTED THAT MUMBAI IT AT IN CASE OF JM SHARE STOCK BROKERS IN ITA NO 2801, 2802, 5488FOR A .Y. 1995-96TO 1997-98FOR A.Y. 1995-96TO 1997-98 DATED 30/11/2007 HELD THAT- ' THERE IS NO BAR ON A STOCK BROKER HOLDING SHARES AS AN INVESTMENT. THE MERE FACT THAT THE ASSESSEE IS AN EXPERT IN SHA RE TRADING DOES NOT MEAN THAT HE CANNOT HOLD SHARES AS A CAPITAL ASSET. THE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF THE T RANSACTION. 6. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT THE SURPLUS ON SALES OF SHARES WAS TO BE ASSESSED AS SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME OF TH E ASSESSEE TO THE ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 22 - EXTENT OF RS 3,20,50,906/- AND BALANCE AMOUNT OF RS 21,04,736/- WAS TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME OF THE ASSESSEE IN ASSESSMENT YEAR 2005-06 AND ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: 9. I HAVE CONSIDERED THE FACTS OF THE APPELLANT'S CASE AND THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. THE AP PELLANT HAS SHOWN SHORT TERM CAPITAL GAIN OF RS.3,46,54,830/- AS PER FOLLOWING DETAILS: SHARE PURCHASE & SALES A/C PERIOD:- 01/04/2004 TO 30/09/2005 PURCHASES SALE SCRIP NAME DATE QTY, AMOUNT DATE QTY. AMOUNT P&L TCS 23-AUG-04 11655 11252150 30-AUG-04 11655 11415331 163181 NALCO 21-FEB-05 13200 4158410 18-MAR-05 13200 4263600 105190 GRAND TOTAL 24855 15410560 24855 15678931 268371 PERIOD 01/10/2004 TO 31/03/2005 SCRIP NAME PURCHASES SALE P&L DATE QTY, AMOUNT DATE QTY, AMOUNT NTPC 03-NOV 04 364502 24774124 09-NOV-04 265279 19763481 11-NOV-04 99223 7510189 TOTAL 364502 24774124 364502 27273670 2499546 ONGC 07-FEB-04 5000 4129963 17-FEB-05 5000 4114600 -15363 WELOVDM 10-SEP-04 114000 343140 13-DEC-04 2777450 41583741 14-SEP-04 495000 1246450 15-SEP-04 63450 184005 16-SEP-04 490000 1225000 29-SEP-04 496000 1914560 30-SEP-04 495000 2098800 01-OCT-04 495000 1935450 04-OCT-04 129000 465690 TOTAL 2777450 9413095 2777450 41583741 32170646 GRAND TOTAL 3747052 64428693 3146952 72972012 34654830 10. IT IS NOTICED THAT THE ASSESSING OFFICER HAS NO T ACCEPTED THE CONTENTION OF THE APPELLANT THAT THE IMPUGNED SURPL US WAS CAPITAL GAINS MAINLY ON THE GROUND THAT THE VOLUME INVOLVED WAS L ARGE AND, THEREFORE, ACCORDING TO HIM, IT BECOME COMMODITY FO R THE ASSESSEE IN WHICH IT IS TRADING. HE HAS FURTHER GONE BY THE CRI TERIA THAT PERIOD OF ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 23 - HOLDING IS SHORT AND FREQUENCY AND NUMBER OF TRANSA CTIONS IS MORE. HE HAS, THEREFORE, COME TO THE CONCLUSION THAT THE MOT IVE IS TO EARN MAXIMUM PROFIT AND NOT TO HAVE INVESTMENT. 11. BEFORE DECIDING THE MAIN ISSUE, THE FACTS ARE R EQUIRED TO BE RECAPITULATED. THE FACTS EMERGING IN THE PRESENT CA SE ARE:- (A) THE APPELLANT, IN THE PREVIOUS YEAR UNDER CONS IDERATION, HAS GOT SURPLUS OF RS.3,46,54,830/- IN THE SHARE TRANSA CTIONS. OUT OF THIS SURPLUS, RS.2,68,370/- IS FOR THE PERIOD FROM 01.04.2004 TO 30.09.2005, WHICH IS TO BE TAXED AT NORMAL RATES, A S APPLICABLE AT THE RELEVANT TIME. (B) OUT OF TOTAL SURPLUS AMOUNT OF RS.3,46,54,830/- , THE SURPLUS AMOUNT OF RS.26,04,736/- HAS BEEN GENERATED IN THE SALE / PURCHASE OF SHARES OF TCS LTD. AND NTPC LTD. THESE SHARES WERE ACQUIRED BY MAKING APPLICATION .IN THE IPOS OF THESE COMPANIES THROUGH M/S. IL&FS AND M/S. IL&FS H AD ALSO PARTLY FINANCED SUCH ACTIVITY. THE APPELLANT HAS PR OVIDED PART FINANCE TO M/S. IL&FS FOR MAKING APPLICATION IN THE IPOS OF TCS LTD. AND NTPC LTD. AFTER ACQUISITION OF THESE SHARE S, THESE SHARES HAVE BEEN SOLD. 12. IN THE LIGHT OF THESE FACTS, THE. ISSUE FOR DET ERMINATION IS AS TO WHETHER THE SURPLUS OF RS.3,46,54,33.6/- IS TO BE T AXED AS STCG @10% OR THE SAME, SHOULD BE. SUBJECTED TO TAX AS BU SINESS INCOME AT NORMAL RATES. THE ITAT, AHMEDABAD (A BENCH) IN THE CASE OF ACIT VS. HIPOLIN LTD. (ITA NO.4259/AHD/2007) HAS DECIDED A SIMILAR ISSUE FOR A.Y.2004-05 VIDE ORDER DATED 04.09.2009. THE OP ERATIVE PART OF THE JUDGEMENT (PARA 17 TO 23) READS AS UNDER :- '17. THE ASSESSEE THEN REFERRED TO THE DECISION OF THE HAT AHMEDABAD BENCH 'A' IN THE CASE(S) OF ACIT VS. HIMA NSHU J. SHAH & OTHERS IN ITA NOS. 2875, 2878, 2879 & 2880/AHD720 08 & CO. NOS. 292, 295, 296 & 297/AHD/2008 AND 2881 AND2883/ AHD/2008 & CO. NOS. 299 & 300/AM2008 & OTHERS, PRONOUNCED ON 17.07.2009, WHEREIN RELIANCE WAS PLACED ON THE DECI SION OF HAT, LUCKNOW BENCH IN THE CASE OFSARNATH INFRASTRUCTURE (P) LTD. VS.ACIT (122 TTJ216) (2009) 313 ITR (AT) 13 ITAT LU CKNOW, WHEREIN IT WAS HELD THAT THE ASSESSEE DOES NOT INTE ND TO DEAL IN SHARES. FOR THE SAKE OF CONVENIENCE, WE REPRODUCE P ARAGRAPH NO. 11 FROM THAT JUDGEMENT AS UNDER :- '11.1 NOW WE CONSIDER THE RELEVANT AUTHORITIES ON T HE SUBJECT. THE ISSUE WHETHER TRANSACTION IN SHARES SHOULD BE TREAT ED AS INVESTMENT OR TREATED AS BUSINESS AND IN WHAT CIRCUMSTANCES HO LDINGS SHOULD BE TREATED AS INVESTMENT OR AS STOCK IN TRADE, HAS BEEN DISCUSSED IN ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 24 - DETAIL BY THE TRIBUNAL, LUCKNOW BENCH SARNATH INFRA STRUCTURE (P) LTD. VS. ACIT (122 TTJ216). IN THAT DECISION, TRIBU NAL HAS REFERRED TO THE FOLLOWING JUDGEMENT OF THE COURTS. 