Shri Sugamchand C.Shah, Surat v. The ACIT.,Circle-3,, Surat

ITA 3554/AHD/2008 | 2005-2006
Pronouncement Date: 29-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 355420514 RSA 2008
Assessee PAN AKOPS3606J
Bench Ahmedabad
Appeal Number ITA 3554/AHD/2008
Duration Of Justice 1 year(s) 3 month(s) 2 day(s)
Appellant Shri Sugamchand C.Shah, Surat
Respondent The ACIT.,Circle-3,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 29-01-2010
Date Of Final Hearing 23-12-2009
Next Hearing Date 23-12-2009
Assessment Year 2005-2006
Appeal Filed On 27-10-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI T.K.SHARMA JUDICIAL MEMBER AND SHRI D.C.AGRAWAL ACCOUNTANT MEMBER DATE OF HEARING : 23/12/09 DRAFTED ON: 05/01/2 010 APPEAL(S) BY SL. NO(S). ITA NO(S) ASSESSMENT YEAR(S) APPELLANT RESPONDENT 1. 3554/AHD/2008 2005-06 SHRI SUGAMCHAND C.SHAH M-12 MEGH MAYUR PLAZA PARLE POINT SURAT PAN : AKOPS 3606 J THE ACIT CIR-3 SURAT 2. 4024/AHD/2008 2005-06 THE ACIT CIR-3 SURAT SHRI SUGAMCHAND C.SHAH SURAT 3. 2219/AHD/2009 2006-07 THE ACIT CIR-3 SURAT SHRI SUGAMCHAND C.SHAH SURAT 4. 1932/AHD/2009 2006-07 SHRI SUGAMCHAND C.SHAH SURAT THE ACIT CIR-3 SURAT ASSESSEE BY : SHRI RASESH B.SHAH REVENUE BY : SHRI C.K. MISHRA O R D E R PER D.C.AGRAWAL ACCOUNTANT MEMBER :- THESE ARE FOUR CROSS APPEALS; TWO BY THE ASSESSEE AND THE OTHER TWO BY THE REVENUE AGAINST THE ORDERS OF THE LD.CIT (APPEALS)-II SURAT DATED 15/09/2008 & 30/04/2009 PASSED FOR ASSESSMEN T YEARS 2005-06 & 2006-07 RESPECTIVELY. SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 2 - COMMON THEY ARE TAKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE RESPECTIV E PARTIES IN THEIR APPEALS:- (A) ASSESSEES APPEAL ITA NO.3554/AHD/2008 FOR A.Y. 2 005-06 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT THE LEARNED CIT(APPEALS) HAS ERRED IN PART LY CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING INCOME OF RS.55 40 879/- FROM SALE OF SHARE AS BUSINESS INCOME INSTEAD OF CA PITAL GAINS SHOWN BY ASSESSEE. 2. IT IS THEREFORE PRAYED THAT ABOVE TREATMENT GIV EN BY ASSESSING OFFICER AND CONFIRMED BY CIT(APPEALS) MAY PLEASE BE REVERSED. 3. APPELLANT CRAVES LEAVE TO ADD ALTER OR DELETE A NY GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE AP PEAL. (B) REVENUES APPEAL ITA NO.4024/AHD/2008 FOR A.Y. 2005-06 [1] ON THE FACT AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) SURAT HAS ERRED IN HOLDING THAT ESP ECIALLY FROM THE LENGTH OF HOLDING PERIOD GAIN FROM THE SALE OF UNI TS/SHARES CANNOT BE TREATED AS BUSINESS INCOME IGNORING THE MATER IAL FACT THAT THE BORROWINGS OF RS.41 02 914/- WERE MADE BY THE A SSESSEE ENGAGEMENT OF PROMINENT BROKERS MAINTENANCE OF VAR IOUS BANK ACCOUNTS MULTIPLE AND MAGNITUDE TRANSACTIONS OF PU RCHASE AND SALE OF SHARES/SECURITIES HOLDING PERIOD OF SHARES OF LESS THAN 45 DAYS AND MOTIVE BEHIND TRANSACTIONS IN SHARES ONLY FACT EMERGES THAT THE ASSESSEE IS A TRADER IN DEALING WITH THE SHARES AND UNITS. [2] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LEARNED CIT(A)-I SURAT HAS ERRED IN TREATING THE P ROFIT ON SALES OF SHARES/UNITS OF RS.37 52 281/- AS LONG TERM CAPITA L GAIN AS AGAINST TAXED UNDER THE HEAD BUSINESS INCOME BY T HE A.O. ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 3 - [3] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER ON THIS ISSUE. [4] IT IS THEREFORE PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT THE ORDER OF THE ASSESSING OFFICER B E RESTORED. (C) ASSESSEES APPEAL ITA NO.1932/AHD/2009 FOR A. Y. 2006-07 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT THE LEARNED CIT(APPEALS) HAS ERRED IN PART LY CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING INCOME OF RS.76 48 757/- FROM SALE OF SHARE AS BUSINESS INCOME INSTEAD OF CA PITAL GAIN SHOWN BY ASSESSEE. 2. IT IS THEREFORE PRAYED THAT ABOVE TREATMENT GIV EN BY ASSESSING OFFICER AND CONFIRMED BY CIT(APPEALS) MAY PLEASE BE REVERSED. 3. APPELLANT CRAVES LEAVE TO ADD ALTER OR DELETE A NY GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE AP PEAL. (D) REVENUES APPEAL ITA NO.2219/AHD/2009 FOR A.Y. 2006-07 (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO TREAT THE PROFIT/GAINS EARNED ON THE TRANSACTION OF PURCHASE AND SALE OF S HARES & SECURITIES OF RS.95 46 273 AS LONG TERM CAPITAL GA IN AS AGAINST TREATED BY THE AO UNDER THE HEAD BUSINESS INCOME . (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER. (3) IT IS THEREFORE PRAYED THAT THE ORDER OF THE CIT(A) MAY BE SET- ASIDE AND THAT OF ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTENT. 2. ASSESSEES APPEAL ITA NO.3554/AHD/2008 AND REVE NUES APPEAL ITA NO.4024/AHD/2008 FOR A.Y. 2005-06. ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 4 - 2.1. THE MAIN ISSUE INVOLVED IS WHETHER THE PROFIT EARNED BY THE ASSESSEE ON SALE OF SHARES IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS OR UNDER THAT HEAD BUSINESS OR PARTIAL AS BUSINESS AND PARTIAL UNDER THE HEAD CAPITAL GAINS. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT YEAR 2005-06 THE ASSESSEE FILED RETURN OF INCOME AT RS. 56 59 780/-. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF WEAVING JOB- WORK AND GREY CLOTH UNDER THE PROPRIETARY-CONCERN OF M/S.SWATI SYNTHETI CS. ASSESSEE IS ALSO A SUB-BROKER OF SOUTH GUJARAT SHARES & SHARE BROKER S LTD. DURING THE YEAR UNDER CONSIDERATION ASSESSEE DECLARED SHORT- TERM CAPITAL GAIN ON SALE OF SHARES AT RS.55 40 879/- AND 'LONG-TERM CAP ITAL GAIN' ON SALE OF SHARES AT RS.37 52 281/-. AS PER DISCUSSION MADE BY THE ASSESSING OFFICER IN PARAGRAPH NO.4.1 HE NOTICED THAT ASSESS EES TRADING IN SHARES IS AT A LARGER SCALE AND WITH FOR PROFIT MOTIVE. THE ASSESSING OFFICER ISSUED SHOW-CAUSE NOTICE TO THE ASSESSEE IN RESPONS E TO WHICH A DETAILED REPLY WAS GIVEN BUT THE SUBMISSIONS OF THE ASSESSE E WERE REJECTED AND ASSESSING OFFICER TREATED ENTIRE SUM OF RS.96 76 40 2/- AS BUSINESS INCOME AS AGAINST CAPITAL GAINS DECLARED BY THE AS SESSEE. THE LEARNED ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 5 - CIT(APPEALS) HOWEVER CONQUERED WITH ASSESSING OFF ICER ON THE BASIS OF FOLLOWING REASONS:- (I) THE MOTIVE BEHIND SALE AND PURCHASE OF SHARES I S PROFIT. IT IS EVIDENT FROM THE FACT THAT ASSESSEE HAS EARNED DIVI DEND OF RS.10 55 956/- WHEREAS PROFIT FROM THE SALE OF SH ARES IS RS.96 76 402/-. THUS THE RATIO OF DIVIDEND TO PRO FIT IS 1 : 9. THE MOTIVE THEREFORE IS CLEARLY TO EARN PROFITS FRO M SUCH TRANSACTIONS IN A REGULAR AND SYSTEMATIC MANNER. (II) THE SECOND REASON IS THE FREQUENCY OF TRANSACT IONS. THE ASSESSEE HAS ENTERED INTO MORE THAN 1833 TRANSACTIO NS DURING THE YEAR IN RESPECT OF 205 SCRIPTS. THE SCRIPTS M ORE THAN NINE TRANSACTIONS PER WORKING DAY IN MORE THAN 2 SC RIPTS PER DAY. THUS LARGE FREQUENCY OF TRANSACTIONS INDICAT E THAT ASSESSEE IS DOING BUSINESS RATHER SELLING INVESTMEN TS. (III) THE ASSESSEE HAS DEPLOYED INFRASTRUCTURE IN S ALE AND PURCHASE OF SHARES. IT HAS MAINTAINED ACCOUNTS WI TH KOTAK SECURITIES NSC LTD. M/S.SOUTH GUJARAT SHARES & SHAREBROKERS LTD. AND M/S.VENTURA INVESTMENTS WELL- KNOWN STOCK BROKERS. THE A HAS MAINTAINED STAFF. IT HAS PAID SALARY OF RS.72 000/- TELEPHONE EXPENSES OF RS.43 000 E LECTRICITY EXPENSES OF RS.6 300/- AND TOTAL EXPENDITURE IN THE ESTABLISHMENT AMOUNTED TO RS.5 85 231/-. ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 6 - THUS ASSESSEE HAS ORGANIZED AND ESTABLISHED INFRAS TRUCTURE AND SYSTEM FOR ENGAGING IN SHARE TRANSACTIONS. (IV) THE ASSESSEE HAS TAKEN UNSECURED LOAN AMOUNTI NG TO RS.41 02 914/- AND HAS MAINTAINED ACCOUNT WITH HDFC BANK SARVODYA SAHAKARI BANK STANDARD CHARTERED BA NK AND ABN AMRO BANK. (V) THE PERIOD OF HOLDING OF SHARES IS NOT MORE. (VI) MAJORITY OF THE SCRIPTS (70T TO 80%) ARE HELD FOR L ESS THAN 45 DAYS. THE TRANSACTIONS HAVE BEEN CARRIED OUT AS A ND WHEN THERE WAS SCOPE TO EARN PROFITS. IF ASSESSEE WAS TO HOLD THE SHARES AS INVESTMENT HE WOULD HAVE RETAINED THEM F OR A LONGER PERIOD. (VII) THE ASSESSEE IS ENGAGED MAJOR SHARE BROKERS TO CONF IRM THE TRANSACTION IN SHARES. IF HE WAS ONLY AN ORDINARY INVESTOR HE SHOULD NOT HAVE ENGAGED THEM. (VIII) THE NORMAL HOUSE-HOLD INVESTOR CANNOT BE EXPECTED T O WORK IN A VOLATILE MARKET. THE ASSESSEE HAS TRANSACTED FOR THE PEAK TIMES OF MARKET VOLATILE AND IS A HIGH RISK D EGREE WHO INTEND TO REAP PROFITS FROM SUCH TURBULENCE. ASSES SEE IS ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 7 - NOT SMALL TIME HOUSE-HOLD INVESTOR TO A PERSON WHO IS INVOLVED IN THE PEAK TIME BUSINESS OF SHARE TRADING . 4. AFTER GIVING ABOVE REASONS THE LEARNED CIT(APPE ALS) HOWEVER HELD THAT THE PROFIT OF RS.37 52 281/- ON SHARES W HICH WERE HELD FOR MORE THAN 366 DAYS SHOULD BE TREATED AS 'LONG-TERM CAPIT AL GAIN'. THERE ARE SHARES WHICH ARE PURCHASED IN 1985 OR BEFORE AND S OLD DURING THE CURRENT YEAR. THE LONGEST HOLDING IS FOR 6832 DAYS AND TH E SHORTEST HOLDING IS FOR 366 DAYS. THEREFORE PROFIT EARNED IN RESPECT OF SHARES HELD FOR MORE THAN 366 DAYS AND ABOVE SHOULD BE HELD AS 'LONG-TE RM CAPITAL GAIN' AND NOT AS BUSINESS INCOME. IN THIS REGARD THE LEA RNED CIT(APPEALS) HAS FOLLOWED THE CIRCULAR NO.4 OF 2007 OF CBDT. THE L EARNED CIT(APPEALS) ALSO MADE CORRECTION IN RESPECT OF ADD ITION OF RS.3 83 242/- WHICH WAS FOUND TO BE A TOTALLING MI STAKE MADE BY THE ASSESSING OFFICER AND WAS DULY CORRECTED BY THE LEA RNED CIT(APPEALS). THE LEARNED CIT(APPEALS) HOWEVER HELD THAT SHARE PROFITS TO RS.55 40 879/- CANNOT BE ASSESSED AS 'SHORT-TERM C APITAL GAIN' BUT WOULD BE A BUSINESS INCOME. 