S.K. Finance v. Deputy Commissioner of Income Tax

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The Tax Publishers2012 TaxPub(DT) 1162 (Mum-Trib) : (2012) 013 ITR (Trib) 0236 INCOME TAX ACT, 1961 --Head of income--Business income or capital gain Investment in shares--During the course of assessment, it was, inter alia, observed by the AO that the assessee has claimed short-term capital gain of Rs. 8,89,846. The assessee was asked to state the reasons as to why short-term capital gains should not be treated as trading income from professional services. It was explained by the assessee that the business of the assessee was financing and money lending as per object clause of the partnership deed, the shares were held by the assessee as investment and not as stock-in-trade, the portfolio manager's services were engaged to look after the share portfolio, the assessee had substantial dividend income of Rs. 50,277, the shares were held in the demat account for fairly long time, the shares were not frequently or regularly dealt with, own funds were used for the purpose of investment and the transactions were delivery based and payments have been made to the broker on bill to bill basis. However, the AO did not accept the assessee's submissions. He observed that the engagement of portfolio manager and claim of expenses itself shows the intention of the assessee was to make profits by dealing in shares. Further, that no part of borrowed funds used for the purpose of trading in shares, could not be proved by the assessee, inasmuch as the assessee while making submission on disallowance under section 14A has admitted that the entire operations of the firm resulted in one indivisible activity. Further, borrowed funds and self-generated funds go to the common pool and segregation of such funds then becomes difficult. He, therefore, rejected the claim of the assessee and treated the net taxable trading gains of Rs. 7,62,892 as income from business. On appeal, the CIT(A) while observing that the intention of the assessee was to do business and not to do investment and the period of holding and frequency of transaction has no relevance on facts of this case, upheld the view taken by the AO. Held: There was investment in shares and securities and the profit owned was assessable as short-term capital gain. It is not the case of the Revenue that the assessee has not shown the investment in shares as investment in the balance-sheets for the assessment years 2004-05 and 2005-06. It is also not the case of the Revenue that the said investment in shares and mutual fund was found to be false and untrue. The Revenue has placed no material to show that the assessee's case does not fall within the tests laid down by the Central Board of Direct Taxes in its Circular No. 4 of 2007 (2007) 291 ITR (St.) 384, to show that the shares held by the assessee are as stock-in-trade and not held as investment. Further, it is evident from the chart filed by the assessee, that the pattern of purchase and sale of shares by the assessee is almost similar to the other cases, decided by the Tribunal. [Para 10] The profit on sale of shares is assessable under the head 'short-term capital gain', the share transactions are in the nature of investment and the profit received therefrom is assessable as short-term capital gain as shown by the assessee. The grounds taken by the assessee in this regard are therefore allowed. [Para 12] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1162 (Mum-Trib) : (2012) 013 ITR (Trib) 0236

INCOME TAX ACT, 1961

--Head of income--Business income or capital gain Investment in shares--During the course of assessment, it was, inter alia, observed by the AO that the assessee has claimed short-term capital gain of Rs. 8,89,846. The assessee was asked to state the reasons as to why short-term capital gains should not be treated as trading income from professional services. It was explained by the assessee that the business of the assessee was financing and money lending as per object clause of the partnership deed, the shares were held by the assessee as investment and not as stock-in-trade, the portfolio manager's services were engaged to look after the share portfolio, the assessee had substantial dividend income of Rs. 50,277, the shares were held in the demat account for fairly long time, the shares were not frequently or regularly dealt with, own funds were used for the purpose of investment and the transactions were delivery based and payments have been made to the broker on bill to bill basis. However, the AO did not accept the assessee's submissions. He observed that the engagement of portfolio manager and claim of expenses itself shows the intention of the assessee was to make profits by dealing in shares. Further, that no part of borrowed funds used for the purpose of trading in shares, could not be proved by the assessee, inasmuch as the assessee while making submission on disallowance under section 14A has admitted that the entire operations of the firm resulted in one indivisible activity. Further, borrowed funds and self-generated funds go to the common pool and segregation of such funds then becomes difficult. He, therefore, rejected the claim of the assessee and treated the net taxable trading gains of Rs. 7,62,892 as income from business. On appeal, the CIT(A) while observing that the intention of the assessee was to do business and not to do investment and the period of holding and frequency of transaction has no relevance on facts of this case, upheld the view taken by the AO. Held: There was investment in shares and securities and the profit owned was assessable as short-term capital gain.

It is not the case of the Revenue that the assessee has not shown the investment in shares as investment in the balance-sheets for the assessment years 2004-05 and 2005-06. It is also not the case of the Revenue that the said investment in shares and mutual fund was found to be false and untrue. The Revenue has placed no material to show that the assessee's case does not fall within the tests laid down by the Central Board of Direct Taxes in its Circular No. 4 of 2007 (2007) 291 ITR (St.) 384, to show that the shares held by the assessee are as stock-in-trade and not held as investment. Further, it is evident from the chart filed by the assessee, that the pattern of purchase and sale of shares by the assessee is almost similar to the other cases, decided by the Tribunal. [Para 10] The profit on sale of shares is assessable under the head 'short-term capital gain', the share transactions are in the nature of investment and the profit received therefrom is assessable as short-term capital gain as shown by the assessee. The grounds taken by the assessee in this regard are therefore allowed. [Para 12]