1. FIDELITY NORTHSTAR FUND, IN RE (2007) 288 ITR 64 1 (AAR). 2. RAJA BAHADUR VISHESHWAR SINGH VS. COMMISSIONER O F INCOME TAX (1961) 41 JTR685(I). 3. CENTRAL INDIA AGENCIES (P) LTD. VS. COMMISSIONER OF INCOME TAX (1970) 71 ITR 959 (ALL.) 4. SAROJINI RAJAH (MRS.) VS. COMMISSIONER OF INCOM E-TAX (1969) 71 ITR 504 (MAD). 5. DALHOUSIE INVESTMENT, TRUST CO. LTD. VS. COMMISS IONER OF INCOME-TAX (1968) 68 6. COMMISSIONER OF INCOME-TAX, VS. ASSOCIATED INDUS TRIAL DEVELOPMENT CO. (P) LTD (1971) 82 ITR 586 (I). 7. COMMISSIONER OF INCOME-TAX VS. HOICK LARSEN (H. ) (1986) 160 ITR 067 (I). 8. COMMISSIONER OF INCOME-TAX VS. SUTLEJ COTTON MIL LS SUPLLY AGENCY LTD. (1975) 100 ITR 706 (I). 18. AFTER CONSIDERING ABOVE RULINGS, WE CULL OUT FOLLOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTIONS(S) IN QUESTION ARE IN THE NATU RE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE T IME OF PURCHASE OF SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED AS STOCK-IN -TRADE OR INVESTMENT. WHETHER SHOWN IN OPENING / CLOSING S TOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING AS SET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON ? NORMALLY, MONEY IS BORR OWED TO PURCHASE GOODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR ITEM ? IF PURCHASE AND SALE ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT IN THAT ITEM, IT WOULD INDICATE TRADE. HABITUAL DEALIN G IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE . SIMILARLY, RATIO BETWEEN THE .PURCHASES AND SALES A ND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING O R INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDIC ATE ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 25 - TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT.). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PRO FIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATIO N IN ITS VALUE? FORMER WILL INDICATE INTENTION OF TRADE AND LATER, AN INVESTMENT.'- IN THE CASE OF SHARES WHETH ER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN T HE BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHER E THEY ARE VALUED AT COST OR MARKET VALUE OR NET REALIZABL E VALUE (WHICHEVER IS LESS), IT WILL INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW. THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEMORANDUM OF ASSOCIATION / ARTICLES OF ASSOCIATION ? WHETHER FOR TRADE OR FOR INVESTMENT. IF AUTHORIZED ONLY FOR TRADE, THEN 'WHETHER THESE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO S HOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING A ND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE , BETWEEN TWO TYPES OF HOLDINGS. IF THE ASSESSEE IS A BLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SH OW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK-IN- TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE TH AT APPARENT IS NOT REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SH ARES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) F OR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISIT ES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WH ETHER THE ASSESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 26 - REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING A S A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR W HEN PURCHASES WERE MADE?. (10) IT IS PERMISSIBLE AS PER CBDT'S CIRCULAR NO .4 OF 2007OF 15 TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS, ONE FOR TRADING AND OTHER FOR INVESTMEN T PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EAC H TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE I S NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIV E EFFECT OF SEVERAL FACTORS HAS TO BE SEEN. 19. THESE DECISION HAS BEEN FOLLOWED BY THE MU MBAI BENCH IN THE CASE OFGOPAL PUROHIT VS. JCIT[(2009) 29 SOT 117 (MUM.)] 20. CBDT IN CIRCULAR NO.4/2007 DATED 15.06.200 7 HAS LAID DOWN THE PRINCIPLES FOR HOLDING AS TO WHEN PROFITS EARNED FROM TRANSACTIONS IN SHARE SHOULD BE HELD AS BUSINESS OR SHOULD BE TREATED AS INVESTMENT. CIRCULAR NO.4/2007, DATED JUNE 15, 2007. SUB : DISTINCTION BETWEEN SHARES HELD AS STOCK-IN-T RADE AND SHARES HELD AS INVESTMENT - TESTS FOR SUCH A DISTIN CTION. THE INCOME-TAX ACT, 1961 MAKES A DISTINCTION BETWEE N A CAPITAL ASSET AND A TRADING ASSET. 