5. BEFORE US LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED FOLLOWING ARGUMENTS: ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 8 - (I) THE MOTIVE BEHIND INVESTMENT IN SHARES IS NOT TO SE LL THE SHARES TO EARN THE PROFIT BUT TO HOLD THE SHARES F OR LONG-TERM CAPITAL APPRECIATION. THE INTENTION WAS TO MAKE I NVESTMENT TO EARN GOOD RETURNS IN THE FORM OF DIVIDENDS AND T O GENERATE GOOD CAPITAL APPRECIATION OVER A PERIOD OF TIME. (II) ASSESSEES NET INVESTMENT IN SHARES AS ON 31/0 3/2004 WAS RS.1 13 14 043/- WHEREAS AS ON 31/03/2005 IT WAS RS.2 07 83 000/-. (III) IT IS INCORRECT ON THE PART OF THE LEARNED CI T(APPEALS) TO HOLD THAT RATIO OF DIVIDEND TO PROFIT IS 1 : 9 AS HELD BY HIM. IF 'LONG-TERM CAPITAL GAIN' ARE DEDUCTED FROM THE T OTAL PROFIT THEN WHAT SURVIVES IS RS.55 40 879/- WHICH IS ASSES SED AS BUSINESS INCOME BY LEARNED CIT(APPEALS) WHEREAS ASSESSEE IS DECLARING IT AS 'SHORT-TERM CAPITAL GAI N'. IN THAT SITUATION RATIO OF DIVIDEND TO PROFIT WOULD BE 1: 5 . THIS ALSO INDICATES THAT SUPPORTIVE MOTIVE IS INVESTMEN T BEHIND THESE TRANSACTIONS. (VI) THE FREQUENCY OF TRANSACTIONS AND SALE AND P URCHASE OF SHARES CANNOT BE REGARDED AS HIGH IF IT IS COMPARE D WITH INVESTMENT PORT-FOLIO WHICH IS RS.2.08 CRORES. ME RE ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 9 - VOLUME OF TRANSACTIONS BY THE ASSESSEE WILL NOT ALT ER THE NATURE OF TRANSACTIONS. (VII) ASSESSEES NORMAL BUSINESS IS WEAVING ON JOB- WORK BASIS. THE TURNOVER OF WEAVING JOB-WORK IS RS.13 30 302/-. INVESTMENT IN PLANT AND MACHINERY IS RS.16 18 045/- . (VIII) IT IS INCORRECT TO HOLD THAT MAJORITY OF THE SCRIPTS 70% TO 80% WERE HELD FOR LESS THAN 45 DAYS. NO SUCH BASIS FOR WORKING OUT THE DATE IS GIVEN. IN FACT OUT OF SHARES ON WHICH 'SHORT- TERM CAPITAL GAIN' WAS EARNED GAINS ABOVE RS.45 L ACS PERTAINED TO THE SHARES WHICH WERE HELD FOR MORE TH AN 30 DAYS. (IX) IT IS INCORRECT ON THE PART OF THE LEARNED CIT(APPE ALS) TO HOLD THAT ASSESSEE HAS DEPLOYED INFRASTRUCTURE OR T HAT IT IS WORKING WITH THREE STOCK BROKERS. ONCE THE ASSESS EE HAS INVESTMENT PORT-FOLIO OF OVER RS.2 CRORES THE ASSE SSEE CONSIDERED IS FIT TO USE THE SERVICES OF SUB-BROKER S TO SAFE- GUARD INVESTMENT. EVEN OTHERWISE FOR SUCH LARGE PO RT-FOLIO INVESTMENT IT IS QUITE NORMAL TO MAINTAIN ACCOUNTS AND TAKE ASSISTANCE. THE EXPENDITURE AS MENTIONED BY THE LE ARNED CIT(APPEALS) IN HIS ORDER WAS IN FACT INCURRED IN RESPECT OF ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 10 - BUSINESS OF WEAVING ON JOB-WORK BASIS AND NOT FOR SALE AND PURCHASE OF SHARES. FURTHER EXPENSES IN PROFIT & LOSS ACCOUNT HAVE BEEN DEBITED AGAINST DIVIDEND FROM SHA RES INTEREST FROM BANKS RENTAL INCOME FORM PREMISES S ERVICES CHARGES ETC. (X) THE ASSESSEE HAS NOT BORROWED ANY FUND FOR DEPL OYING IN INVESTMENT IN SHARES. TOTAL AMOUNT BORROWED FROM THE BANK IS RS.17 71 395/- WHEREAS INVESTMENT IN SHARE S IS IN CRORES. THE OTHER UNSECURED LOAN OF RS.41 02 915/- IS VERY OLD AND NO NEW FUNDS HAVE BEEN BORROWED DURING THE CURRENT YEAR. THE ASSESSEE HAS NET CAPITAL OF RS.2 39 64 990/- WHEREAS INVESTMENT IN SHARES IS ONLY RS.2 07 83 000 /-. THUS IT IS INCORRECT TO HOLD THAT THE INVESTMENT IN SHARES HAVE BEEN MADE BY THE ASSESSEE OUT OF BORROWED FUND S. (XI) THE ASSESSEE HAS SHOWN THE SHARES AND SECURITI ES UNDER THE HEAD INVESTMENT AND NOT AS STOCK-IN-TRADE. THIS HAS BEEN ACCEPTED BY THE DEPARTMENT OVER THE YEARS AS ASSESS MENT PROCEEDINGS HAVE BEEN DONE UNDER SCRUTINY. FURTHE R THE ASSESSEE HAS NOT CONVERTED THE INVESTMENT INTO STOC K-IN- TRADE. THE INVESTMENT IN SHARES HAVE NEVER BEEN VA LUED AT ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 11 - MARKET PRICE OR COST WHICHEVER IS LESSER BUT HAVE B EEN CONSISTENTLY VALUED AT COST AND DECLARED ACCORDINGL Y IN THE RETURN OF INCOME. THUS IT SHOWS THE INTENTION OF THE ASSESSEE THAT IT DID NOT INTEND TO CARRY ON TRADE OR ADVENTURE IN THE NATURE OF TRADE. THE FACT THAT THE HOLDING IN SHARES HAVE BEEN SHOWN AS INVESTMENT AND NOT AS STOCK-IN- TRADE IS A RELEVANT CONSIDERATION AS HELD BY THE HON'BLE SUP REME COURT IN THE CASE OF KARAM CHAND THAPAR AND BROTHER S (P) LTD VS. CIT (1971) 83 ITR 899 (SC). (XI) ASSESSMENT FOR LAST SEVERAL YEARS HAVE BEEN MA DE UNDER SCRUTINY ASSESSMENT AND ASSESSEES INCOME FROM SAL E AND PURCHASE OF SHARES HAVE BEEN ACCEPTED AS EITHER 'SH ORT-TERM CAPITAL GAIN' OR 'LONG-TERM CAPITAL GAIN' BY THE RE VENUE WITHOUT ANY DISTURBANCE. IN THOSE YEARS ALSO THE FREQUENCY AND VOLUME OF TRANSACTIONS WERE AT PAR AS IN THE C URRENT YEAR. ALL THE TRANSACTIONS CARRIED OUT IN THE CUR RENT YEAR AND ALSO IN THE PAST YEARS WERE DELIVERY BASED ON WHICH SECURITY TRANSACTION TAX HAS BEEN PAID EXCEPT IN THOSE CASES WERE SHARES ARE SOLD ON THE SAME DAY WITHOUT TAKING THEI R DELIVERY. THE SETTLEMENT PERIOD IS THREE TIMES IN A WEEK. ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 12 - THE DELIVERY IS RECEIVED IN DEMAT ACCOUNT ON THE NE XT DAY. (XII) MOST OF THE SCRIPTS SOLD WERE HELD EITHER FOR MORE THAN ONE YEAR OR FOR LESS THAN ONE YEAR. THUS IT SHOWS IN TENTION OF THE ASSESSEE WHICH IS THAT WHEN SHARES WERE PURCHAS ED IT INTENDED TO HOLD THEM AS INVESTMENT. PART OF THE S HARES WERE SOLD IN SHORT-TERM PERIOD WHEREAS OTHER PART OF T HE SHARES WERE HELD FOR LONG-TERM. 5.1 FINALLY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF ARJUN KAPUR VS. DCIT 70 ITD 161 (DEL.) WHEREIN IT HAS BEEN HEL D THAT SHARES HELD FOR A PERIOD OF ONE YEAR OR MORE SHOULD BE TREATED AS 'LONG-TERM CAPITAL GAIN' WHEN SOLD. HE THEN REFERRED TO THE DECISION OF ITAT BOMBAY BENCH IN THE CASE OF JANAK RANGWALLA VS. ACIT 11 S OT 627 (BOM.) FOR THE PROPOSITION THAT MERE VOLUME OF TRANSACTIONS TRANSACTED BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTIONS . THE TRANSACTION AS A WHOLE HAS TO BE TAKEN INTO CONSIDERATION. 5.2. FURTHER THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE REFERRED TO THE DECISION OF ITAT BOMBAY BENCH IN TH E CASE OF GOPAL PUROHIT VS. JT. CIT (2009) 29 SOT 117(BOM.) FOR THE POSITION THAT IF ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 13 - TRANSACTIONS ARE DELIVERY BASED THEN IT SHOULD BE TREATED AS CAPITAL GAINS. HE ALSO REFERRED TO THE DECISION OF ITAT LUCKNOW BE NCH IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD. VS. ASSTT. CIT (200 9) 120 TTJ 216 (LUCKNOW) FOR THE SIMILAR PROPOSITION. 6. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. H E SUBMITTED THAT RECORDING IN THE BOOKS OF ACCOUNT INVESTMENT WILL N OT ALTER THE BASIC INTENTION OF THE ASSESSEE. HE HAS BEEN TOO FREQUE NTLY INDULGING IN SALE AND PURCHASE OF SHARES AND HAVE A BIG ESTABLISHMEN T. OUT OF TOTAL CAPITAL OF RS.2.39 CRORES DEPLOYMENT OF CAPITAL IN SHARES IS RS.2.07 CRORES. THERE IS LARGE FREQUENCY OF PURCHASE OF SHARES PER DAY THERE IS A DEALING WITH RENOWNED SHARE-BROKERS MOST OF THE TIME ASSES SEE IS ENGAGED IN SHARE BUSINESS THEREFORE IT CANNOT BE SAID THAT A SSESSEE IS ONLY MAKING INVESTMENTS AND NOT DEALING IN SHARES. THE LEARNE D DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IF WE LOOK INTO EXPLA NATION TO SECTION 73 OF THE I.T. ACT 1961 THEY HAVE LAID DOWN A CRITERIA THAT WHERE INCOME FROM OTHER SOURCES IS LESS THAN INCOME FROM DEALING I N SHARES THEN SUCH DEALING IN SHARES WILL BE TREATED AS SPECULATION. IN THE PRESENT CASE ALSO PROFIT FROM SHARES IS MUCH MORE AS COMPARED TO INC OME FROM OTHER ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 14 - SOURCES; I.E. INTEREST INCOME OR DIVIDEND INCOME. HE REFERRED TO THE PAPER-BOOK OF THE ASSESSEE AND SUBMITTED THAT INCOM E FROM OTHER SOURCES IS ONLY RS.1 33 096/- WHEREAS PROFIT ON S ALE OF SHARE IS RS.96 76 402/-. HE THEN REFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF PATNAIK & CO.LTD. VS. CIT (198 6) 161 ITR 365 (SC) FOR THE PROPOSITION THAT INVESTMENT IN GOVERNMENT L OANS AND LOSS INCURRED IN SALE OF INVESTMENT WOULD BE REVENUE L OSS AND NOT CAPITAL LOSS. THIS DECISION WAS FOLLOWED BY HON'BLE ALLAH ABAD HIGH COURT IN THE FOLLOWING CASES ALSO:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. CIT VS. DHRUPUR SUGAR MILLS LTD. (1997)171 ITR 675 (ALL.) 2. CIT VS. SB SUGAR MILLS (1991)187 ITR 441 (ALL.) 3. MOHAMED I.UNJAWALA & OTHERS VS. ACIT (1985)213 ITR 190 (MAD.) 4. CIT VS. D.S. BIST & SONS (2002)243 ITR 179 (DEL.) 7. FROM THE ABOVE IT FOLLOWS THAT ASSESSEE CAN ALW AYS TRADE IN INVESTMENT. ONCE INVESTMENTS ARE DAILY BUSINESS THEN PROFIT EARNED ON SALE OF SUCH INVESTMENTS WOULD BE BUSINESS INCOME . IF THE WAY LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE I S SUGGESTING IS ACCEPTED THEN THERE WILL NOT BE ANY CASE OF SALE AND PURCHASE OF SHARES ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 15 - AS TRADING BECAUSE MERELY BY RECORDING HOLDINGS AS INVESTMENTS IN THE BOOKS THE TRANSACTION WOULD BECOME THAT OF INVESTM ENT AND ONLY CAPITAL GAIN WOULD BE CHARGED WHICH IS TAXED AT MUCH BUT RA TES AS COMPARED TO BUSINESS INCOME. THE ASSESSEE IS FREQUENTLY DEALI NG IN SHARES AT LARGE SCALE. SUCH CAMOUFLAGE AS RECORDED IN THE BOOKS O F ACCOUNT SHOULD BE UNDERSTOOD AND SUCH VEIL SHOULD BE PIERCED. REALI TY SHOULD BE BROUGHT OUT AND ARTIFICIALITY SHOULD BE FILTERED. THE LEA RNED DEPARTMENTAL REPRESENTATIVE ALSO SUBMITTED THAT AFTER DEMATIZATI ON OF THE SHARE- HOLDING DELIVERY OF SHARES IS NO LONGER CRITERIA TO DECIDE WHETHER AN ASSESSEE IS DEALING IN SHARES AS TRADER OR AS ARE I NVESTOR. IT WAS RELEVANT WHEN SETTLEMENT PERIOD WAS MORE THAN SEVEN DAYS AND PHYSICAL DELIVERY OF SHARES USED TO TAKE PLACE. FURTHER RELEVANT F ACTOR IS THAT SHARE SHOULD BE TRANSFERRED IN THE NAME OF THE ASSESSEE IF ASSES SEE REALLY INTENDED TO MAKE INVESTMENT. IN ANY CASE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT TRIBUNAL SHOULD FIX UP THE CRITERIA FOR DECIDING WHICH TRANSACTION SHOULD BE TREATED AS A TRADING AND WHIC H TRANSACTIONS SHOULD BE TREATED AS INVESTMENT. 