R. NATWARLAL PAREKH,MUMBAI vs. ITO-15(1)(4), MUMBAI

The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in treating the profit arising out of sale and purchase of shares as business income instead of treating the same as capital gains i.e. either long term or short term as the case may be. For this assessee has raised the following ground No. 1: -

Briefly stated facts are that the assessee is engaged in the business of Yarn Commission Agent and Trading in securities on commission basis. During the year under consideration the assessee has declared income from business, income from capital gains and income from other sources i.e. dividend income. The assessee during the year declared long term capital gain amounting to ₹ 42,76,569/- on sale and purchase of shares which is held by the assessee for more than one year and short term capital gain of ₹ 34,959/- on sale of purchase of shares where holding period is less than one year. The assessee has also earned dividend income of ₹ 16,12,857/-. According to AO, the assessee has borrowed funds from various persons to purchase of these shares and according to him, the unsecured loan from various persons is to the tune of ₹ 7,03,33,910/-. According to AO, the assessee has entered into share transaction through one Motilal Oswal Securities Limited for the purpose of sale and purchase of shares. The AO’s main contention was that the assessee has executed these sales transactions on amount borrowed from various persons and not from his own capital and hence, he treated the sale and purchase of shares as business income. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) also confirmed the action of the Assessing Officer. Aggrieved, now assessee is in second appeal before Tribunal.

I have heard the rival contentions and gone through the facts and circumstances of the case. I find from the facts that the assessee has also done business of dealing in shares and securities, which are always non- delivery based same day F & O transactions. Any deal made on account of share trading is same day transaction without delivery. Besides above, he has made investments in shares and securities. Such investments are always delivery based and the shares purchases for investment are shown as investment in the books of accounts right from beginning. They are shown as such year after year in Balance Sheets etc. filed with the returns of income. Such shares are held for reasonably longer time, mostly for years. Only a small fraction of it may be sold resulting in short term capital gain. Substantial part of such investment remains as investment for years and claim as long term capital gain. Income from share trading transactions shown as F & O profit/ business profit/ loss, whereas income from investment are shown as Short Term or Long Term Capital gain depending upon the period of holding. All the short term capital gain and the long term capital gains from such investment are offered for taxation as such by us and are taxed as such in all the preceding years by the AO, whether the assessment is made under section 143(1) or (3) without exception up to AY 2008-08. There is no change in the facts of the case in the year under consideration.

I find that the Revenue all along has accepted the sale and purchase of shares as capital gain either long term or short term depending upon the period of holding. The assessee has filed assessment order for AY 206-07 wherein Revenue has accepted the profit arising out of sale and purchase as income from long term capital gain or short term capital gain as the case may be. The assessee has now filed the details of long term capital and details of short term capital gain earned as on 31.03.2010, which clearly shows that the assessee has disclosed capital gain only from the transactions which are delivery based. In view of these facts, I am of the view that the profit earned by assessee on purchase and sale of shares and disclosed as capital gain, in the given facts, is to be assessed as capital gains only and not business income or income from other sources. I direct the AO accordingly. This issue of assessee’s appeal is allowed.

In the result, the appeal of assessee is allowed.