2. CAPITAL ASSET IS DEFINED IN SECTION 2(14) OF TH E ACT. LONG TERM CAPITAL ASSETS AND GAINS DEALT WITH UNDER SECTION 2(29A) AND SECTION 2(29B). SHORT TERM.CAPIT AL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2 (42 A) AND SECTION 2(42B). 3. TRADING ASSET IS DEALT WITH UNDER SECTION 28 OF THE I. T. 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 THE LIGHT OF A NUMBER OF JUDICIAL DECISI ONS PRONOUNCED AFTER THE ISSUE OF THE ABOVE INSTRUCTION S, IT IS PROPOSED TO UPDATE THE ABOVE INSTRUCTIONS FOR THE ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 27 - INFORMATION OF THE ASSESSEE AS WELL AS FOR GUIDANCE OF THE ASSESSING OFFICERS. 5. IN THE CASE OF CIT V. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD. (1971) 82 ITR 586, THE SUPREME COURT OBSERVED THAT (HEAD NOTE): 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF STOCK-IN-TRADE .IS A MA TTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS T HE SHARES AND HE SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POS ITION TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE HIS STOCK-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. 6. IN THE CASE OF CIT V. H. HOICK LARSEN (1986) 16 0 ITR 67, THE SUPREME COURT OBSERVED (PAE87) : . 'THE HIGH COURT, IN OUR OPINION, MADE A MISTAKE IN OBSERVING WHETHER TRANSACTIONS OF SALE AND PURCHASE OF SHARES WERE TR ADING TRANSACTIONS OR WHETHER THESE WERE IN THE NATURE OF INVESTMENT WAS A QUESTION OF LAW. THIS IS A MIXED Q UESTION OF LAW AND FACT.' 7. THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASS ESSING OFFICER. 8. THE AUTHORITY FOR ADVANCE RULINGS (AAR) [2007] 2 88 ITR 641,REFERRING TO THE DECISIONS OF THE SUPREME C OURT IN SEVERAL CASES, HAS CULLED OUT THE FOLLOWING PRINCIP LES (PAGE 651) (I) WHERE A COMPANY PURCHASES AND SELLS SHARE S, IT MUST BE SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THAT EXISTENCE OF THE POWER TO PURCHASE AND SELL SHARE S IN THE MEMORANDUM OF ASSOCIATION IS NOT DECISIVE OF THE NA TURE OF TRANSACTION; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS, T HE MANNER OF MAINTAINING BOOKS OF ACCOUNT, THE MAGNITUDE OF PURC HASES AND SALES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING WOULD FAMISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS; (HI) ORDINARILY THE PURCHAS E AND SALE OF SHARES WITH THE MOTIVE OF EARNING A PROFIT, WOULD RESULT IN THE TRANSACTION BEING IN THE NATURE OF TR ADE /ADVENTURE IN THE NATURE OF TRADE; BUT WHERE THE OB JECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCOME BY WAY OF DIVIDEND ETC. THEN THE PROFITS ACCRUING B Y ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 28 - CHANGE IN SUCH INVESTMENT (BY SALE OF SHARES) WILL YIELD CAPITAL GAIN AND NOT REVENUE RECEIPT. 9. DEALING WITH THE ABOVE THREE PRINCIPLES, THE AAR HAS OBSERVED IN THE CASE OF FIDELITY GROUP AS UNDER (PAGE 661): 'WE SHALL REVERT TO THE AFOREMENTIONED PRINCIPLES. THE FIRST PRINCIPLE REQUIRES US TO ASCERTAIN WHETHER TH E PURCHASE OF SHARES BY A FII IN EXERCISE OF THE POWE R IN THE MEMORANDUM OF ASSOCIATION / TRUST DEED WAS AS STOCK -IN- TRADE AS THE MERE EXISTENCE OF THE POWER TO PURCHAS E AND SALE SHARES WILL NOT BY ITSELF BE DECISIVE OF THE N ATURE OF TRANSACTIONS. WE HAVE TO VERIFY AS TO HOW THE SHARE S WERE VALUED / HELD IN THE BOOKS OF ACCOUNT I.E., WHETHER THEY WERE VALUED AS STOCK-IN-TRADE AT THE END OF THE FIN ANCIAL YEAR FOR THE PURPOSE OF ARRIVING AT BUSINESS INCOME OR HELD AS INVESTMENT IN CAPITAL ASSETS. THE SECOND PR INCIPLE FURNISHES A GUIDE. FOR DETERMINING THE NATURE OF TRANSACTION BY VERIFYING WHETHER THERE ARE SUBSTANT IAL TRANSACTIONS, THEIR MAGNITUDE, ETC., MAINTENANCE OF BOOKS OF ACCOUNT AND FINDING THE RATIO BETWEEN PURCHASES AND SALES. IT WILL NOT BE OUT OF PLACE TO MENTION THAT REGULATION 18 OF THE SEBI REGULATION ENJOINS UPON EVERY FII TO KEEP AND MAINTAIN BOOKS OF ACCOUNT CONTAINING TRUE AND F AIR ACCOUNTS RELATING TO REMITTANCE OF INITIAL CORPUS O F BUYING AND SELLING AND REALIZING CAPITAL GAINS ON INVESTME NTS AND ACCOUNTS OF REMITTANCE TO INDIA FOR INVESTMENT IN I NDIA AND REALIZING CAPITAL GAINS ON INVESTMENT FROM SUCH REMITTANCES. THE THIRD PRINCIPLE SUGGESTS THAT ORD INARILY PURCHASES AND SALES OF SHARES WITH THE MOTIVE OF RE ALIZING PROFIT WOULD LEAD TO INFERENCE OF TRADE /ADVENTURE IN THE NATURE OF TRADE; WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF COMPANIES IS TO DERIVE INCOME BY WAY OF DIVIDENDS ETC., THE TRANSACTIONS OF PURCHASES AND S ALES OF SHARES WOULD YIELD CAPITAL GAINS AND NOT BUSINESS P ROFITS. 10. THE CENTRAL BOARD OF DIRECT TAXES ALSO WISHES TO EMPHASIZE THAT IT IS POSSIBLE FOR A TAX PAYER TO HA VE TWO PORTFOLIOS, I.E. AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSET S AND A TRADING PORTFOLIO COMPRISING OF STOCK-IN-TRADE WHIC H ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 29 - PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUSINESS INCOME . 11. THE ASSESSING OFFICERS ARE ADVISED THAT THE ABO VE PRINCIPLES 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 GA INS) OR AS STOCK-IN-TRADE (AND THEREFORE GIVING RISE TO BUS INESS PROFITS). THE ASSESSING OFFICER ARE FARTHER ADVISED THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EF FECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMIN E WHETHER, IN A GIVEN CASE, -THE SHARES ARE HELD BY T HE ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE. 12. THESE INSTRUCTIONS SHALL SUPPLEMENT THE EARLIE R INSTRUCTION NO.1827 DATED AUGUST, 31, 1989. [F.NO.L49/287/2005-TPL]. 21. APPLYING ABOVE PRINCIPLES IN THE PRESENT CASE, WE FIND THAT (1) THE ASSESSEE DID NOT HAVE DEALINGS IN LARGE NUMBER OF SCRIPTS OR LARGE FREQUENCY OF TRANSACTIONS WHICH WOULD WARR ANT INTERFERENCE THAT IT IS TRADER. (2) IN THE BOOKS OF ACCOUNTS THE ASSESSEE HAS NEVE R TREATED THE SHARES AS STOCK IN TRADE. RETURN OF INCOME HAVE BEE N FILED PRIOR TO THE SEARCH SHOWING THEM AS INVESTMENT AND PROFIT THEREFROM AS CAPITAL GAINS: (3) THE ASSESSEE HAVE RETAINED THE SHARES FOR ENJO YING APPRECIATION IN VALUE AND NOT FOR THE PURPOSE OF RE ALIZATION OF PROFIT. THERE IS APPARENTLY NO COMMERCIAL MOTIVE WHICH IS AN ESSENTIAL INGREDIENT TO BE A TRADER. IT IS CLEAR LY SHOWN BY THEM IN THE RETURNS OF INCOME FILED THAT THEY ARE E NJOYING DIVIDEND INCOME FROM HOLDING SHARES AS INVESTMENT. (4) IT IS NOT SHOWN BY THE REVENUE THAT STOCK OF S HARES HAVE BEEN VALUED AT COST OR MARKET PRICE WHICHEVER IS LO W BUT THEY HAVE BEEN VALUED AT COST WHILE COMPUTING THE C APITAL GAINS; (5) THE ASSESSEE HAVE APPARENTLY DISCHARGED THE PR IMARY ONUS BY KEEPING RECORD OF INVESTMENT SHOWING HOLDINGS ON LY AS INVESTMENT AND NOT STOCK IN TRADE. THE PRIMARY ONUS HAS NOT BEEN REBUTTED BY THE REVENUE. THE CASE OF THE REVEN UE IS THUS BASED MERELY ON SUSPICION AND ON NUMBER OF TRANSACTIONS CARRIED IN ONE OR TWO YEARS THOUGH WHI CH ARE NOT FREQUENT IF WE SPREAD THEM ON ' MONTHLY BASIS A S OBSERVED BY US ABOVE; (6) ASSESSEE HAVE ALWAYS TAKEN THE DELIVERY OF SHA RES AND MADE THEM REGISTERED. IT HAS BEEN HELD IN SARNATH INFRAS TRUCTURE ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 30 - (P) LTD. V. ACIT (122 TTJ 216) THAT ONCE SHARES ARE REGISTERED IN THE NAME OF THE ASSESSEE, INTENTION I S CLEAR THAT IT IS AN INVESTMENT AND NOT A TRADE; (7) THERE IS NO MATERIAL ON RECORD TO SUGGEST TH AT THE ASSESSEE HAS FULFILLED THE LEGAL REQUIREMENT FOR DEALING AS A TRADER IN SHARES. 22. THUS, THE PERCEPTION OF THE DEPARTMENT IS THAT THE NATURE OF TRANSACTIONS IN SHARES IS TRADING IN THE CASE OF THE ASSESSEE ON THE GROUND RE-SHUFFLING ITS PORTFOLIO IS MISPLACED BECAUSE ONCE THE ASSESSEE GOT THE SHARES REGISTERED IN ITS NAME, IT HAS DISCHARGED THE PRIMARY ONUS AND IT IS NOW WITH THE REVENUE TO SHOW THAT IN SPITE OF SHARES BEING TRANSFERRED / RE GISTERED IN THE NAME OF THE ASSESSEE, THE ASSESSEE COULD STILL BE D EALING IN SHARES. THIS COULD BE DONE BY SHOWING THAT FREQUENC Y TRANSACTION IS QUITE HIGH OR IT IS COMPLYING WITH T HE LEGAL REQUIREMENTS OF BEING A TRADER IN SHARES. HAVING NO T COLLECTED ADEQUATE MATERIAL, WE ARE OF THE VIEW THAT THE ASSE SSEE CANNOT BE ' TREATED AS TRADER IN SHARES PARTICULARLY WHEN ITS MAIN BUSINESS IS IN MANUFACTURING AND TRADING OF DETERGENT. IT IS ALSO NOT CORRECT TO SAY THAT MEMORANDUM AND ARTICLES OF ASSO CIATION HAS NOT AUTHORIZED THE ASSESSEE TO MAKE INVESTMENT IN S HARES AND SECURITIES. THE LD. AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE DREW OUR ATTENTION TOWARDS PAGE NOS. 3&4 OF MEMORAN DUM AND ARTICLES OF ASSOCIATION WHEREIN CLAUSE-B (SIX POINT S) PERMITS THE ASSESSEE TO MAKE INVESTMENT IN SHARES, WHICH READS AS UNDER:- (NOT REPRODUCED) 23. ACCORDINGLY, WE HOLD THAT THE LEARNED CIT(A PPEALS) WAS JUSTIFIED IN TREATING THE GAIN IN SHARES AS 'CAPITA L GAIN ' AND NOT AS 'BUSINESS INCOME '. 13. !N - THE LIGHT OF PRINCIPLES LAID DOWN BY HON'BLE ITAT, AHMEDABAD IN THE ORDER IN THE CASE OF M/S. HIPOLIN LTD., SUPR A, THE FACTS IN THE PRESENT CASE ARE REQUIRED TO BE EXAMINED. IN TH E PRESENT CASE, THE APPELLANT HAS DERIVED SURPLUS OF RS.26,04,736/- IN THE SALES / PURCHASE OF SHARES OF THE COMPANIES, THE SH ARES OF WHICH WERE ACQUIRED THROUGH IPOS BY APPLYING FOR TH E SAME THROUGH M/S. IL&FS. THE FINANCING FOR SUCH IPOS IS PARTLY BORNE BY APPELLANT AND PARTLY BY IL&FS. THESE ENTITIES AR E ALSO CHARGING FEE OF SUCH ACTIVITIES. THEREFORE, THE POI NT FOR DETERMINATION IS WHETHER SUCH A SYSTEMATIC ACTIVELY OF FINANCING, AND MAKING APPLICATIONS IN THE IPO AND THEREBY, GET TING SHARES IN THE IPO, COULD BE TERMED AS BUSINESS OR ADVENTUR E IN THE NATURE OF TRADE. INCIDENTALLY, THE BUSINESS, AS DEF INED IN SECTION 2(13), 'INCLUDES ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 31 - ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE.' THE WORD 'ADVENTURE' IS DEFINED IN THE SHORTER OXFORD DICTIONARY AS A PECUNIARY VENTURE .......... ........ AND THE WORD PECUNIARY VENTURE, IN ITS TURN, IS DEFINED AS 'A CO MMERCIAL ENTERPRISE IN WHICH THERE IS CONSIDERABLE RISK OF L OSS AS WELL AS CHANCE OF GAIN.' 14. IN THE PRESENT CASE, THE APPELLANT HAS PARTLY FINAN CED IN THE IPOS OF CERTAIN COMPANIES TO M/S. IL&FS. AFTER ALLO TMENT, THESE SHARES HAVE BEEN TRANSFERRED TO APPELLANT. SUCH AN ACTIVITY HAS TO BE TERMED AS AN ORGANIZED AND SYSTEMATIC ACTIVIT Y, CARRIED ON CONTINUOUSLY WITH A VIEW TO EARN PROFITS. THE SOLE INTENTION .AT THE TIME OF ACQUISITION OF SHARES THROUGH SUCH MODE WAS TO SELL THESE SHARES AT A PROFIT. SUCH AN ACTIVITY HAS TO B E CONSTRUED AS ADVENTURE IN THE NATURE OF TRADE. IN SUCH SITUATION, THE SURPLUS OF RS.26,04,736/- HAS TO BE TAXED AS GAIN FROM THE ADVENTURE IN THE NATURE OF TRADE AND SAME HAS TO BE TAXED AS BUSINESS INCOME. THE ASSESSING OFFICER IS DIRECTED TO TAX RS.26,04,736/- AT THE RATES APPLICABLE IN THE CASE OF BUSINESS AND PROFESSION. 15. AS REGARDS TO BALANCE SURPLUS AMOUNT OF RS.3,20 ,50,094/-, THIS SURPLUS HAS ARISEN AS THE APPELLANT HAD MAINLY INVESTED IN SHARES IT'S OWN FUNDS. IT IS ALSO NOTICED THAT INVE STMENT IN SHARES IS SHOWN BY THE APPELLANT IN THE ACCOUNT UNDER THE HEAD INVESTMENT AND NOT STOCK IN TRADE. THUS, THE APPELL ANT'S INTENTION OF MAKING INVESTMENT WAS CLEAR. THE APPEL LANT HAS NOT INCURRED ANY SUBSTANTIAL INTEREST ON BORROWINGS FOR SUCH INVESTMENT. THERE IS NO MOTIVE OF TRADING IN SHARES ESTABLISHED BY THE ASSESSING OFFICER EXCEPT REFERRING TO THE VO LUME AND NUMBER OF TRANSACTIONS. I ALSO APPRECIATE THE ARGUM ENTS THAT THE ASSESSING OFFICER'S CONTENTION ABOUT PERIOD OF HOLD ING ARE NOT CORRECT PARTICULARLY IN VIEW OF THE FACT THAT DEFIN ITION OF SHORT TERM CAPITAL ASSET IN RESPECT OF SHARES AND SECURITIES I TSELF SPECIFICALLY PROVIDES THAT THE PERIOD OF HOLDING WO ULD BE LESS THAN ONE YEAR. THIS ITSELF SUGGEST THAT THE SHORT P ERIOD OF HOLDING IS NOT THE CRITERIA TO BE CONSIDERED AS TRA DING TRANSACTIONS. APART FROM THIS, THE SECTION 111A ALS O PROVIDES FOR SPECIFIC TREATMENT OF TAX IN RESPECT OF SHORT TERM CAPITAL ASSET, PARTICULARLY WHEN STT HAS BEEN PAID. IN APPELLANT'S CASE, THE TRANSACTIONS ARE SUBJECTED TO STT. REFERENCE MAY AL SO BE MADE TO THE BOMBAY ITAT DECISION IN THE CASE OF GOP AL PUROHIT 29 SOT 117, WHICH SUPPORTS THE APPELLANT'S EXPLANAT ION. IN THE CIRCUMSTANCES, MERELY BECAUSE THE APPELLANT HAS SOL D THE SHARES WHICH WERE PURCHASED IN THE BOOMING PERIOD A ND IT EARNED SURPLUS BY WAY OF CAPITAL GAIN, THE ASSESSIN G OFFICER ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 32 - WAS NOT JUSTIFIED IN HOLDING IT AS A BUSINESS PROFI T. HE IS DIRECTED TO TAX SUCH SURPLUS OF RS 3,20,50,904/- AS SHORT TERM CAPITAL GAINS AS PER PROVISIONS OF SECTION 111 A. 7. SIMILARLY, IN ASSESSMENT YEAR 2006-07, THE ASSES SING OFFICER FOR THE VERY SAME REASON TREATED SURPLUS FROM SALE OF S HARES OF RS 8,04,24,273/- AS BUSINESS INCOME OF THE ASSESSEE WH ICH WAS HELD BY THE LD. CIT(A) IN APPEAL FILED BY THE ASSESSEE T O THE EXTENT AS SHORT TERM CAPITAL GAINS OF THE ASSESSEE TO THE EXT ENT OF RS 7,75,15,539/- AND THE BALANCE AMOUNT OF RS 28,20,27 0/- AS BUSINESS INCOME OF THE ASSESSEE. 8. BEING AGGRIEVED BY THIS ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 9. THE LD. DR SUBMITTED THAT THE CRITERIA FOR DECID ING WHETHER THE SURPLUS FROM SALE AND PURCHASE OF SHARES WAS BUSINE SS INCOME OF THE ASSESSEE OR SHORT TERM CAPITAL GAINS HAS TO BE DECIDED AFTER CONSIDERING THE FREQUENCY OF PURCHASE AND SALE OF S HARES, UTILIZATION OF BORROWED FUNDS IN THE PURCHASE AND S ALE OF SHARES AND THE VOLUME OF PURCHASE AND SALE OF SHARES. HE SUBMITTED THAT THE ASSESSING OFFICER HAS ELABORATELY DISCUSSED IN HIS ORDER ON THESE ASPECTS WHILE HOLDING THAT THE ASSESSEE WAS A TRADER IN SHARES AND NOT AN INVESTOR. HE FURTHER SUBMITTED THAT IN THE ASSESSMENT YEAR 2004-05, THE ASSESSEE HIMSELF HAD SHOWN THE SU RPLUS FROM SALE AND PURCHASE OF SHARES AS BUSINESS INCOME. IT WAS ALSO THE SUBMISSION OF THE LD. DR THAT IN THE ORDER OF THE L D. CIT(A), THERE IS NO DISCUSSION ABOUT THE OWN FUNDS OF THE ASSESSE E AND HOW MUCH LOAN FUNDS WERE UTILIZED IN THE PURCHASE AND S ALE OF SHARES. ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 33 - IT WAS ALSO THE SUBMISSION OF THE LD. DR THAT AS HE LD BY THE LD. CIT(A), THE STT CHARGE PAID WAS NOT A DECIDING FACT OR AS TO WHETHER THE PROFIT ON SALE OF SHARES WAS BUSINESS I NCOME OR CAPITAL GAINS OF THE ASSESSEE. 10. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE S UBMITTED THAT THE LD. CIT(A) HAS OBSERVED IN PARA 8 POINT NO. 2.1 THA T WITH REGARD TO OBSERVATION OF THE ASSESSING OFFICER THAT IN ASS ESSMENT YEAR 2004-05 THE ASSESSEE HAD SHOWN SUCH SURPLUS AS TRAD ING RECEIPT AND IN ASSESSMENT YEAR 2005-06, THE ASSESSEE HAS TA KEN DIFFERENT STAND, THE ASSESSEE STATES THAT THE HE ALONG WITH H IS GROUP MEMBERS TILL ASSESSMENT YEAR 2004-05 WAS INVOLVED IN SHARE TRADING ACTIVITY. HOWEVER, FROM ASSESSMENT YEAR 2005-06, T HE ASSESSEE HAS DECIDED NOT TO BE INVOLVED IN SHARE TRADING ACT IVITY. AS SUCH, NO SYSTEMATIC ACTIVITY OF SHARE TRADING IS CARRIED OUT. IN FACT, THE ASSESSEE HAS NOT CARRIED OUT ANY SYSTEMATIC ACTIVIT Y AND HAS FURTHER DECIDED NOT TO CARRY OUT ANY SUCH ACTIVITY. HE THE N REFERRED TO PAGE 9 OF THE ASSESSMENT ORDER AND POINTED OUT THAT THE ASSESSEE HAD 9 TRANSACTIONS IN 5 SCRIPTS. HE SUBMITTED THAT IN SIMILAR GROUP OF CASES, THE TRIBUNAL IN THE CASE OF SMT. SONAL D. VORA IN ITA NOS. 568/AHD/2010 FOR ASSESSMENT YEAR 2005-06 CONSO LIDATED ORDER DATED 12.10.2012 HELD THAT IN THE PRESENT CAS E IT IS NOTED BY THE LD. CIT(A) ON PAGE 10 OF HIS ORDER THAT NUMBER OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN ASSESSMENT YEARS 200 3-04, 2004-05 AND 2005-06 WERE 9, 5 AND 9 RESPECTIVELY. THIS FAC TOR ALONE GOES TO SHOW THAT AS PER THE RECENT JUDGEMENT OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF VAIBHAV J. SHAH IN TAX AP PEAL NOS. 77 ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 34 - & 78 OF 2010 VIDE ORDER DATED 27.06.2012, IT CANNOT BE SAID THAT THERE IS REPETITION AND CONTINUITY COUPLED WITH MAG NITUDE OF TRANSACTIONS, COMPARING REASONABLE PROPORTIONS TO T HE STRENGTH OF HOLDING BECAUSE NUMBER OF TRANSACTIONS CARRIED OUT IN THE PRESENT CASE IS ONLY 9 AND THEREFORE, AS THERE IS JUDGEMENT OF HONBLE GUJARAT HIGH COURT, THIS INFERENCE CANNOT BE DRAWN THAT ACTIVITY IS IN THE NATURE OF BUSINESS. THEREFORE, AS PER THIS JUDGEMENT OF THE HONBLE GUJARAT HIGH COURT, IT HAS TO BE ACCEPTED T HAT THE PROFIT ARISING OUT OF PURCHASE AND SALE OF SHARES IN THE P RESENT CASE IS ASSESSABLE UNDER THE HEAD CAPITAL GAINS AND NOT U NDER THE HEAD INCOME FROM BUSINESS. HE FURTHER POINTED OUT FRO M PARA 12 OF THE ORDER OF THE TRIBUNAL IN THE CASE OF SMT. SONAL D. VORA, IT CANNOT BE SAID THAT IF THE ASSESSEE IS ENGAGED IN T HE BUSINESS OF PURCHASE AND SALE OF SHARES IT CANNOT HOLD SHARES A S INVESTMENT. WE ALL KNOW THAT A JEWELLER WHO IS DEALING IN JEWEL LERY CAN ALSO HOLD JEWELLERY AS CAPITAL ASSET AND SIMILARLY, A PE RSON WHO IS DEALING IN REAL ESTATE CAN ALSO HOLD CERTAIN PROPER TY AS INVESTMENT AND THEREFORE, SIMPLY ON THIS BASIS THAT IN AN EARL IER YEAR OR EVEN IN THE PRESENT YEAR THE ASSESSEE WAS ENGAGED IN PURCHA SE AND SALE OF SHARES, THE ASSESSEE CANNOT HOLD ANY SHARES AS INVE STMENT. THE LD. AR FURTHER RELIED ON THE DECISION OF THE HONBLE GU JARAT HIGH COURT IN THE CASE OF CIT VS. NEERAJ AMIDHAR SOTI (2 012) 347 ITR 149 (GUJ.) AND SUBMITTED THAT IT WAS HELD THAT THE REASONING ADOPTED BY THE ASSESSING OFFICER LOSES SIGHT OF THE FACT THAT MERELY BECAUSE THE ASSESSEE HAD PURCHASED FROM BORROWED FU NDS OBTAINED ON HIGH RATE OF INTEREST WOULD NOT CHANGE THE NATUR E OF THE TRANSACTION FROM INVESTMENT TO ONE IN THE NATURE OF ADVENTURE IN ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 35 - THE NATURE OF TRADE. HE FURTHER RELIED ON THE DEC ISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. B ANKIM JAYANTILAL SHAH (2013) 33 TAXMANN.COM 241 (GUJ.) AN D SUBMITTED THAT IT WAS HELD BY THE HONBLE HIGH COURT THAT MER ELY BECAUSE THE SCRIPT WAS HELD ONLY FOR ONE DAY WOULD NOT BE SUFFI CIENT TO HOLD THAT THE ASSESSEE WAS IN THE BUSINESS OF TRADING IN SHARES. IT WAS THEREFORE THE SUBMISSION OF THE LD. AR THAT THE APP EALS OF THE REVENUE SHOULD BE DISMISSED AND THE CROSS OBJECTION S OF THE ASSESSEE SHOULD BE ALLOWED. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE APART FROM SALARY INCOME ALSO EA RNED PROFIT ON SALE OF SHARES OF RS 3,46,55,829/- IN ASSESSMENT YE AR 2005-06 AND RS 8,04,24,273/- IN ASSESSMENT YEAR 2006-07. THE A SSESSEE CLAIMED THE ENTIRE PROFIT ON SALE OF SHARES AS SHOR T TERM CAPITAL GAINS. THE ASSESSING OFFICER HOWEVER HELD THAT THE AFORESAID PROFIT IS ASSESSABLE AS BUSINESS INCOME ON THE GROU ND THAT SHARES WERE HELD FOR A SHORT PERIOD OF TIME, FREQUENCY OF VOLUME OF SHARES DEALT IN WAS HIGH AND BORROWED FUNDS WERE UTILIZED FOR PURCHASING SHARES AND IN EARLIER YEARS, THE ASSESSEE HIMSELF O FFERED SUCH PROFITS AS BUSINESS INCOME. 12. ON APPEAL BY THE ASSESSEE BEFORE THE LD. CIT(A) , THE LD. CIT(A) PARTLY ALLOWED THE CLAIM OF THE ASSESSEE FOR ASSESS MENT YEAR 2005-06 BY HOLDING AS UNDER: ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 36 - 13. IN THE LIGHT OF PRINCIPLES LAID DOWN BY HON'BL E ITAT, AHMEDABAD IN THE ORDER IN THE CASE OF M/S. HIPOLIN LTD., SUPRA, THE FACTS IN THE PRESENT CASE ARE REQUIRED TO BE EX AMINED. IN THE PRESENT CASE, THE APPELLANT HAS DERIVED SURPLUS OF RS.26,04,7367- IN THE SALES / PURCHASE OF SHARES OF THE COMPANIES, THE SHARES OF WHICH WERE ACQUIRED THROUG H IPOS BY APPLYING FOR THE SAME THROUGH M/S. IL&FS. THE FINAN CING FOR SUCH IPOS IS PARTLY BORNE BY APPELLANT AND PARTLY B Y IL&FS. THESE ENTITIES ARE ALSO CHARGING FEE OF SUCH ACTIVI TIES. THEREFORE, THE POINT FOR DETERMINATION IS WHETHER S UCH A SYSTEMATIC ACTIVELY OF FINANCING, AND MAKING APPLIC ATIONS IN THE IPO AND THEREBY, GETTING SHARES IN THE IPO, COULD B E TERMED AS BUSINESS OR ADVENTURE IN THE NATURE OF TRADE. INCID ENTALLY, THE BUSINESS, AS DEFINED IN SECTION 2(13), 'INCLUDES AN Y TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE.' THE W ORD 'ADVENTURE' IS DEFINED IN THE SHORTER OXFORD DICTIO NARY AS A PECUNIARY VENTURE .................. AND THE WORD P ECUNIARY VENTURE, IN ITS TURN, IS DEFINED AS 'A COMMERCIAL ENTERPRISE IN WHICH THERE IS CONSIDERABLE RISK OF LOSS AS WELL AS CHANCE OF G AIN.' 14. IN THE PRESENT CASE, THE APPELLANT HAS PARTLY F INANCED IN THE IPOS OF CERTAIN COMPANIES TO M/S. IL&FS. AFTER ALLOTMENT, THESE SHARES HAVE BEEN TRANSFERRED TO APPELLANT. SU CH AN ACTIVITY HAS TO BE TERMED AS AN ORGANIZED AND SYSTE MATIC ACTIVITY, CARRIED ON CONTINUOUSLY WITH A VIEW TO EA RN PROFITS. THE SOLE INTENTION .AT THE TIME OF ACQUISITION OF SHARE S THROUGH SUCH MODE WAS TO SELL THESE SHARES AT A PROFIT. SUCH AN ACTIVITY HAS TO BE CONSTRUED AS ADVENTURE IN THE NATURE OF TRADE . IN SUCH SITUATION, THE SURPLUS OF RS.26,04,736/- HAS TO BE TAXED AS GAIN FROM THE ADVENTURE IN THE NATURE OF TRADE AND SAME HAS TO BE TAXED AS BUSINESS INCOME. THE ASSESSING OFFICER IS DIRECTED TO TAX RS.26,04,736/- AT THE RATES APPLICABLE IN THE C ASE OF BUSINESS AND PROFESSION. 15. AS REGARDS TO BALANCE SURPLUS AMOUNT OF RS.3,20,50,094/-, THIS SURPLUS HAS ARISEN AS THE AP PELLANT HAD MAINLY INVESTED IN SHARES IT'S OWN FUNDS. IT IS ALS O NOTICED THAT INVESTMENT IN SHARES IS SHOWN BY THE APPELLANT IN T HE ACCOUNT UNDER THE HEAD INVESTMENT AND NOT STOCK IN TRADE. T HUS, THE APPELLANT'S INTENTION OF MAKING INVESTMENT WAS CLEA R. THE APPELLANT HAS NOT INCURRED ANY SUBSTANTIAL INTEREST ON BORROWINGS FOR SUCH INVESTMENT. THERE IS NO MOTIVE OF TRADING IN SHARES ESTABLISHED BY THE ASSESSING OFFICER EXCEPT REFERRING TO THE VOLUME AND NUMBER OF TRANSACTIONS. I ALSO APPRE CIATE THE ARGUMENTS THAT THE ASSESSING OFFICER'S CONTENTION A BOUT PERIOD OF HOLDING ARE NOT CORRECT PARTICULARLY IN VIEW OF THE FACT THAT DEFINITION OF SHORT TERM CAPITAL ASSET IN RESPECT O F SHARES AND SECURITIES ITSELF SPECIFICALLY PROVIDES THAT THE PE RIOD OF HOLDING ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 37 - WOULD BE LESS THAN ONE YEAR. THIS ITSELF SUGGEST TH AT THE SHORT PERIOD OF HOLDING IS NOT THE CRITERIA TO BE CONSIDE RED AS TRADING TRANSACTIONS. APART FROM THIS, THE SECTION 111A ALS O PROVIDES FOR SPECIFIC TREATMENT OF TAX IN RESPECT OF SHORT TERM CAPITAL ASSET, PARTICULARLY WHEN STT HAS BEEN PAID. IN APPELLANT'S CASE, THE TRANSACTIONS ARE SUBJECTED TO STT. REFERENCE MAY AL SO BE MADE TO THE BOMBAY ITAT DECISION IN THE CASE OF GOP AL PUROHIT 29 SOT 117, WHICH SUPPORTS THE APPELLANT'S EXPLANAT ION. IN THE CIRCUMSTANCES, MERELY BECAUSE THE APPELLANT HAS SOL D THE SHARES WHICH WERE PURCHASED IN THE BOOMING PERIOD A ND IT EARNED SURPLUS BY WAY OF CAPITAL GAIN, THE ASSESSIN G OFFICER WAS NOT JUSTIFIED IN HOLDING IT AS A BUSINESS PROFI T. HE IS DIRECTED TO TAX SUCH SURPLUS OF RS 3,20,50,904/- AS SHORT TE RM CAPITAL GAINS AS PER PROVISIONS OF SECTION 111A. SIMILARLY, THE LD. CIT(A) PARTLY ALLOWED THE CLAIM OF THE ASSESSEE IN ASSESSMENT YEAR 2006-07 BY HOLDING AS U NDER: 4.8 IN THE LIGHT OF PRINCIPLE LAID DOWN BY HON'BLE ITAT, AHMEDABAD, IN THE CASE OF HIPPOLIN LIMITED (SUPRA), THE FACTS IN THE PRESENT CASE ARE REQUIRED TO BE EXAMINED. THE A PPELLANT HAS MADE APPLICATION UNDER HNI CATEGORY IN CASE OF SPL INDUSTRIES AND SUCH APPLICATION HAS BEEN FINANCED B Y BIRLA GLOBAL ASSET FINANCE LTD PARTIALLY AND INTEREST PAI D ON SUCH BORROWED FUNDS HAS BEEN DEBITED AS PART OF COST OF SHARES. THE APPELLANT HAS EARNED INCOME FROM SALE OF SHARES OF RS.5,09,314/- BEFORE DEBITING INTEREST EXPENDITURE AND SUCH PROFIT IS PART OF INCOME FROM BUSINESS & PROFESSION AND DEDUCTION OF INTEREST IS NOT ADMISSIBLE. IPO OF SA KSOFT APPLICATION IS ALSO IN HNI CATEGORY AND HENCE THOUG H NO INTEREST IS CLAIMED ON BORROWED FUNDS, AS FUNDS BORROWED FUN DS ARE DIRECTLY APPLIED FOR MAKING SUCH APPLICATION, IT AM OUNTS TO INTENTION OF BUSINESS AND CONSIDERING SAME, PROFIT EARNED ON SALE OF SHARES FOR RS 23,10,956/- TREATED AS INCOME FROM BUSINESS & PROFESSION. THUS, INCOME OF RS.28,20,270 7- EARNED FROM SALE OF SHARES ALLOTTED IN AFOREMENTIONED IPO IS TREATED AS INCOME FROM BUSINESS & PROFESSION. 