8. IN REJOINDER THE LEARNED AUTHORISED REPRESENTAT IVE OF THE ASSESSEE CLARIFIED THAT DECISION OF HON'BLE SUPREM E COURT IN THE CASE OF PATNAIK AND CO.LTD. VS. CIT (SUPRA) WOULD BE APPLIC ABLE ONLY WHEN THERE ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 16 - WAS A COMPULSION ON THE ASSESSEE TO MAKE INVESTMEN T FOR FURTHERING OF HIS BUSINESS. WHERE INVESTMENTS ARE MADE AT FREE W ILL THEY CANNOT BE CONVERTED INTO TRADING. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN OUR CONSIDERED VIEW THE TRIBUNAL IN THE CASES OF GOPAL PUROHI VS. JT. CIT(SUPRA) AND OF SARNATH INFRASTRUCTURE (P) LTD. VS. ASSTT.CIT(SUPRA ) LAID DOWN CRITERIA FOR HOLDING AS TO WHEN TRANSACTION IN SHARES BE TREATED AS TRADING AND WHEN THEY SHOULD BE TREATED AS INVESTMENT. 10. FOR THE SAKE OF CONVENIENCE WE REPRODUCE HEREU NDER THE RELEVANT PORTION OF THE ORDER OF ITAT BOMBAY BENCH IN THE CA SE OF GOPAL PUROHIT VS. JT.CIT [ 2009] 29 SOT 117 (MUM.). IF THESE FACTS ARE TAKEN INTO CONSIDERATION THEN FOLLOWING CONCLUSIONS EMERGE : (I) THE FACTS OF THE YEAR UNDER CONSIDERATION WITH REGARD TO NATURE OF INCOME(S) EARNED BY THE ASSESSEE AND THE TRANSACTIONS ARE SAME IN ALL THESE YEARS EXCEPT TRANSACTIONS IN F&O SEGME NT IN SOME OF THE YEARS WHEREIN THIS KIND OF ACTIVITY WAS STARTED BY THE ST OCK EXCHANGE. (II) INTEREST ON BORROWED CAPITAL HAS BEEN ALLOWED AS BUSINESS EXPENDITURE AGAINST THE PROFIT ON JOBBING ACTIVITIE S SHOWN BY THE ASSESSEE AS BUSINESS PROFIT. (III) THE ASSESSEE HAS SHOWN SHARES PURCHASED ON D ELIVERY BASIS AS INVESTMENT AT THE END OF THE YEAR AND NO STOCK-I N-TRADE EXIST ON THAT DATE AND THE ASSESSEE HAS EARNED BOTH LONG-TERM AND SHORT-TERM CAPITAL GAINS WHICH MEANS THE ASSESSEE HAS ALSO HELD SHARES FOR A PERIOD OF MORE THAN 12 MONTHS. ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 17 - 8.1 THUS THE NATURE OF ACTIVITIES MODUS OPERANDI OF THE ASSESSEE MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARES AS INVES TMENT AT THE YEAR END IS SAME IN ALL THE YEARS HENCE; APPARENTLY THERE APPEARS NO REASON AS TO WH Y THE CLAIMS MADE BY THE ASSESSEE SHOULD NOT BE ACCEPTED. HOWEVER THE REVEN UE AUTHORITIES HAVE TAKEN A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERAT ION BY HOLDING THAT PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS. THERE CANNOT BE IN OUR VIEW ANY DISPUTE ON THIS A SPECT BUT THERE IS ALSO ANOTHER JUDICIAL THOUGHT THAT THERE SHOULD BE UNIF ORMITY IN TREATMENT AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES AND WE HAVE ALREADY FOUND THAT FACTS AND CIRCUMSTANCES ARE IDENTICAL E VEN THOUGH A DIFFERENT STAND HAS BEEN TAKEN BY THE REVENUE AUTHORITIES. THIS ACT ION OF THE REVENUE AUTHORITIES HAS LED US TO ASK OURSELVES THAT IN THI S YEAR WHY IT HAS BEEN DONE SO. IN THE PROCESS TO FIND THE ANSWER WE NOTED THA T THERE WAS A CHANGE IN THE SCHEME OF TAXATION RELATING TO SHORT-TERM CAPITAL G AINS AND LONG-TERM CAPITAL GAINS. THROUGH THE FINANCE ACT 2004 THE LEGISLATU RE IMPOSED SECURITIES TRANSACTION TAX ON THE SALE AND PURCHASE OF SHARES AND OTHER DERIVATIVE TRANSACTIONS AND SIMULTANEOUSLY THE LEGISLATURE E XEMPTED LONG-TERM CAPITAL GAIN UNDER SECTION 10(38) OF THE ACT FROM THE LEVY OF TAX AND ON SHORT-TERM CAPITAL GAIN A CONCESSIONAL RATE OF TAX I.E. 10 P ER CENT HAS BEEN LEVIED SUBJECT TO THE CONDITION THAT TRANSACTIONS RESULTIN G INTO THIS TYPE OF GAIN MUST HAVE SUFFERED SECURITIES TRANSACTION TAX. THIS IS T HE FIRST YEAR OF SUCH CHANGE AND HAVING REGARD TO THE QUANTUM OF GAINS THIS SC HEME OF TAXATION ONLY IN OUR VIEW HAS PROMPTED THE REVENUE AUTHORITIES TO T AKE A DIFFERENT VIEW ON THE SAME TYPES OF TRANSACTIONS ENTERED INTO BY THE ASSE SSEE IN EARLIER YEARS. AT THIS STAGE WE CONSIDER IT FIT TO STATE THAT THERE IS NO DISPUTE BEFORE US THAT ASSESSEE HAS CLAIMED EXEMPTION UNDER SECTION 10(38) AND/OR H AS PAID TAX UNDER SECTION 111A AT CONCESSIONAL RATE ON THE TRANSACTIO NS WHERE SECURITIES TRANSACTION TAX HAS NOT BEEN. IT IS ALSO NOTED THAT THE ASSESSEE HAS PAID TAX ON SHORT-TERM CAPITAL GAINS AT NORMAL RATES ON SHARE T RANSACTIONS EXECUTED IN THE PERIOD PRIOR TO IMPOSITION OF SECURITIES TRANSACTIO NS TAX. IN OUR VIEW THE LEGISLATIVE CHANGE OF THIS NATURE WHEREBY NO CHANG E HAS BEEN MADE IN RESPECT OF NATURE AND MODUS OPERANDI OF SUCH SHARE TRANSACTIONS RESULTING INTO ANY ADVANTAGE CANNOT BE TAKEN AWAY BY THE REVE NUE AUTHORITIES IN THIS MANNER AND IN THESE CIRCUMSTANCES WE ARE OF THE VI EW THAT PRINCIPLE OF CONSISTENCY THOUGH IT IS AN EXCEPTION TO THE PRINC IPLE OF RES JUDICATA MUST BE APPLIED HERE. IT IS FURTHER SO BECAUSE THE PAYMENT OF SECURITIES TRANSACTION TAX IS MANDATORY I.E. WHETHER AN ASSESSEE EARNS THE PR OFIT OR NOT OR SUFFERS A LOSS AND BY IMPOSITION OF SUCH TAX THE LEGISLATURE HAS NOT GIVEN ANY BENEFIT TO A CLASS OF TRANSACTIONS AS A WHOLE THOUGH IT MAY RESU LT INTO AN APPARENT BENEFIT TO INDIVIDUAL(S) ENTERING INTO THOSE TRANSACTIONS. THUS IN OUR VIEW IN THE FACTS AND CIRCUMSTANCES OF THE CASE ON THE BASIS OF PRIN CIPLE OF CONSISTENCY ALONE THE ACTION OF THE REVENUE AUTHORITIES IS LIABLE TO BE QUASHED. WE ORDER ACCORDINGLY AND DIRECT THE ASSESSING OFFICER TO ACC EPT THE CLAIMS OF ASSESSEE IN REGARD TO SHORT-TERM CAPITAL GAIN AND LONG-TERM CAPITAL GAIN. ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 18 - 10.1. IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD . VS. ASSTT.CIT(SUPRA) THE TRIBUNAL CONSIDERED THE CIRCULAR NO.4 OF CBDT(2 007) DATED 15/06/2007 VARIOUS OTHER DECISIONS SUCH AS CIT VS. ASSOCIATED INDUSTRIAL CO.LTD. (1971) 82 ITR 586 (SC) CIT VS . H. HOLCK LARSEN (H) (1986) 160 ITR 67 (SC) FIDELITY NORTHSTAR FUN D IN RE(2007) 207 CTR (AAR) 297; (2007) 288 ITR 641 (AAR) FIDELITY ADVISOR SER SERIES VIII IN RE (2004) 271 ITR 1 (AAR) JP HARR ISON (WATFORD) LTD. VS. GRIFFITH (H.M. INSPECTOR OF TAXES) (1962) 40 T AX CASES 281 (HL) RAJA VISHEWARA SINGH (DECEASED) VS. CIT (1961) 41 I TR 685 (SC) CENTRAL INDIA AGENCIES PVT.LTD.V S. CIT (1970) 77 I TR 959 (ALL.) MRS. SAROJANI RAJAH VS. CIT (1969) 79 ITR 504 (MAD.) DA LHOUSIE INVESTMENT CO.LTD. VS. CIT (1968) 68 ITR 486(SC) CIT VS. ASSO CIATED INDUSTRIAL DEVELOPMENT CO.LTD. (1971) 82 ITR 586 (SC) CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. (1975) 100 ITR 706 (SC) A ND CULLED OUT FOLLOWING PRINCIPLES WHICH ARE DESCRIBED IN PARA NO .13 OF THAT ORDER:- 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FOLLOWI NG PRINCIPLES WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETH ER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVEST MENT PURPOSES : (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE T IME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATME NT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED AS STOC K-IN-TRADE OR INVESTMENT. WHETHER SHOWN IN OPENING/CLOSING STOCK OR SHOWN SEP ARATELY AS INVESTMENT OR NON-TRADING ASSET. ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 19 - (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHAS E AND PAID INTEREST THEREON ? NORMALLY MONEY IS BORROWED TO PURCHASE GOODS FOR T HE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DI SPOSAL IN THAT PARTICULAR ITEM ? IF PURCHASE AND SALE ARE FREQUENT OR THERE ARE SUBSTA NTIAL TRANSACTIONS IN THAT ITEM IT WOULD INDICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE. SIMILARLY RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS T RADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREA S LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PRO FIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE ? FORMER WI LL INDICATE INTENTION OF TRADE AND LATTER AN INVESTMENT. IN THE CASE OF SHARES WH ETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PUR CHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRA DE. (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 WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NET REAL IZABLE 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 ME MORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION ? WHETHER FOR T RADE OR FOR INVESTMENT ? IF AUTHORIZED ONLY FOR TRADE THEN WHETHER THERE ARE S EPARATE 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 AND WHAT DISTINCTION HE H AS KEPT IN THE RECORDS OR OTHERWISE BETWEEN TWO TYPES OF HOLDINGS. IF THE AS SESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTIC ULAR ITEM IS HELD AS INVESTMENT (OR SAY STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT 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 BE SUFFICIENT TO SAY T HAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISI TES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASSESSEE IS COMPL YING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING T HOSE LEGAL REQUIREMENTS IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM ? WHETHER IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITE M) SINCE BEGINNING OR WHEN PURCHASES WERE MADE ? (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15TH JUNE 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EAC H TYPE THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 20 - (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FAC TORS HAS TO BE SEEN. 11. WHEN WE EXAMINE THE FACTS OF THE CASE WE FIND ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNT IN RESPECT OF DEAL ING IN SHARES AND ASSESSEE HAS SHOWN THE TRANSACTIONS IN SHARES AS IN VESTMENT AND NOT AS STOCK-IN-TRADE. IT HAS BEEN SHOWN CONSISTENTLY FO R SEVERAL YEARS IN THE PAST AND DEPARTMENT HAS NOT CHALLENGED THE BOOK KEE PING OR ACCOUNTING OF SHARES AS INVESTMENT. NO CONTRARY MATERIAL OR F ACTS HAVE BEEN POINTED OUT BY THE REVENUE TO SHOW THAT FACTS IN THE CURREN T YEAR ARE DIFFERENT THAN THE FACTS IN EARLIER YEARS. IT IS ALSO NOT PO INTED OUT BY THE REVENUE THAT FREQUENCY AND NUMBER OF TRANSACTIONS ARE ABNOR MALLY HIGH IN THE CURRENT YEAR AS COMPARED TO WHAT WAS DONE IN EARLI ER YEARS. 