MAHESH CHAND GOYAL (HUF),NEW DELHI vs. ACIT, NEW DELHI

This appeal by the assessee is preferred against the order of the Ld. CIT(A)-20, dated 27/05/2015, pertaining to Assessment Year 2011-12. The first grievance of the assessee is that the Ld. CIT(A) erred in confirming the findings of the AO that the Short Term Capital Gain, returned by the assessee is business income of the assessee and the second grievance of the assessee is that the Ld. CIT(A) erred in confirming the findings of the AO that the transactions of Swastick International were speculation losses and therefore cannot be set of against normal income of the assessee.

The assessee is a HUF, engaged in the business of maintenance of real estate and Trading of copper goods for self and for others on commission basis. Return for the year was filed on 15/09/2011, declaring total income at Rs.2,46,74,220/-. The case was selected for scrutiny assessment. During the course of scrutiny assessment proceedings, the AO noticed that the assessee has shown Short Term Capital Gain of Rs.2,23,34,990/-. The details of Short Term Capital Gain are as under:-

Aggrieved by this, the assessee carried the matter before the Ld. CIT(A) but without any success.

Before us, the counsel for the assessee vehemently stated that the AO/Ld.

It is the say of the counsel that intention of the assessee at the time of purchase of shares is only known to the assessee and the Revenue authorities cannot be make any presumption/assumption in treating the investment as business transactions. The counsel further stated that all the shares were purchased through banking channel and deliveries were duly taken by the assessee. The sale of the shares were also through banking channel and the transactions have been routed through D-mat account of the assessee. The counsel concluded by saying that the transactions of purchase and sale of shares have resulted in Short Term Capital Gain and should be assessed as such.

Per contra, the Ld. DR strongly supported the findings of the AO. It is the say of the Ld. DR that the volume of transactions in shares is much more in comparison to turnover of regular business of the assessee. The Ld. DR further pointed out that the shares were never held for more than two months which show s that they were never intended to be held for investment purpose. The DR further pointed out that the shares of different companies have been traded in short period. In support of her contention, the Ld. DR relied upon the decision of the Co-ordinate Bench in the case of Mahesh Chandra Agarwal vs ACIT, Circle-36(1), New Delhi, (93 taxmann.com 246). The Ld. DR further relied upon the decision of the Hon’ble Delhi High Court in the case of CIT vs D & M Components Ltd. 364 ITR 179(Del.) and further relied upon the decision of the Co- ordinate Bench in the case of Smt. Prem Jain vs ITO in ITA No.2572/Del/2016.

We have given a thoughtful consideration to the order of the authorities below. The details of Short Term Capital Gains are exhibited elsewhere from which it can be seen that the assessee has purchased shares of six companies on various dates and have sold them on various dates. Doing transaction in only six scrips show that the assessee has done one transaction in every 61 days. By any stretch of imagination, this cannot be considered to be that the assessee was engaged in the high frequency transactions. Further it is not the case of the AO that the assessee was churning the shares, buying and selling the same shares again and again. A trader may acquire a commodity in which he is dealing, for, his own purposes, and hold it apart from the stock- in-trade of his business. There is no presumption that such an .acquisition, even if it is an accretion to the stock-in-trade of the business, is an acquisition for the purpose of his business: in each case the question is one of intention to be gathered from the evidence of conduct and dealings by the acquirer with the commodity. In Associated Industrial Development (supra), the Supreme Court observed as follows:-

The Hon'ble Supreme Court in another case in P.M. Mohammed Meerakhan (P.M.) v/s CIT, [1969] 073 ITR 735 (SC), reiterated that it was not possible to evolve any single test or formula which could be applied in determining the transaction as adventure in nature of trade or not. The distinction between the two types of transaction is not always easy to make. Whether the transaction is of one kind or the other depends on the question whether the excess is an enhancement of the value by realizing the security or a gain in an operation of profit making. The assessee might have invested capital in shares with an intention to resale these if in future their sale brings in a higher price.

The CBDT vide Circular No.6/2016 read as under:-

Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income. b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years; c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.

It is however clarified that the above shall not apply to such transactions in shares/securities where the genuineness of the transaction is itself questionable such as bogus claims of long term capital/short term capital loss or any other sham transactions.

It is reiterated that the above principles have been formulated with the sole object of reducing the litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities.”

On perusal of the aforementioned circular of CBDT shows that even Board recognised the fact that where the assessee itself, irrespective of the period of holding the registered shares, treated them stock in trade the income arising from transfer of such shares would be treated as business income which means that where the assessee hold the shares as investment, the income arising therefrom is nothing but capital gains.

Considering the number of transactions, the number of shares with the fact that no borrowed fund was utilised. We are of the considered view that the gains arising out of sale of shares has to be treated as Short Term Capital Gains. Ground no.1 is accordingly allowed.

Coming to the ground number-2, though the counsel has pointed out that the assessee is also earning commission from transactions in copper but could not adduce any direct evidence in support of purchase and sale of copper/cathode/rods. No evidence has been furnished in respect of any godowns available with the assessee whether own or on hire. The bills referred to pertain to transactions on which the assessee has earned commission but no bills have been submitted to demonstrate that there was an actual delivery of goods, we are of the considered view that the copper/cathode/rods transactions that were purchased and sold on the same dates were clearly in the nature of speculation in the light of provisions of section 43(5) of the Act, which provides the speculative transactions means a transaction in which the contract for purchase or sale of any commodity including stocks in shares is periodically or ultimately settled otherwise than by the actual delivery of transfer of the commodity or scrips. Considering the nature of transactions in light of the facts available on record, we do not find any error or infirmity in the findings of the Ld CIT(A). This ground of appeal is accordingly dismissed.

In the result, appeal filed by the assessee is partly allowed.