4.9 AS REGARDS BALANCE SURPLUS AMOUNT OF RS.7,75,15 ,539/-, SURPLUS HAS ARISEN AS THE APPELLANT HAD MAINLY INVE STED IN SHARES FROM HIS OWN FUNDS. IT IS ALSO NOTICED THAT INVESTMENT IN SHARES IS SHOWN BY THE APPELLANT IN THE ACCOUNT UND ER THE HEAD INVESTMENT AND NOT STOCK IN TRADE. THUS, THE APPELL ANT'S INTENTION OF MAKING INVESTMENT WAS CLEAR. THE APPEL LANT HAS NOT INCURRED ANY SUBSTANTIAL INTEREST ON BORROWINGS FOR SUCH INVESTMENT. THERE IS NO MOTIVE- OF TRADING IN SHARE S ESTABLISHED BY THE ASSESSING OFFICER EXCEPT REFERRING TO THE VO LUME AND ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 38 - NUMBER OF TRANSACTIONS. I ALSO APPRECIATE THE ARGUM ENTS THAT THE ASSESSING OFFICER'S CONTENTION ABOUT PERIOD OF HOLD ING ARE NOT CORRECT PARTICULARLY IN VIEW OF THE FACT THAT DEFINITION OF SHORT TERM CAPITAL ASSET IN RESPECT OF SHARES AND SECURITIES ITSELF SPECIFIC ALLY PROVIDES THAT THE PERIOD OF HOLDING WOULD BE LESS THAN ONE YEAR. THIS ITSELF SUGGESTS THAT THE SHORT PERIOD OF HOLDING IS NOT THE CRITERI A TO BE CONSIDERED AS TRADING TRANSACTIONS. APART FROM THIS, THE SECTION 111A ALSO PROVIDES FOR SPECIFIC TREATMENT OF TAX IN RESPECT OF SHORT T ERM CAPITAL ASSET, PARTICULARLY WHEN STT HAS BEEN PAID. IN APPELLANT'S CASE, THE TRANSACTIONS ARE SUBJECTED TO STT. REFERENCE MAY AL SO BE MADE TO THE BOMBAY ITAT DECISION IN THE CASE OF GOPAL PUROH IT 29 SOT 117 (SUBSEQUENTLY CONFIRMED BY HON'BLE BOMBAY HIGH COUR T), WHICH SUPPORTS THE APPELLANT'S EXPLANATION. I FURTHER OBS ERVE THAT SIMILAR ISSUE HAS ARISEN IN CASE OF APPELLANT FOR AY. 05-06 WHEREIN VIDE MY ORDER DATED 23/03/2010 IN APPEAL NO CIT(A)-I/CC1 (3 )7340/2009-10, I HAVE DIRECTED AO TO TREAT SURPLUS ARISING FROM SALE OF SHARES AS INCOME FROM CAPITAL GAIN. IN THE CIRCUMSTANCES, MER ELY BECAUSE THE APPELLANT HAS SOLD THE SHARES WHICH WERE PURCHASED IN THE BOOMING PERIOD AND IT EARNED SURPLUS BY WAY OF CAPITAL GAIN , THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING IT AS A BUSINE SS PROFIT. HE IS DIRECTED TO TAX SUCH SURPLUS OF RS 7,75,15,539/- AS SHORT TERM CAPITAL GAINS AS PER PROVISIONS OF SECTION 111A. 13. BEING AGGRIEVED BY THE ABOVE ORDER, THE DEPARTM ENT IS IN APPEAL BEFORE US FOR TREATING INCOME OF RS 3,20,50,904/- IN ASSES SMENT YEAR 2005-06 AND INCOME OF RS 7,75,15,539/- IN ASSESSMENT YEAR 2 006-07 AS SHORT TERM CAPITAL GAINS AND THE ASSESSEE IS IN CROSS OBJ ECTION BEFORE US AGAINST THE DECISION OF THE LD. CIT(A) TO TREAT INC OME OF RS 26,04,736/- IN ASSESSMENT YEAR 2005-06 AND INCOME OF RS 28,20,2 70/- IN ASSESSMENT YEAR 2006-07 AS BUSINESS INCOME. 14. THE LD. DR COULD NOT POINT OUT ANY SPECIFIC ERR OR IN THE FINDING OF THE LD. CIT(A). 15. WE FIND THAT IT IS AN ESTABLISHED POSITION THAT THE ASSESSEE MAY BE DEALER IN CERTAIN SHARES AND SIMULTANEOUSLY HE CAN ALSO BE INVESTOR IN RESPECT OF OTHER SHARES. THEREFORE, SIMPLY BECAUSE THE ASS ESSEE TRADED IN SOME SHARES OR ENGAGED IN TRADING OF SHARES IN EARLIER Y EARS DOES NOT MEAN THAT THE ASSESSEE CANNOT BE AN INVESTOR IN RESPECT OF OTHER SHARES IN THE ITA(SS) NOS. 533 & 699 OF 2010 AND C.O. NOS. 229 & 312 OF 2010 ACIT, CC-1(3), AHD VS. HASMUKHBHAI N. VORA FOR A.Y. 2005-06 & 2006-07 - 39 - VERY SAME YEAR OR ANY SUBSEQUENT YEAR. IN OUR CONS IDERED OPINION, THE INTENTION OF THE ASSESSEE AT THE TIME OF ACQUISITIO N OF EACH SHARE SHOULD BE CONSIDERED FOR DECIDING WHETHER THE ASSESSEE WAS A TRADER OR INVESTOR IN RELATION TO THAT ACQUISITION OF SHARES. 16. FURTHER, IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS ENGAGED IN EMPLOYMENT AND WAS EARNING SALARY INCOME OF RS 6,06 ,400/- IN ASSESSMENT YEAR 2005-06 AND RS 6,00,000/- IN ASSESS MENT YEAR 2006- 07. KEEPING IN VIEW THE ENTIRE FACTS AND CIRCUMSTA NCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WH EREIN THE LD. CIT(A) HELD THAT THE INCOME DERIVED FROM SHARES WHICH WERE ACQUIRED OUT OF BORROWED FUNDS SHOULD BE TREATED AS BUSINESS INCOME AND INCOME DERIVED FROM THE SHARES WHICH WERE ACQUIRED FROM OW N FUNDS AS SHORT TERM CAPITAL GAINS OF THE ASSESSEE. THEREFORE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A ) WHICH IS CONFIRMED FOR BOTH THE YEARS UNDER APPEAL AND GROUNDS OF APPE AL OF REVENUE FOR BOTH THE YEARS UNDER CONSIDERATION ARE DISMISSED AN D THE GROUNDS OF CROSS OBJECTION OF THE ASSESSEE FOR BOTH THE YEARS UNDER CONSIDERATION ARE ALSO DISMISSED. 17. IN THE RESULT, THE APPEAL OF THE REVENUE AND CR OSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON TUESDAY, THE 28 TH JANUARY, 2014 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 28/01/2014 GHANSHYAM MA GHANSHYAM MA GHANSHYAM MA GHANSHYAM MAURYA URYA URYA URYA, SR. P , SR. P , SR. P , SR. P. .. .S SS S. .. .