12. THERE IS ALSO NO MATERIAL TO COME TO THE CONCL USION THAT THE VALUATION OF INVESTMENT HAS BEEN DONE ON COST OR NE T RELIABLE VALUE WHICHEVER IS LOW. THE ASSERTION OF THE ASSESSEE IS THAT ENTIRE PORT-FOLIO HAS BEEN VALUED AT COST AS AT THE END OF ACCOUNTING YEAR WHICH REMAINED UNCHALLENGED. 13. THE SHARES WHICH ARE SOLD OUT OF SUCH INVESTMEN T THIS YEAR WERE MOSTLY PURCHASED A YEAR OR EARLIER SHOWING THAT THE ASSESSEE HAD INTENTION ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 21 - WHILE PURCHASING THEM TO HOLD THEM AND THEY WERE R EFLECTED IN THAT BALANCE-SHEET AS INVESTMENT. THE ASSESSEE HAS ENJO YED DIVIDEND INCOME AND DECLARED THE SAME IN THE RETURN OF INCOME TRADI NG THE TRANSACTIONS AS INVESTMENT EVEN IF FREQUENCY OF SELLING OF SHARES MAY BE MORE BUT IN RESPECT OF SHARES HELD FOR A CONSIDERABLE LONGER PE RIOD (FOR MORE THAN 366 DAYS) AS PER FINDING GIVEN BY THE LEARNED CIT(APPEA LS). THIS FINDING REMAINED UNCONTROVERTED. THE ASSESSEE HAS EARNED G AIN OF RS.37 52 281/- ON SALE OF THOSE SHARES WHICH WERE HELD FOR MORE THAN 366 DAYS AND UPTO 6832 DAYS. IN ANY CASE WHEN T HOSE SHARES WERE PURCHASED IT COULD NOT BE SAID THAT INTENTION OF TH E ASSESSEE WAS TO DEAL IN THEM AND NOT TO HOLD THEM AS INVESTMENT. EVEN IN THE CASE OF INVESTMENT IT IS FOR THE ASSESSEE TO DECIDE WHEN TO DISPOSE THEM OFF SO THAT TO GIVE MAXIMUM RETURN OUT OF THEM. THERE IS N O THEORY THAT ASSET HELD ON LONG-TERM BASIS SHOULD BE SOLD ONLY AT THE TIME OF NEED OR IN EMERGENCY. HE CAN VERY WELL SALE THE INVESTMENTS TO REAP THE BENEFIT WHEN PRICES OF SHARES ARE HIGH SO AS TO EARN BETTE R GAINS AND MAKE INVESTMENT ELSEWHERE. IN OUR CONSIDERED VIEW IT I S THE DECISION OF THE ASSESSEE TO DISPOSE OF AN INVESTMENT IF ACCORDING TO HIM MARKET VALUE THEREOF HAVE REACHED A PLATEAU SO AS TO MAKE INVES TMENT IN OTHER ASSETS WHICH HAVE POTENTIAL OF APPRECIATION IN MARKET VALU E. THIS DECISION TO ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 22 - SALE HIS INVESTMENT AT HIGH MARKET PRICE CANNOT CO NVERT AN OTHERWISE INVESTMENT INTO TRADING. IF IN THE PAST THE DEPA RTMENT HAS ACCEPTED THE SALE OF SHARES OF HOLDINGS OF MORE THAN A YEAR AS I NVESTMENT AND PROFITS THEREON HAS BEEN ASSESSED UNDER THE HEAD CAPITAL G AIN THEN THERE IS NO REASON TO HOLD DIFFERENTLY THIS YEAR. WE ACCORDIN GLY CONFIRM THE ORDER OF THE LEARNED CIT(APPEALS) IN RESPECT OF HOLDING THAT PROFIT OF RS.37 52 281/- SHOULD BE ASSESSED AS 'LONG-TERM CAP ITAL GAIN'. 15. IN RESPECT OF PROFIT OF RS.55 40 679/- BEING 'S HORT-TERM CAPITAL GAIN' AS CLAIMED BY THE ASSESSEE AND HELD AS PROFITS ASS ESSED UNDER THAT BUSINESS BY TWO AUTHORITIES WE FIND THAT IN MANY C ASES THERE IS DELIVERY OF SHARES AND SHARE WERE REGISTERED IN THE NAME OF THE ASSESSEE. THE HOLDING PERIOD OF THE SHARES IS FROM 0 DAYS TO 3 66 DAYS. IN SOME CASES THE FREQUENCY OF TRANSACTIONS ARE APPARENTLY SUBSTANTIAL AS ON ONE DAY THE ASSESSEE HAS PURCHASED SEVERAL SCRIPTS AND SOLD SEVERAL OF THEM ON THE SAME DAY. 16. THE QUESTION IS WHETHER THEREFORE MERELY FR OM FREQUENCY OF THE TRANSACTIONS CARRIED ON BY THE ASSESSEE HE IS TR EATED AS DEALER IN SHARES OR STILL HE IS HELD AS INVESTOR. AS FOUND IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD. VS. ASSTT.CIT(SUPRA) ALSO ASSESSEE ADDUCED ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 23 - EVIDENCE TO SHOW THAT HIS HOLDINGS ARE FOR INVESTME NT AS RECORDED IN THE BOOKS OF ACCOUNT. THE HOLDINGS ARE VALUED AT COST AND SUCH ACCOUNTING HAS BEEN ACCEPTED BY THE REVENUE IN EARLIER YEARS. THERE IS NO MATERIAL TO SHOW THAT ASSESSEE HAS DECLARED HIMSELF AS A TRA DER IN SHARES AND LEGAL REQUIREMENTS THEREFOR HAVE BEEN COMPLIED WITH. IT IS ALSO A FACT THAT HE HAS NOT BORROWED ANY MONEY FOR INVESTING IN SHARE S. MERELY BECAUSE ASSESSEE HAD SOME BORROWED FUNDS IT WOULD NOT BY I TSELF SHOW THAT THEY WERE DEPLOYED IN INVESTMENT. NOTWITHSTANDING EVEN BORROWING ARE REQUIRED TO SETTLE PAYMENTS OBLIGATIONS IN RESPECT OF INVESTMENTS LIKE ONE TAKES LOAN FOR PURCHASING A HOUSE. IN ANY CA SE HIGH FREQUENCY TRANSACTIONS AND LOW PERIOD HOLDINGS INDICATE TRAD E WHEREAS LOW FREQUENCY TRANSACTIONS AND HIGH PERIOD HOLDINGS IN DICATE INVESTMENT. 17. IN THIS CASE THE ASSESSEE HAS DISCHARGED THE O NUS OF SHOWING THAT IT IS MAKING INVESTMENT BUT REVENUE IS ABLE TO SHOW THAT THERE ARE HIGH FREQUENCIES AND LOW HOLDINGS IN MANY TRANSACTIONS O F SHARES INDICATING THAT ASSESSEE HAS SOME INTENTION OF PURCHASING AND SELLING SHARES AS A TRADER. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE FACT THAT IT HAS ENTERED THE PURCHASES IN THE BOOKS AS INVESTMENT SHARES ARE VALUED AT COST AND REVENUE IS HOLDING SUCH ACCOUNTING TREATME NT AS INVESTMENT IN ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 24 - THE PAST. THUS THERE CANNOT BE A FIXED CRITERIA T O DECIDE AS IN THE PRESENT CASE WHETHER ASSESSEE HAS TRADED IN SHARES EVENTHOU GH ASSESSEE HELD THEM AS INVESTMENT. 18. THOUGH IT HAS BEEN HELD IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD.(SUPRA) THAT DELIVERY OF SHARES IS AN IMPORTANT CRITERIA FOR HOLDING THAT ASSESSEE IS INVESTING IN THEM BUT AFTER DEMATIZATIO N WHERE SHARES ARE DELIVERED IN THE DEMAT ACCOUNT THE NEXT DAY IT CAN NOT BE HELD THAT IN ALL SUCH CASES IT WOULD BE INVESTMENT AND NOT TRAD ING. IF THAT IS SO HELD THEN ALL THOSE TRADERS IN SHARES IN WHOSE DEMAT ACC OUNTS SHARES ARE DELIVERED CAN BE SAID TO HAVE EARNED CAPITAL GAINS AND NOT PROFITS. THEREFORE ONLY ONE CRITERIA I.E. DELIVERY OF SHAR ES ALONE WILL NOT BE SUFFICIENT TO DECIDE THE ISSUE. EVEN OTHERWISE IN SARNATH INFRASTRUCTURE (P) LTD.(SUPRA) ITSELF IT HAS BEEN HELD THAT CUMULA TIVE EFFECT OF SEVERAL FACTORS WILL DECIDE THE ISSUE. 19. CONSIDERING THE TOTALITY AND PECULIARITY OF THE FACTS OF THIS CASE WE FIND THAT ASSESSEE IS NEITHER FULLY ACTING AS A TRA DER NOR AS FULLY INVESTOR. DEMARCATION IS QUITE HAZY; THOUGH IN THE BOOKS HE I S SHOWING ALL THE PURCHASES AS INVESTMENT BUT FREQUENCY OF TRANSACTIO N IN SEVERAL CASES IS SO LARGE AND HOLDING PERIOD IN MANY CASES IS SO SMA LL FROM 0 TO A WEEK ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 25 - OR SO THAT ASSESSEE IS DE FACTO SELLING AND PURCHAS ING SHARES AS TRADER. HE IS ALSO HOLDING SHARES FOR LONG PERIOD INDICATING THAT THEY ARE HELD AS INVESTMENT. THEREFORE A CRITERIA HAS TO BE FIXED FOR DETERMINING AS TO WHEN HE IS ACTING AS TRADER AND WHEN AS INVESTOR. ACCORDINGLY WE DECIDE FOLLOWING CRITERIA TO HOLD WHEN GAINS ARE TO BE TAXED AS PROFIT TO BE EARNED UNDER THE BUSINESS OR TO BE TAXED AS SHOR T TERM CAPITAL GAIN WE HOLD THAT IF SHARES ARE NOT HELD EVEN SAY FOR A MON TH THEN THE INTENTION IS CLEARLY TO REAP PROFIT BY ACTING AS A TRADER AND HE DID NOT INTEND TO HOLD THEM IN INVESTMENT PORT-FOLIO. WE BELIEVE THAT IF A PERSON INTENDS TO HOLD HIS PURCHASES OF SHARES AS INVESTMENT HE WOULD WAT CH THE FLUCTUATION OF RATES IN THE MARKET FOR WHICH A MINIMUM TIME IS NEC ESSARY WHICH WE ESTIMATE AT ONE MONTH. WHERE SHARES ARE HELD FOR MORE THAN A MONTH THEY SHOULD BE TREATED AS INVESTMENT AND ON THEIR S ALE SHORT TERM CAPITAL GAIN SHOULD BE CHARGED. WHEN SHARES ARE HELD FOR LESS THAN A MONTH GAIN ON THEM SHOULD BE TREATED AS PROFIT FROM BUSIN ESS. 20. THE ASSESSEE WILL GIVE THE WORKING AND COMPUTIN G 'SHORT-TERM CAPITAL GAINS' ON THE ABOVE BASIS. THE REST OF T HE PROFIT WILL BE TREATED AS ASSESSABLE UNDER THE HEAD BUSINESS. ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 26 - 21. AS A RESULT APPEAL OF THE ASSESSEE I.E. ITA N O.3554/AHD/2008 FOR ASSESSMENT YEAR 2005-06 IS TREATED AS ALLOWED BUT F OR STATISTICAL PURPOSES. ITA NOS.2219 & 1932/AHD/200 FOR A.Y 2005-06 22. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAS EARNED A TOTAL PROFIT OF RS.1 71 65 030/- AS 'SHORT-TERM CAPITAL G AIN'. OUT OF THIS THE LEARNED CIT(APPEALS) HELD THAT RS.76 48 757/- AS I NCOME FROM BUSINESS AND NOT AS 'SHORT-TERM CAPITAL GAIN'; WHE REAS SUM OF RS.95 46 273/- HELD AS 'LONG-TERM CAPITAL GAIN' AND RS.76 48 757/- AS 'SHORT-TERM CAPITAL GAIN'. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE REASO NING GIVEN IN ASSESSMENT YEAR 2005-06 IN ASSESSEES OWN CASE AS A BOVE WE SET ASIDE THE ISSUE RELATING TO 'SHORT-TERM CAPITAL GAIN' IN THIS YEAR ALSO TO THE FILE OF ASSESSING OFFICER FOR RE-WORKING OUT THE 'SHORT-TER M CAPITAL GAIN' AND BUSINESS AS PER CRITERIA DECIDED IN THE ASSESSMENT YEAR 2005-06. THE ASSESSING OFFICER WILL ALSO CARRY OUT NECESSARY COM PUTATION. HOWEVER THE DECISION OF THE LEARNED CIT(APPEALS) IN HOLDING SUM OF ITA NOS.3554 & 4024/A/08 AND 2219 & 1932/A/09 SHRI SUGAMCHAND C.SHAH VS. ACIT (CROSS APPEALS) ASST.YEARS 2005-06 & 2006-07 - 27 - RS.95 46 273/- AS 'LONG-TERM CAPITAL GAIN' IS CONFI RMED FOR THE SAME REASONS AS GIVEN IN ASSESSMENT YEAR 2005-06 24. AS A RESULT APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES. 25. IN RESULT APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES FOR STATISTICAL PURPOSES AND APPEALS OF T HE REVENUE ARE DISMISSED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 29/ 01 / 2010. SD/- SD/- ( T.K.SHARMA ) ( D.C.AGRAWAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 29 / 01 /2010 T.C. NAIR COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPO NDENT 3. THE CIT CONCERNED. 4. THE LD. CIT(AP PEALS)-II SURAT 5. THE DR AHMEDABAD BENCH.6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD