Satish Kumar Gupta, New Delhi vs Department Of Income Tax

BEFORE SHRI T.S. KAPOOR, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER I.T.A. No.895 /Del/2000, 6806/Del/2010 & 4946/Del/2011 Assessment year : 2006-07, 2007-08 & 2008-09 respectively ACIT, CIRCLE 23(1), Vs. Sh. Satish Kumar Gupta, New Delhi Devika Tower, 6, Nehru Place, New Delhi. GIR / PAN:AACPG7419H (Appellant) (Respondent)

Appellant by : Shri BRR Kumar, Sr. DR Respondent by : Shri Ajay Vohra, Sr. Adv., Shri Gaurav Jain, Adv Shri Sahil Mehta, CA

ORDER

PER T.S. KAPOOR, AM:

These are three appeals filed by Revenue against separate orders of Ld. CIT(A) dated 03.12.2009, 22.10.2010 and 12.08.2011 respectively. These appeals were heard together and therefore, for the sake of convenience, a common and consolidated order is being passed. Common issue involved in these appeals is the action of Ld. CIT(A) by which he had treated the income of the assessee as income from short term and long term capital gains instead of business income held by A.O. The A.O. in these yeas has held the income of the assessee claimed as short term and long term capital gains to be income from business holding similar findings.

2. The brief facts of the case are that the assessee had declared its income from business income, income from capital gain and income from 2 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

other sources. The A.O. observed that the assessee was dealing in large number of securities and he held that prima facie, assessee was not investor but a trader in securities. He further observed that in his actual business of trading in carpets etc., he was incurring losses and also there was little turnover in this business. The A.O. relied upon instructions 1827 dated 31.08.1989 along with CBDT circular 4/2007 along with various judicial pronouncements and held the income of the assessee to be form business instead of capital gains. The crux of finding of A.O. as carved out from the three assessment years are detailed as under:

i) The assessee had very little business turnover in respect of carpets and handicrafts whereas in case of shares and mutual funds, the assessee had huge turnover and moreover, the assessee had incurred loss on sale of nifty derivatives and had treated the same as business loss.

ii) That the dividend earned on the investment was negligible and therefore, he held that assessee was not indulging into sale and purchase of securities for earning of dividend but his intention was to earn profit from sale of the said securities.

iii) The assessee was dealing into huge quantity of securities and turnover of assessee from these transactions ran into crores and, therefore, the scale of activities was substantial.

iv) That the assessee besides using his own funds, had used secured loan which was obtained against the security of shares.

v) That the period of holding of some of the securities was as less as than a month.

3 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011 vi) That from the quantum of dealing it is apparent that assessee had been devoting substantial time to deal in activities of shares and mutual funds and this dealing in securities was only means of livelihood to the assessee specially in the light of the facts that usual business of export of carpets had shown decline in business.

3. Aggrieved, assessee filed appeal before Ld. CIT(A) and made various submissions. Ld. CIT(A) deleted the additions by holding similar findings. For the sake of convenience, the finding of Ld. CIT(A) in Assessment Year 2006-07, 2007-08 and 2008-09 are reproduced below:

A Assessment Year 2006-07:

"{7} The issue of dealing in shares or, investment in shares , has often invited the attention of the courts, as there is often a very thin line of distinction, in cases more than often. Recently, the Lucknow Bench of the Tribunal in Sarnath Infrastructure (P) Ltd. vs ACIT (2008) 16 DTR Lucknow) (Trib) 97, had the occasion to consider almost all the important judicial decisions that have laid down legal principles to determine the nature transactions, such as Raja Bahadur Visheshwara Singh (Deceased) & Others vs CIT (1961) 41 ITR 685 (SC), CIT vs Associated Industrial Development Co. Ltd (1971) 82 ITR 586 (SC), CIT vs H.Holck Larsen (1986) 160 ITR 67 (SC), Fidelity Northstar Fund & Others (2007) 288 ITR 641 (AAR) Dalhousie Investment Trust Co. Ltd. vs CIT 68 ITR 486 (SC), Mrs Sarojini Rajah vs CIT (1969) 71 ITR 504 (Mad), CIT s Sutlej Cotton Mi,lisply Agency Ltd (1975) 100 ITR 706 (SC). The Hon'ble Tribunal also deliberated on the CBDT circular No 4 of 2007 dated 15.6.2007, which has been relied upon by the Learned Assessing Officer in the impugned order. After considering almost all judicial decision and the CBDT Circular, the Hon'ble Tribunal culled out the principles to determine whether transactions in question were in the nature of trade or are merely for investment purposes. It was held as under:

"13. After considering above rulings we cull out following principles, which can be applied on the facts of a case to find out whether transaction(s) in question are in the nature of trade or are merely for investment purposes:

4 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011 (1) What is the intention of the assessee at the time of purchase of the 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 stock or shown separately as investment or non-trading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon ? Normally, money is borrowed to purchase goods for the purposes 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 item, it would indicate trade. Habitual dealing in that particular items is indicative of intention of trade.

Similarly ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment).

(4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value? Former will indicate intention of trade and latter, an investment. In the case of shares whether 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 the 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 realizable 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 there are separate resolutions of the board of directors to carry out investments in that commodity?

(7) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holding. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment ( or say, stock in trade) then onus would shift to Revenue to prove that apparent is not real.

5 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011 (8) The mere fact of credit of sale proceeds of shares (or for that matter any other item in question) in a particular account or not so much frequently of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment.

(9) One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee in complying with them. Whether it is the argument of the assessee that it is violating those 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 item) since beginning or when purchases were made?

(10) It is permissible as per CBDT's Circular No 4 of 2007 of is"

June, 2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate account for each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios.

(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 factors has to be seen".

{8}. On the touch stone of the principles culled out above, let me examine the facts of the case. In the case in hand, it is observed that the assessee has treated the securities as investment. Balance sheet indicates likewise. The assessee has not borrowed money for dealing/ investment in shares. In order to ascertain the frequency of shares and purchase of the shares, I during had referred the matter to the Ld AO under sub-section (4) of section 250. One does not observe anything adverse in the report of the AO. As a matter of abundant precaution, I during the course of hearing, also desired that the assessee prepare a chart to ascertain the retention period. This was filed on 09/11/2009, when the assessee also attended the hearing. It is observed from the chart that the period of retention is from 1 day ( as in the case of 31 Infotech) to 1907 days ( as in the case of Gujarat Alkalies & Chemicals). It is also observed from the chart that while the volumes are heavy, in 785 instances, the period of retention is 100 days or more. This cannot be termed as dealing or trading in shares. Obviously, the transaction have taken place, with the objective of investments and also to realize appreciation in the value and 6 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

dividend, which is more than Rs 14,00,000/- during the year. Further, the contention of the Id A.O that the assessee had also engaged himself in trading in derivatives to show that the assessee was a trader does not hold water especially in the backdrop of amendment in the Act brought about by Finance Act, 2005. While taking the decision, I have also been convened by the argument of the assessee, that had he been a trader he would have indulged in shorting, hedging etc. {9}. In view of the discussion above, I hold that the assessee is not a trader in shares and therefore, the Id A.O has erred in treating the income as income from business. The assessee succeed in ground of appeal No 1."

B. Assessment Year 2007-08:

"{4} The issue of dealing in shares or investment in shares , has often invited the attention of the courts, as there is often a very thin line of distinction, in cases more than often. Recently, the Lucknow Bench of the Tribunal in Sarnath Infrastructure (P) Ltd. vs ACIT (2008) 16 DTR (Lucknow) (Trib) 97, had the occasion to consider almost all the important judicial decisions that have laid down legal principles to determine the nature of transactions, such as Raja Bahadur Visheshwara Singh (Deceased) & Others vs CIT (1961) 41 ITR 685 (SC), CIT vs Associated Industrial Development Co. Ltd (1971) 82 ITR 586 (SC), CIT vs H. Holck Larsen (1986) 160 ITR 67 (SC), Fidelity Northstar Fund & Others (2007) 288 ITR 641 (AAR) Dalhousie Investment Trust Co. Ltd. vs CIT 68 ITR 486 (SC), Mrs Sarojini Rajah vs CIT (1969) 71 ITR 504 (Mad), CIT s Sutlej Cotton Mills Supply Agency Ltd (1975)100 ITR 706 (SC). The Hon'ble Tribunal also deliberated on the CBDT circular No 4 of 2007 dated 15.6.2007, which has been relied upon by the Learned Assessing Officer in the impugned order. After considering almost all judicial decision and the CBDT Circular, the Hon'ble Tribunal culled out the principles to determine whether transactions tn- question were in the nature of trade or are merely for investment purposes. It was held as under :-

"After considering above rulings we cull out following principles, which can be applied on the facts of a case to find out whether 7 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

transaction(s) in question are in the nature of trade or are merely for investment purposes:

(1) What is the intention of the assessee at the time-of purchase of the 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 stock or shown separately as investment or non-trading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purposes of trade and not for in vesting 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 item, it would indicate trade. Habitual dealing in that particular items is indicative of intention of trade.

Similarly ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment).

(4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value? Former will indicate intention of trade and latter, an investment. In the case of shares whether 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 the 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 realizable 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 there. are separate resolutions of the board of directors to carry out investments 'in that commodity?

(7) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holding. If the assessee is able to discharge the primary onus and could prima fade show that 8 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

particular 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 shares (or for that matter any other item in question) in a particular account or not so much frequently of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment.

(9) One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee in complying with them. Whether it is the argument of the assessee that it is violating those legal requirements. If it is claimed that its dealing as a trader in that item? Whether it had such an intention (to carryon illegal business in that item) since beginning or when purchases were made?

(10) It is permissible as per CBDT's 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 each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios.

(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 factors has to be seen'.

{5} The facts of the case under consideration need to be analyzed in the background of above detailed principles. It is seen that the assessee has recorded the securities as investments in the books of accounts as against stock-in-trade. The valuation of securities at the end of the year has been at cost as against cost or market price whichever is less. The assessee has utilized his own funds to make investments into securities as against borrowing the interest bearing funds. The issue of frequency of transactions carried out by the assessee has also been examined and the chart submitted in this regard shows that investment in shares was done only for 24 days, investment and encashment was done for 73 days and only encashment was done for 70 days. There have been long periods of inactivity clearly showing that the assessee has not been doing this activity on day-to-day basis. The retention period for the shares which were held as long term capital gain is 558 days and for shares held 9 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

for Short Term Capital Gains is 124 days. The fact that the assessee has done transactions in future and option segment of the market cannot be held against the assessee as this particular activity has been legislated as business by amendments brought in by Finance Act, 2005. The assessee has also gained in terms of dividends earned from his investments to the tune of Rs. 14,33,706/- as against Rs. 14,51,266/- earned in Financial Year 2005-06. This only shows that the assessee has stayed invested, thereby earning dividends. The quantum of dividend at Rs. 14,33,706/- cannot be said to be insignificant as the dividend is always declared on the face value of the shares ,and if seen from the point of view of capital investment, which is normally at the market rate, it would always appear low in terms of percentage. Therefore, the Assessing Officer's action in taxing the income from Short Term Capital Gains as income from business and profession does not stand the test of various judicial pronouncements on the issue as discussed above and therefore, addition made by the Assessing Officer in treating the same under the head Income from Business & Profession is deleted."

C. Assessment Year 2008-09:

"{4} I have carefully considered the appellant's various submissions and have examined the facts of the case in the light of the principles laid down in the cited judgments. I have also seen that this issue has been decided in favour of the appellant by my learned predecessor in the Assessment Year 2006-07 and 2007-08 vide orders dated 03.12.2009 and 22.10.2010. It is further noted, as in earlier years, that the appellant has treated the securities as investments, and not as stock-in-trade, in his books of accounts. The appellant has also valued the securities at the end of the year at cost and not by the method of market price or cost, whichever is less. The appellant has not claimed any interest payment relating to this activity, and it is verified that no borrowed funds have been utilized for the purchase of shares. So far as the frequency of transactions carried out is concerned, the chart submitted by the appellant shows that investment in shares was done only on 16 days of the year, and encashment was done on only 108 days. Thus, on most days of the year, the appellant was not engaged in either purchase or sale and thus there is no regular or day-to-day activity of trading. The period of retention of 10 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

the shares on which Short Term Capital Gains have been realized varies from 1 day in one case to 363 days. The retention period for the shares on which long term capital gains have been disclosed varies between 417 days and 977 days. Undoubtedly, the appellant has engaged in this activity of purchase and sale of shares with the intention to realize the appreciation in the value as well as to earn dividends, but it cannot be concluded that he was carrying on trading of shares as a business activity. The contention of the Assessing Officer that the appellant has engaged in trading in derivatives and has made speculative transactions is also not relevant in view of the amendments brought in by the Finance Act, 2005. In view of the above discussion, the appellant succeeds at Ground of Appeal No. 1 and the Assessing Officer is directed to assess the said income as income from capital gains, as disclosed by the appellant."

4. Aggrieved, the revenue is in appeal before us.

5. At the outset, Ld. D.R. submitted that there was voluminous transaction of sale and purchase of shares and assessee was actively dealing into business of sale and purchase of shares and, therefore, A.O. after verification, has held the transactions to be in the nature of trade instead of investment. It was submitted that Ld. CIT(A)'s finding that holding period of 100 days was sufficient for treating the income as capital gain is not correct as he had ignored the fact that in a number of securities the period of holding was from one day to seven days. He further submitted that Ld. CIT(A) has not properly applied his mind and has allowed the relief to the assessee which is against the facts and circumstances of the case.

6. Ld. Sr. Counsel on the other hand submitted that the shares purchased by assessee were reflected as investment in the books of accounts and were also valued at cost price instead of cost price or market price whichever is less and, therefore, they were accepted as investment in the year of 11 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

purchases and, therefore, sales of the same in subsequent years cannot be treated as out of stock in trade for the purpose of calculation of business profits. In support of his arguments, Ld. Sr. Counsel heavily relied upon the decision of Hon'ble Delhi High Court in the case of Devasan Investments Pvt. Ltd. in I.T.A. No. 1102 & 1103 placed at paper book pages 9-27. Ld. Sr. Counsel submitted that SLP filed by department in this case has already been dismissed. Ld. A.R. invited our attention to calculation of short term and long term capital gain in these three yeas which was placed in paper book at pages 28-35, 101-150 and 86-91 respectively. Ld. A.R. highlighting from the statement in Assessment Year 2006-07 submitted that the shares purchased on various dates were transferred to demat account of assessee and after that, at the time of sale shares were again transferred from demat account of the assessee. Inviting our specific attention to pages 36-62 of the paper book, Ld. Sr. Counsel emphasized on the fact that various shares were held for various numbers of days as noted against each. He further submitted that the assessee was never a trader in shares but was making investments and was selling them only when a particular target was achieved. It was submitted that the period of holding of each share differed but the intention was always to hold them as investments and to earn short term and long term capital gains. It was further submitted that Ld. CIT(A) had obtained remand report also from assessing officer with a view to ascertain as to whether the delivery of purchased shares was taken into demat account of assessee or not and the A.O. vide remand report dated 18.09.2009 placed at paper book pages 164-166 has held that entries of purchases were found to have been entered in the demat account of assessee.

12 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011 7. As regards observation of the A.O. regarding loss in carpet business, Ld. Sr. Counsel submitted that loss in carpet business is not relevant and since the shares were brought forward from year to year, the loss / profit was capital gain irrespective of quantum of carpet business. He further submitted that A.O.'s finding that borrowed funds were used for acquisition of shares, was not correct as the said loan was taken against security of shares for investment in a property and in this respect, our attention was invited to paper book pages 90-92 where documents regarding loan of Rs.1 crores along with bank statement of PNB where funds were transferred and from where, these were utilized, was placed. The Ld. Sr. Counsel placed his reliance on various case laws as placed in paper book pages 1-126.

8. Ld. D.R. in his rejoinder submitted that the case laws relied upon by Ld. A.R., are not of any help to the assessee as in those case laws, there were very little transactions whereas in the case of the assessee, undisputedly there were large transactions and assessee was regularly on day to day basis has been entering into huge transactions.

9. We have heard rival parties and have gone through the material placed on record. We find that for determination of the fact as to whether the income from sale of shares represent income from capital gain or business income, facts of each case has to be analyzed separately and no case law can be made as a precedent as the facts of each case always differ. A combination of factors has to be kept in mind and one of the factors is the intention of assessee at the time of purchase and intention of assessee can always be judged from the treatment of shares in the balance sheet of the assessee for the proposition that as to whether the assessee had reflected the purchases as investment or stock in trade. Undisputedly, in the present 13 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

cases, the assessee had classified the shares as investment and had valued the same at cost price, as is verifiable form the copies of balance sheets placed at paper book pages 12,10 and 12 respectively for the above assessment years. However, the only classification of shares as investment in the balance sheet cannot lead to the conclusion that assessee was an investor. This factor has to be examined in conjunction with other factors such as whether assessee had borrowed funds and what is the frequency and volume of transactions & how the account of broker is settled as to whether it is kept as a current account or is settled after every transaction or after a particular period and further as to whether the assessee was taking deliveries in the demat account or not and the fact also about the number of scripts in which the assessee deals with. During the course of proceedings before us with the purpose of looking into these factors, the Ld. Sr. Counsel was directed to file copy of account of broker as appearing in the books of assessee along with complete demat account statements of the assessee for three years. After the conclusion of hearing the Ld. Sr. Counsel has filed these documents except demat account statement for the Assessment Year 2008-09.

10. From the documents already filed in the form of paper book and those filed after the conclusion of hearing, we find as under:

i) That assessee has been dealing into shares, securities and portfolio management schemes of various portfolio managers.

ii) The total purchases & sales of Assessee for shares as calculated from the account of broker in the books of accounts of assessee for the three years is as under:

2006-07 2007-08 2008-09 Purchases 4,36,82,144 90,04,364 24,98,628 Sales 4,25,04,465 2,09,07,257 1,95,82,341 14 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

iii) The assessee is having current account with the broker wherein regular entries of purchases and sales, cheques paid and cheques received has been entered. The account has never been settled completely in the three years and sometimes, it had debit balance and sometimes it had credit balance. For the sake of convenience the copy of account of broker as appearing in the books of assessee as submitted by Ld. Sr. Counsel has been made part of this order attached as Annexure A. From the above statement, it can be seen that on many occasions, the shares purchased remained unpaid and dues were settled in succeeding days by making sales out of existing shares. From the analysis of above statement, it can be concluded that on the one hand on some occasions the shares remained unpaid and on the other hand it also proves that broker account was a current account and was not fully squared up and on a number of occasions, the dues were settled by selling shares.

iv) The claim of the Ld. A.R. that no borrowed funds for purchase of shares were utilized is not correct in view of the fact that assessee had debited interest of Rs.4,27,753/-, Rs.3,34,415/- and Rs.9,38,655/- in the P & L account as placed in paper book pages 14,12 and 11 respectively. The assessee has also claimed the expenditure of interest in the computation of income against long term and short term capital gains in two years as is apparent form paper book page 1 in Assessment Years 2006-07 and 2007-

08. In view of this, the observation of Ld. CIT(A) that no borrowed funds were used, is against the facts of the cases.

v) During arguments, the Ld. Sr. Counsel had submitted that all purchased shares were first transferred into demat account of assessee & in this respect, he had invited our attention to remand report for Assessment 15 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

Year 2006-07, also wherein the A.O. on the basis of test checks had stated that purchases of shares were found to be entered in demat account. However, from the details of script-wise holding period, we find that all scripts cannot be said to have been first transferred into demat account as period of holding in certain cases ranges from one day to seven days within which period, it may not be practical to first receive shares in demat account and then to release the same out of demat account when sales are made. Retention period for various shares for Assessment Year 2006-07 is placed at paper book pages 36-62 and from which we can find that in many cases scripts were held for one to seven days and therefore all scripts cannot be said to have been transferred to demat account first. Moreover, such exercise has not been done for Assessment Years 2007-08 and 2008-09.

vi) The short term capital gain earned and declared by assessee includes gains from portfolio schemes also the nature of which has not been determined either by A.O. or Ld. CIT(A). From the paper book filed by assessee, we find that short term capital gain earned and declared by assessee includes income from portfolio schemes the details of which is as under:

2006-07 2007-08 2008-09 Total short term 91,87,581/- 50,09,092/- 70,38,179/- Capital gain declared Gain form portfolio 9,25,100/- - 50,39,990/- Schemes included in (p.b.34) (p.b.8.7) Above.

For the Assessment Year 2007-08, break up of short term capital gain form scripts and from portfolio schemes could not be found out from paper book, 16 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

therefore, column has been left blank. The proposition as to whether income from portfolio schemes is a capital gain or business income has not been addressed at all.

vii) The demat account statement as filed for Assessment Year 2006-07 runs into 66 pages and that of Assessment Year 2007-08 runs into 34 pages. The demat statement for Assessment Year 2008-09 has not been filed. The volume of demat statement itself describes the frequency of transactions, which is quite long.

viii) The number of scripts dealt by the assessee as per demat account statement is 259 in Assessment Year 2006-07 whereas the number is 228 scripts in Assessment Year 2007-08. The demat statement for Assessment Year 2008-09 has not been filed. The number of scripts dealt by assessee is too large for an investor and only a trader who is involved in the market on dya to day basis can only manage such a huge portfolio.

ix) The mere number of scripts dealt with by assessee coupled with frequent trades and changes in scripts by selling one and by buying another or buying the same script after a period itself indicates that assessee cannot be classified as investor only. Ordinarily, an investor in shares does not indulge into so many scripts and that too so frequently. All these facts and circumstances as listed above indicate that assessee cannot be classified only as an investor but he is a trader also.

x) The Ld. CIT(A) has decided the issue in favour of assessee by looking at scripts which were held by the assessee for a longer period and has not looked into the entire facts.

xi) The mere fact that period of holding for some of the scripts exceeded more than 365 days or more itself cannot lead to the conclusion that gain 17 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

was necessarily a long term capital gain as it can happen in the case of trader also where some of the scripts remain unsold for a long period of time for a number of reasons.

xii) While deciding the issue in favour of assessee, Ld. CIT(A) observed that had the assessee been a trader, he would also have shorted/hedged but in one view, shorting/hedging is not allowed in shares / scripts and it is allowed only in derivatives and therefore, this finding of Ld. CIT(A) is also not correct and moreover even if shorting was allowed in scripts and assessee did not do it does not mean that he was not a trader..

11. From the above facts and circumstances, we are of the considered opinion that the assessee though had classified all unsold shares as on the close of accounting year as investments yet he was a both trader and an investor.

12. CBDT in its circular No.4 of 2007 has also emphasized that it is possible for a tax payer to have two portfolios one as investment portfolio and another as trading portfolio and where, the assessee has both portfolios, the income has to be assessed under both heads i.e. capital gain and business income. Moreover, we find that assessee had earned significant income from portfolio schemes and therefore the nature of income as to whether the same was capital gain or business income, has to be looked into keeping in view the objectives of such schemes and other terms and conditions of such schemes and also on the basis of settled law with respect o taxation of income from portfolio schemes.

13. In view of the above facts and circumstances, we set aside the order of Ld. CIT(A) and direct him to re-adjudicate on the issue after taking into account all facts and circumstances as enumerated above. The Ld. CIT(A) 18 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011

should examine the three years independently as entire facts in one year may not be available in another year.

14. The case laws relied upon by Ld. A.R. are distinguishable on the facts as in the case law as M/s. Devasan Investments (P) Ltd. the number of scripts was quite low and there was no frequency of transactions. Moreover, in determination of the nature of income of an assessee as to whether income is from capital gains or from business, a combination of factors has to be considered and no case law can be made as a precedent.

15. In view of the above, the appeals filed by Revenue are allowed for statistical purposes.

16. Order pronounced in the open court on 13th Jan., 2015.

Sd./- Sd./- ( A. T. VARKEY) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER Date: 13th January, 2014 Enclosure: Annexure A Sp

Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order

(ITAT, New Delhi).

19 ITA No.895/Del/2000 I.T.A.No. 6806/Del/2010 I.T.A.No. 4946/Del/2011 S.No. Details Date Initials Designation 1 Draft dictated on Sr. PS/PS 2 Draft placed before author Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement Sr. PS/PS 7 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order

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