ALTIUS SECURITIES TRADING PVT. LTD.,CHENNAI vs. DCIT, CORPORATE CIRCLE-1(1), CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: The appeal in ITA No.653/Chny/2026 has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as ‘Ld.CIT(A)‘), Delhi, dated 15.01.2026 for the Assessment Year (hereinafter referred to as ‘AY‘) 2008-09 & the SP No.36/Chny/2026 is the Stay Application filed by the assessee for AY 2008-09.

ITA No.653/Chny/2026 & SA No.36/Chny/2026 (AY 2008-09) M/s Altius Securities Trading Pvt. Ltd. :: 2 :: 2. First we take up the stay application of the assessee. The Ld. AR for the assessee pointed out at the time of hearing that, the major addition in the impugned assessment order relates to action of the lower authorities re-characterizing the gain of Rs.11.16 crores derived from sale of investments by way of business income as opposed to short term capital, as returned by the assessee. The Ld. AR brought to our notice that, identical addition was done by the AO’s predecessor in AY 2005-06 and on appeal the Ld. CIT(A) had held that the profit/loss from sale of investments which were held for less than a year as well, was assessable by way of short-term capital gains and not business income. He pointed out that, though the AO had taken cognizance of the appellate order passed in assessee’s own case for AY 2005-06, but he still proceeded to assess the gain of Rs.11.16 crores derived from sale of investments by way of business income, as because the Revenue had preferred appeal against the order of Ld. CIT(A) before this Tribunal. The Ld. AR invited our attention to the appellate order in ITA Nos. 234/Mds/2010 & 217- 218/Mds/2012 passed by this Tribunal in assessee’s case for AYs 2005-06 to 2007-08 wherein on this identical issue, the Revenue’s appeals have been dismissed. Referring to the CBDT Office Memorandum dated 29.02.2016, the Ld. AR submitted that, since the impugned issue was squarely covered by assessee’s own case for AYs 2004-05 to 2006-07, the

ITA No.653/Chny/2026 & SA No.36/Chny/2026 (AY 2008-09) M/s Altius Securities Trading Pvt. Ltd. :: 3 :: demand arising out of the impugned addition, deserves to be stayed. Per contra, the Ld. DR urged us not to entertain this stay application.

ITA No.653/Chny/2026 & SA No.36/Chny/2026 (AY 2008-09) M/s Altius Securities Trading Pvt. Ltd. :: 4 :: investments which gave rise to short term capital gain of Rs.11,16,83,271/- declared in the return of income. Having regard to the duration of holding, frequency of transactions and conduct of the assessee and observed that, (i) the assessee had bought and sold shares of 62 companies, (ii) the total value of purchases and sales was Rs.58.35 crores and Rs.64.13 crores respectively, (iii) the holding period ranged from 1 to 220 days, (iv) most of the shares were purchased and sold during the year and (v) the assessee had executed more than 500 transactions in relation thereto. Based on such analysis and having regard to the CBDT Circular No. 4 of 2007 dated 15.06.2007, the AO was of the view that short term capital gain of Rs.11,16,83,271/- was to be assessed by way of business income. Aggrieved by the assessment order, the assessee preferred appeal before CIT(A) who confirmed the action of the AO. Now the assessee is in appeal before us.

ITA No.653/Chny/2026 & SA No.36/Chny/2026 (AY 2008-09) M/s Altius Securities Trading Pvt. Ltd. :: 5 :: cost and that the STT paid on these investments were not claimed as deduction from business profits. It was also brought to our notice that the investments were made out of owned surplus funds and that no borrowed funds were utilized by the assessee in relation thereto. It was brought to our notice that, identical additions were made in the earlier AYs 2005-06 to 2007-08 wherein the short term capital gain derived on sale of investments were re-characterized as business income and that this Tribunal in assessee’s own case in ITA Nos. 234/Mds/2010 and 217 & 218/Mds/2012 had upheld the order of the Ld. CIT(A) deleting the addition(s) made by the AO. The Ld. AR therefore urged us that the order of the lower authorities be reversed.

ITA No.653/Chny/2026 & SA No.36/Chny/2026 (AY 2008-09) M/s Altius Securities Trading Pvt. Ltd. :: 6 :: assessee reveals that the assessee has been consistently maintaining separate portfolios in respect of the shares held by way of stock-in-trade and investments in its books of accounts. It is seen that, the assessee has been consistently maintain distinct accounting treatment qua the shares held by way of investments and shares held as inventory. We also observe that, the investments made by the assessee were not sourced out of any borrowed funds. It is seen that, Para 10 of CBDT Circular No. 4/2007 (supra) recognizes that an assessee may have income under both the heads of income from business and capital gains if it maintains two distinct portfolios, which we find that the assessee has consistently done in the present case. The Ld. AR has demonstrated the segregation from the books of account, balance sheets, and method of accounting regularly followed over the years.

ITA No.653/Chny/2026 & SA No.36/Chny/2026 (AY 2008-09) M/s Altius Securities Trading Pvt. Ltd. :: 7 :: facts and circumstances did not exceed that of the business operations of the assessee. It is also by now well-settled that magnitude or volume of transactions or short period of holding alone cannot convert investment activity into business activity, if proper demarcation between portfolios is maintained and the intention is clearly discernible from records, which we find to be present in the case before us.

:: 8 :: ii) The assessee has bought 62,05,150 shares of various companies on various dates during the said period and sold them before the end of financial year. iii) The assessee has made purchase of shares for a total value of ` 77,81,61,051/- and has sold the same for a total value of ` 79,70,31,405/- during the said period. iv) The assessee has executed more than 500 transactions of purchases and an equal number of transactions of sale during the said period. v) Analysis of the holding period of these shares reveals that on an average the holding period of these shares ranges from 2 to 45 days. In some cases, it is observed that shares purchased have been sold immediately. vi) Except for a very small portion of shares which were purchased during the fag end of the financial year all shares purchased during this period have been sold within a very short period of time before the close of the financial year. vii) Effectively the percentage of purchase and sales over the holding is exceeding 98% during the said period. viii) The assessee has also taken funding from M/s. ILFS for trading in securities. Even the profits made purely out of transactions executed through ILFS funding amounting to `17,57,808/- have been entirely shown as capital gains. 11. For the above reasons, the Assessing Officer concluded that the intention of the assessee in trading shares is only for making profit and therefore the transactions have to be assessed as income from business and not under the head ‘ capital gains’. The Commissioner of Income Tax (Appeals) in his order considered elaborately the contentions of the Assessing Officer as well as the submissions of the assessee and held that income from sale of shares is to be assessed under the head “capital gains” in the facts and circumstances of the case and not as business income observing as under:- “ 4. I have carefully considered the facts of the case, submissions made by the AR, and various case laws relied upon by the appellant. Whether the income from share trading would come under the head 'capital gains' or 'business income' has been subject matter of numerous litigation. As per the provisions of the Act, 'business income' and 'capital gains' are subject to tax at different rates of tax. The provisions of the Act do not lay down clear criteria for determining the characterisation of income, but certain genetic principles have evolved out of the judicial precedents and administrative dispensation. Earlier in 1989, vide Instruction No. 1827 dated 31-08-89, certain tests were laid down by the Central Board of Direct Taxes (CBDT) to distinguish between shares held as stock-in-trade and shares held as investment. The CBDT has issued Circular No 4/2007, dated 15.06.07 to provide further guidelines for determining whether a person is a trader in stocks or an investor in stocks. The said Circular, issued as a supplement to the earlier Instruction of 1989, reiterates the principles laid down in the earlier judicial decisions and, more specifically, reproduces certain observations made in the two decisions of the Hon'ble Supreme Court (CIT v Associated Industrial Development Company (P) Ltd (1971) 82 ITR 586 (SC) and CIT v H. Holck Larsen (1986) 160 ITR 67 (SC)). The principles laid down by the said Circular are as follows: (i) Whether :: 9 :: a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. (ii) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction; (iii) The substantial nature of transactions, the manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions; (iv) Ordinarily, the purchase and sale of shares with the motive of earning a profit would result in the transaction being in the nature of trade / adventure in the nature of trade, but where the object of the investment in shares of a company is a derive income by way of dividend, etc., then the profits accruing by changes in such investment (by sale of shares) will yield capital gain and not revenue receipt. 4.1 Importantly, the Circular also recognises that an assessee could have two portfolios viz., investment portfolio comprising of securities which are to be treated as capital assets and trading portfolio comprising of stock-in-trade which are to be treated as trading assets. The Mumbai Tribunal in the case of Gopal Purohit v JCIT (2009) 122 TTJ 87 (Mum) has reiterated the principles laid down in the abovementioned CBDT Circular and has concluded that an assessee can be an investor and trader simultaneously and hence income earned on the same should be classified accordingly. 4.2 The Hon'ble Supreme Court in Raja Bahadur Kamakhya Narain Singh (supra) has held that the distinction between the two types of transactions is not always easy to make. However, if the facts of the appellant are considered against the principles laid down by the judicial precedents and CBDT Circular, it is clear that the appellant has made substantial compliance to the criteria for investment. A perusal of the returns of income and balance sheets of the appellant reveal that the appellant has been consistently maintaining assets as stock-in-trade as well as investments in its books of account. There IS no dispute that the assessee has claimed exemption u/s 10(38) and has paid tax u/s 111A at concessional rate on transactions where Security Transaction Tax had been paid. It is also noted that the appellant has paid tax on short term capital gain at normal rates on the share transactions executed in the period prior to 01-10-2004. There was an amendment in the Act by Finance Act, 2004 whereby section 10(38) of the Act was changed and a concessional rate of tax at the rate of 10% was levied subject to the condition that the transactions resulting into this type of capital gains suffer Security Transaction Tax. If any advantage accrues to the assessee due to a legislative enactment which confers certain advantage on the appellant, then the same cannot be taken away by the revenue by treating the transaction in such a way that the appellant suffers the higher / maximum rate of taxation. The modus operandi of the appellant, the manner of keeping the records and presentation of shares as investment at the end is same in all the years. Therefore, there is no reason as to why the claim made by the appellant should not be accepted. The appellant has no doubt transacted large number of shares which have given it "business profit" as well as "capital gain". That by itself could not convert a capital gain into business profit. Though the period of holding for long term capital gain has been specified in the Act, no such period has been specified for short term capital gain. But the appellant has proved with evidence that all the transactions conferring short term capital gain were taken delivery of and transacted through DEMAT account. It is also not true that the shares were held only for 2 to 45 days. Many shares were held for as long as :: 10 :: 365 days. In any case, the learned Assessing Officer has not disturbed the longterm capital gain. Thus, impliedly, as per the Assessing Officer, either the shares were held for more than 12 months or for a period of 2 to 45 days. This is factually wrong and the appellant has held many shares for period exceeding 45 days upto 12 months. The appellant did not borrow funds for the purpose of investment and utilized his own funds for the shares held as investment. The borrowed funds from ILFS was for F&O business and not for the purpose of investments. The shares purchased as investment have also been kept in the investment account and not in the stock-in-trade (inventory) account. The appellant has shown investment of Rs.9,81,132/-, Rs.59,79,579/- and Rs.7,41,83,096/- as on 31·03·2003, 31·03-2004 and 31- 03-2005 respectively. He has also shown dividend incomes in all the years. The assertion that appellant did not show any business income from trading in shares after 0110·2004 is also not correct. He has also shown business income of Rs.3,78,847/· after October, 2004. In view of the above factual position and judicial precedents, it is held that the Assessing Officer was not correct in treating the "short- term capital gain" as "business income". The Assessing Officer is, accordingly, directed to accept the short-term capital gain shown by the appellant. The appellant succeeds on this ground.” 12. It was the finding of the Commissioner of Income Tax (Appeals) that assessee was maintaining two portfolios one for trading and another for investments. Maintaining separate portfolios one for investment and the other for trading is also permissible. The Hon’ble Bombay High Court in the case of CIT Vs. Gopal Purohit (supra) affirming the decision of the Tribunal held as under:- “ The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purposes of business (described in paragraph 8.3 of the judgment of the Tribunal as transactions purely of jobbing without delivery). The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares. The Tribunal held that the delivery-based transactions in the present case, should be treated as those in the nature of investment transactions and the profit received therefrom should be treated either as short-term or, as the case may be, long-term capital gain, depending upon the period of the holding. A finding of fact has been arrived at by the Tribunal as regards the existence of two distinct types of transactions, namely, those by way of investment on the one hand and those for the purposes of business on the other hand. Question (a) above, does not raise any substantial question of law. In so far as question (b) is concerned, the Tribunal has observed in paragraph 8.1 of its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The Revenue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings. The Tribunal correctly accepted the position, that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question of law.”

ITA No.653/Chny/2026 & SA No.36/Chny/2026 (AY 2008-09) M/s Altius Securities Trading Pvt. Ltd. :: 11 :: The Hon’ble Supreme Court has also dismissed the Special Leave Petition filed by the Revenue against this judgement reported in 334 ITR 308(St). 13. The Commissioner of Income Tax (Appeals) held that the assessee was consistently holding shares as investments for past several years and is evident from the balance sheets of the assessee. It was the finding of the Commissioner of Income Tax (Appeals) that assessee not only held shares for 2 to 45 days but also held many shares for as long as 365 days. The assessee has not borrowed any funds for the purpose of investments and utilized its own funds for shares held as investments. It was the finding of the Commissioner of Income Tax (Appeals) that borrowed funds from ILFS for business and not for the purpose of investment. It was the finding of the Commissioner of Income Tax (Appeals) that assessee has received dividend income in all the years from 2003 onwards. The Commissioner of Income Tax (Appeals) also observed that assertion of the Assessing Officer that assessee did not show any business income from trading in shares after 01.10. 2004 is not correct as the assessee has shown income of `3,78,847/-. None of these findings have been rebutted by the Revenue. On going through the submissions of both the parties and the impugned order, we do not find any strong reasons to reverse the findings of the Commissioner of Income Tax (Appeals) in concluding that the profit on sale of shares sold after 01.10.2004 has to be assessed as capital gains. The findings of the Commissioner of Income Tax (Appeals) were not rebutted by the Revenue. In the circumstances, we affirm the order of the Commissioner of Income Tax (Appeals) in holding that profit on sale of shares is assessable under the head “short-term capital gains”. 10. Following the above decision (supra), we hold that the AO was unjustified in treating the profits derived by the assessee from sale of investments by way of business income and direct the AO to assess the profit of Rs.11,16,89,271/- by way of “Short Term Capital Gains” as returned by the Assessee. These grounds are therefore allowed.

ITA No.653/Chny/2026 & SA No.36/Chny/2026 (AY 2008-09) M/s Altius Securities Trading Pvt. Ltd. :: 12 :: 12. The Ld. AR for the assessee relying on the decision of the Special Bench of Tribunal, Delhi in the case of ACIT v. Vireet Investments (P) Ltd. (82 taxmann.com 415) prayed that only those investments which yielded exempt income during the year ought to be considered for computing average value of investment for the purpose of disallowance under Rule 8D(2)(iii) of the Rules, which has not been followed by the lower authorities, and therefore, he urged that, the AO may be directed to compute the disallowance u/s. 14A as per the decision of Special Bench of Tribunal, Delhi (supra). Per contra, the Ld. DR supported the order of the lower authorities.

ITA No.653/Chny/2026 & SA No.36/Chny/2026 (AY 2008-09) M/s Altius Securities Trading Pvt. Ltd. :: 13 :: 14. In the result, the appeal of the assessee is partly allowed and the stay application filed by the assessee stands disposed of.

Order pronounced on the 5th day of May, 2026, in Chennai.

Sd/- Sd/- (पद्मावती .एस) (एबी टी. वर्की) (PADMAVATHY. S) (ABY T. VARKEY) लेखा सदस्य/ACCOUNTANT MEMBER न्यानयक सदस्य/JUDICIAL MEMBER चेन्नई/Chennai, ददनाांक/Dated: 5th May, 2026. KB आदेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलार्थी/Assessee 2. प्रत्यर्थी/Respondent 3. आयकरआयुक्त/CIT, Chennai / Madurai / Salem / Coimbatore. 4. विभागीयप्रविविवि/DR 5. गार्डफाईल/GF