Rajan M Shah, Mumbai vs Assessee
- CitationI.T.A. No.971/Mum/2013
Ratio decidendi
The rule this decision rests on
The question whether gains on sale of shares are to be assessed as business income or as capital gains turns on whether the assessee carried on share transactions as a trader or as an investor, and the tribunal decides it by looking at the character of the holdings and of the dealings rather than at the volume of transactions alone. Where the assessee's balance sheet shows that the investments were made from his own funds without borrowing, and the shares are classified in the accounts as investments rather than stock-in-trade, those facts are relevant indicia that the assessee holds the shares as an investor. Holding periods are a material factor in the characterisation: where the majority of shares sold were held for a substantial period, and the bulk of the shares sold under the short-term category were nonetheless held for more than 100 days, the holdings are to be treated as investment rather than trading, notwithstanding the existence of some short-period sales. Sales effected in multiple lots, or separated by considerable intervals of time, do not by themselves establish repetitive trading activity of the kind that would make the assessee a trader in shares. On the basis of these considerations, an assessee who carries on share transactions as an investor is taxable on gains from sale of shares as capital gains, and the profits so arising are to be assessed under the head of capital gains and not as business income.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) सव ी बी.आर.बा करन, लेखा सद य एवं ी संजय गग, या यक सद य के सम
आयकर अपील सं./I.T.A. No.971/Mum/2013 ( नधारण वष / Assessment Years : 2006-07)
Shri Rajan M Shah, बनाम/ The Asstt. Commissioner of 4, Hem Niwas, Income Circle 25(3), Kalichand road, Vs. Pratyakshakar Bhavan, Kandivali (W), Bandra Kurla Complex, Mumbai-400067 Bandra (E), Mumbai-400051 (अपीलाथ /Appellant) .. ( यथ / Respondent)
थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AKJPS7525D
अपीलाथ ओर से / Assessee by Shri Ketan L Vajani यथ क ओर से/ Revenue by Shri Love Kumar
सुनवाई क तार ख / Date of Hearing : 3.3.2015 घोषणा क तार ख /Date of Pronouncement : 29.5.2015
आदे श / O R D E R Per B R Baskaran, AM:
The assessee has filed this appeal challenging the order dated 5.11.2012 passed by the Ld. CIT(A)-35, Mumbai and it relates to the assessment year 2008-09.
2. The assessee is aggrieved by the decision of the Ld. CIT(A) in confirming the assessment of "Short Term Capital Gains" (STCG) and "Long Term Capital Gains" (LTCG) arising on sale of shares as business income of the assessee.
2 ITA. No.971/M/2013 3. We heard the parties and perused the record. During the year under consideration, the assessee declared STCG of Rs.16.20 lakhs and LTCG of Rs.15.82 lakhs, both arising on sale of shares. The AO treated the same as business income of the assessee and it was also confirmed by the ld. CIT(A).
4. Before us, the main contentions of the ld.AR are that
(a) the assessee is an investor mainly involved in purchase and sale of bonds/securities and he has also dealt in as part of his investment activity.
(b) the assessee has only invested his own funds and he has not borrowed any funds for this purpose.
(c) there is no major repetitive purchases and sale of same shares.
(d) the assessee has received dividend income of Rs.14.30 lakhs
(e) the assessee has maintained regular books of account and shares have been shown as investments only.
5. On the contrary, the ld. DR submitted that the assessee should be treated as trader in shares considering the volume and frequency of transactions in shares and repetitive transactions entered by the assessee.
6. A perusal of the Balance Sheet furnished by the assessee would show that the assessee has invested his own funds and he has not borrowed any fund for the purpose of making investment in shares. The investment details of the assessee as at the end of the year under consideration are given as under:
3 ITA. No.971/M/2013 Particulars Amount in Rs. LIC New 5,19,000 MKVDC Bond 1,14,96,000 ICICI Bond 9,00,000 Shares in 3A capital services 1,39,80,000 Ltd Total 2,68,95,000
A perusal of the investment details would show that more than 50 % of the investments have been made in bonds issued by various Financial Institutions. Further the assessee has classified the Share purchases as part of his investments only.
7. The details of purchases and sale of shares undertaken during the year under consideration are given in paragraph 16 (Pages 13 to 15) of the order of Ld CIT(A). A careful perusal of the details of shares purchased and sold by him would show that though the assessee had held shares ranging from 2 days to 354 days, yet the majority of the shares have been held for more than 100 days. The assessee has furnished an analysis of sale of shares in "period range" and the same finds place in page 25 of the order of Ld CIT(A). A perusal of the same would show that only 13% of the shares that were sold (falling in STCG) were held for less than 100 days, meaning thereby the assessee has held about 87% of the shares that were sold under STCG category for more than 100 days. With regard to the allegation of repetitive transactions, we notice that the assessee has either sold shares in more than one lot in some of the cases or there is considerable time gat between one set of transaction another set.
8. Under these set of facts, we are of the view that the assessee cannot be considered to be a trader in shares and accordingly, we hold that the assessee has carried on share transactions as investor only. In 4 ITA. No.971/M/2013
view of the above, we set aside the order of ld.CIT(A) and direct the AO to assess the profit arising on sale of shares as capital gains only.
9. In the result, the appeals filed by the assessee is allowed.
The above order was pronounced in the open court on 29th May, 2015.
घोषणा खुले यायालय म दनांकः29th May, 2015 को क गई ।
Sd sd (संजय गग/SANJAY GARG) ( बी.आर.बा करन / B.R. BASKARAN) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER मुंबई Mumbai: 29th May,2015. व. न.स./ SRL , Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु त(अपील) / The CIT(A)- concerned
4. आयकर आयु त / CIT concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई / DR, ITAT, Mumbai concerned
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER,
सहायक पंजीकार (Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai
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