Sri Rupender Kumar Jain V. The Assistant Commissioner of Income-tax, Circle 10(1), 6th Floor, I.T. Towers, Hyderabad

ITTA/18/2013

AI Insights

The case revolves around the classification of share transactions by Sri Rupender Kumar Jain, who appealed against the decision of the Income Tax Appellate Tribunal. The primary legal question was whether these transactions should be classified as business activities or investment activities. The Assessing Officer initially classified them as business activities based on the frequency and volume of transactions, and the reinvestment of profits. However, the Commissioner of Income Tax (Appeals) reversed this finding, which was later contested by the Tribunal, restoring the original classification as business activities. The High Court upheld the Tribunal's decision, citing the established tests for distinguishing between business and investment activities in share trading.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 799614 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 23-07-2013
• Assessment Year: misc
• Other Referred Cases: P.V.S. RAJU & ANOTHER v. ADDITIONAL COMMISSIONER OF INCOME-TAX
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Business income; Income tax appellate tribunal; Investment Activity; Share trading; Short Term Capital Gains
• Section: 111A; 111A

Judgement Text

"HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A.Nos.17 and 18 of 2013 Date: 23-07-2013 I.T.T.A.No.17 of 2013: Between: Sri Rupender Kumar Jain, 31, Paigah Colony, S.P. Road, Secunderabad. … Appellant And 1. The Assistant Commissioner of Income-tax, Circle 10(1), 6th Floor, I.T. Towers, Hyderabad. … Respondent HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A.Nos.17 and 18 of 2013 COMMON JUDGMENT: (Per Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) These appeals are preferred against the judgment and order of the learned Tribunal dated 28-09-2012 in I.T.A.Nos.163/Hyd/2011 and 164/Hyd/2011 in relation to the assessment year 2007-08 and are sought to be admitted on the following questions of law: “i). On the facts and in the circumstances of the case, whether the order of the Income Tax Appellate Tribunal is not perverse in not appreciating the reasons on which the Commissioner of Income-tax (Appeals) has held the income to be from ‘short Term Capital Gains’ and not considering the fact that in the earlier years the department accepted the income to be ‘capital gains’ and holding that the income is from business? and ii). On the facts and in the circumstances of the case, whether the Income-tax Appellate Tribunal is correct in law in holding that once the volume and frequency is high, the transactions are to be treated as business transactions and not for investment and thereby holding income from such transactions to be business income?” 2. The issue is very simple in these matters, whether the transactions, in relation to the share trading done by the assesses, shall be treated as a business activity or investment activity. The Assessing Officer, in his fact finding, observed as follows: “Upon perusal of the Dmat account of the assessee it is found that there is no reflection of any share transaction thus reflecting the intension of the assessee not to take any delivery of the shares and keep them in pool account of the broker. The bills/contract notes submitted reflect frequent transaction of buying and selling as shown in Table-1. The Assessee had produced yearly transaction statement from broker without any distinction of shares held for stock-in-trade and investment.” Again it was found by the Assessing Officer as follows: “The Assessee has also admitted that the profits derived from the transaction are reinvested in shares which suggest that the assessee is engaged in recurrent activity of investing in shares and reinvesting the profit earned from the transaction. This activity also gives the transaction of the assessee the character of trading activity. The assessee further claimed that the frequency of share transactions are very near and volumes are high because of the reason that there was a market rumor that the value of shares may go down in near future. In that case, the assessee could not have reinvested the proceeds from the transactions in shares and could have taken recourse to other tools of investment. On the basis of all these facts, the assessee’s claim that the profit should be treated as capital gains could not be accepted and the same shall be treated as business activity and the profits shall be taken as business profit only.” 3. However, the Commissioner of Income Tax (Appeals), in our view, without getting any further material, reversed the aforesaid fact finding. The learned Tribunal also re-appreciated the fact and found as follows: “On perusal of the statements incorporated by the assessing officer in the assessment order, we find that the assesses have made several transactions of purchase of shares during the relevant year under consideration, and if there high volume, frequency and regularity of the activity carried on by the assesses in a systematic manner, it would partake the character of business activities carried on by the assessees in shares, and it cannot be said that the assesses have merely made investments in shares.” The learned Tribunal, thus, reversed the order of the Commissioner of Income Tax (Appeals) and restored the order of the Assessing Officer. 4. Learned counsel for the appellants submits that the Tribunal ought not to have reversed the fact finding of the Commissioner of Income Tax (Appeals) and there is no material to controvert the reasons recorded by the Commissioner of Income Tax (Appeals). 5. The learned Tribunal has noted the facts recorded by the Assessing Officer and his fact finding that it is a business activity and not an investment activity. Thereafter, following the established principles of law, the learned Tribunal came to the conclusion that the share transactions cannot be held to be an investment activity and it is a business activity. 6. Learned counsel for the appellants submits that on the identical fact, this Court has admitted a matter. In our considered opinion, when the Assessing Officer and the learned Tribunal, both found on fact that the said transaction is a business activity and not an investment activity, the law will automatically come into operation. 7. The jurisdictional High Court in the case of P.V.S. RAJU & ANOTHER v. ADDITIONAL COMMISSIONER OF INCOME-TAX [1] has laid down the tests when a particular share transaction should be treated as a business activity or investment activity, and those tests are as follows: (a) The frequency of buying and selling of shares by the appellants were high; (b) The period of holding was less; (c) The quantum of turnover was on account of frequency of transactions, and not because of huge investment; (d) The intention of the assessee to make quick profits on a huge turnover; (e) No. of scrips shares held for fewer days; (f) Whether engaged in dealing in the same scrips frequently; (g) Intention of the assessee in buying shares is not to derive income by way of dividend on such shares, but to earn profits on the sale of the shares. (h) Whether the assesses had indulged in multiple transactions of large quantities with high periodicity. These periodic transactions selecting the time of entry and exit in each scrip, called for regular direction and management which would indicate that it was in the nature of trade; (i) Repeated transactions, coupled with the subsequent conduct of the assessee to re-enter the same scrip or some other scrip, in order to take advantage of market fluctuations lent the flavour of trade to such transactions; (j) The assesses were purchasing and selling the same scrips repeatedly, and were switching from one scrip to another; (k) Mere classification of these share transactions as investment in the assessee’s books of accounts was not conclusive; (l) The intention of the assesses at the time of purchase was only to sell the shares immediately after purchase; (m) Frequency of purchase and sale of shares showed that the assessee never intended to keep these shares as investment; and (n) It is only for the purpose of claiming benefit of lower rate of tax, under Section 111A of the Act, that they had claimed certain shares to be investment, though these transactions were only in the nature of trade. 8. The learned Tribunal, while applying the above tests, on fact found that the aforesaid tests were satisfied in this case to hold that the share transaction is a business activity and not an investment activity. In view of the fact finding, this Court is unable to admit the appeal to re-appreciate the said fact. 9. The appeals are, accordingly, dismissed. There will be no order as to costs. Miscellaneous Petitions pending, if any, shall stand closed. _________________ K.J. SENGUPTA, CJ _________________ K.C. BHANU, J Date: 23-07-2013 YCR [1] 340 ITR 75 AP "