SAT SAHIB SECURITIES PVT. LTD.,DELHI vs. DCIT, CIRCLE-7(1), NEW DELHI

6. That the appellant craves leave to add, amend, alter vary and / or withdraw any or all the above grounds of appeal before or at the time of hearing of the appeal.

4. The assessee has filed return of income, declaring at Rs.72,16,819/-. The case of the assessee was selected for scrutiny and assessment under section 143(3) has been framed on 24-12-2008 assessing the total income of Rs. 72,64,083/-. The AO had made the addition of Rs. 6787654/- on account of treatment of STCG as income from business and disallowance made u/s 14A at Rs 47264/-. Aggrieved the order of the AO the assessee has filed the appeal before the Ld CIT(A) who vide order dated 09-09-2010 has deleted the addition of Rs.67,87,654/-and upheld the addition of Rs.47264/-. Aggrieved with the order of the Ld CIT(A), the revenue has filed the appeal before the Ld ITAT . The Hon’ble ITAT G Bench vide its order dated 13-07-2012 in ITA 5440/Del/2010 restored the matter to the AO with observing the following direction; “8. We have heard both the sides. We have also gone through the case laws relied upon by both the sides and also the relevant instructions issued by CBDT on this issue. There is a distinction between shares held as investment and shares held as stock-in-trade. Firstly, to ascertain the real character of the holding of shares, se have seen how these shares have been dealt in the books of account of the assessee. No doubt, in this case, these shares have been valued at cost. These have not been valued on the basis of cost price or market price, whichever is less, which is normally done in the case of the stock-in-trade. Assessee had shown these shares as investment in books of account. We would also like to state that the assessee was a company registered for trading in shares which is clear from the Memorandum of Articles of the Association wherein the main objects of the company is to act as stock and share brokers and take the membership of the stock exchanges. This fact is also clear from the order of the Assessing Officer passed for the year 2004-05 u/s 143(3) that the assessee's National Stock Exchange ticket was surrendered in May, 2001. Assessee had shown shares in investment and valued these on cost at the end of the year. Thus, these facts go in favour of the assessee to show that these were investments. However, this alone shall not be sufficient to determine the true character of these transactions. The second aspect which needs to be considered for deciding the character of the shares is objective of the investment in the shares. In assessee's case, there was a surplus earned of Rs.67,87,654/- on the purchase and sales of shares held for less than a year. Transactions are of large numbers. Normally an investor does not enter into so many transactions where profit is not the motive. The object of transactions can be seen only by the income derived as a dividend whether the transaction was entered into was to earn dividend or to earn the profit. The total dividend earned by the assessee during the year was Rs.9,45,281/-. However, it is not clear whether this dividend earned was on the shares transacted on which the surplus of Rs.67,87,654/- earned or it pertains to the other units of shares where long term capital gain earned or mutual funds held by the assessee. This is the most crucial aspect which can decide the real character of the shares transacted by the assessee. There is no material on record which can though light on this aspect. True facts are to be brought on record for this purpose. Therefore, in our considered view, this aspect requires a verification at the level of Assessing Officer.. The frequency of the purchases and sales of shares and volume is quite substantial. The purchases have been made more than 300 times and the corresponding sales have also been made in almost equal number of transactions. Therefore, the character of the shares held, whether they were investment or trading assets can be looked into only by verifying the source of dividend income, on pal which shares the dividend income had been earned. Whether the shares on which short term capital gain shown by the assessee were sold just prior to the declaration of the dividend date or these were sold post dividend. All these aspects are necessary to ascertain the objective of the assessee in investment in these shares. If the motive of investment is to realize profit by making purchases and sales of shares then it shall be definitely trading assets and the profits shall be treated as a business income, but if the objective of the investment is to derive income by way of dividend then the transaction of purchases and sales of shares would definitely yield capital gain and not business profit. For this aspect, we restore the issue to the file of Assessing Officer.”

5. In the compliance of the direction of the Hon’ble ITAT the, AO has again framed the assessment vide order dated 26-02- 2014 and assessed the income of Rs 7264080/- treated as business income. Aggrieved the order of the AO the assessee has preferred the appeal before the Ld CIT(A) who affirmed the assessment order made by AO hence the assessee again appeal before us.

income Gain

After hearing the parties the High Court held as under:-

++The Tribunal, in the impugned order, has concurred with the findings of fact recorded by Commissioner (Appeals). The Tribunal upon appreciation of the evidence on record has found that the facts and circumstances of the present case satisfy all Commissioner of Income Tax out 13 TR 735 (2002-T1QL-780-58 II) and Khan Bahadur Ahmedala 1993. Commissioner of Income case Andhra Pradesh, [1968] 68 TR 573ding one issue involved in the present said is squarely covered in favour 573, and that the issue involved in the present case is squarely covered in favour of the assessee and against the revenue by the said decisions.

++On a perusal of the assessment order, it appears that the main consideration which has weighed upon the Assessing Officer for the purpose of holding that the transaction in question is an adventure in the nature of trade and not an investment, is that for the purpose of purchasing the shares in question, namely, the shares of Euro Asian Securities Ltd. (Home Trade Ltd.), the assessee had obtained loan from M/s Maniram Consultants & Investments Pvt. Ltd. on interest at the rate of 30%, which according to the Assessing Officer, was an exorbitant rate. Though the assessee had purchased/sold other shares and units of mutual funds, this solitary transaction had been disputed by the Assessing Officer mainly because the assessee had purchased the shares in question from borrowed funds obtained on high rate of interest, which also forms the basis for the conclusion arrived at by the Assessing Officer that the transaction in question is an adventure in the nature of trade or business rather than a normal investment.

++Another reason for holding that the transaction in question is an adventure in the nature of trade or business is that the shares in question were held by Maniram Consultants till the entire loan was paid and were initially purchased in the name of Maniram Consultants in terms of the agreement between the assessee and Maniram Consultants. According to the Assessing Officer, since the assessee had not obtained physical possession of the shares in question at the relevant time, the assessee was not the owner of the shares in question. the tests laid down by the Supreme Court in P.M. Mohammed Meerakhan v. Commissioner of Income Tax, Kerala, [1969] 73 ITR 735 (2002-TIOL-780-SC- IT) and Khan Bahadur Ahmed Alladin & Sons v. Commissioner of Income Tax, Andhra Pradesh, [1968] 68 ITR 573, and that the issue involved in the present case is squarely covered in favour of the assessee and against the revenue by the said decisions.

++From the facts noted hereinabove, it is apparent that both the Tribunal as well as Commissioner (Appeals) have recorded concurrent findings of fact to the effect that the assessee had disposed of most of the shares held by him after more than a year or two; the investment made in the shares of Home Trade Ltd. was not very high; the assessee had not repeated the transactions of purchase and sale of shares of M/s Home Trade Ltd.; the assessee had not shown the shares in question as stock in trade; after the shares in question were sold, the assessee made investments under the provisions of section 54BC in the Bonds of NABARD, and the profit of purchase and sale of shares or investment in mutual fund was always shown on capital account, that is, capital gains either short term or long term, and that the same was accepted as such in earlier years.

++On a perusal of the assessment order, it appears that the main consideration. which has weighed upon the Assessing Officer for the purpose of holding that the transaction in question is an adventure in the nature of trade and not an investment, is that for the purpose of purchasing the shares in question, namely, the shares of Euro Asian Securities Ltd. (Home Trade Ltd.), the assessee had obtained loan from M/s Maniram Consultants & Investments Pvt. Ltd. on Interest at the rate of 30%, which according to the Assessing Officer, was an exorbitant rate. Though the assessee had purchased/sold other shares and units of mutual funds, this solitary transaction had been disputed by the Assessing Officer mainly because the assessee had purchased the shares in question from borrowed funds obtained on high rate of interest, which also forms the basis for the conclusion arrived at by the Assessing Officer that the transaction in question is an adventure in the nature of trade or business rather than a normal investment.

++Another reason for holding that the transaction in question is an adventure in the nature of trade or business_ is that the shares in question were held by Maniram Consultants till the entire loan was paid and were initially purchased in the name of Maniram Consultants in terms of the agreement between the assessee and Maniram Consultants. According to the Assessing Officer, since the assessee had not obtained physical possession of the shares in question at the relevant time, the assessee was not the owner of the shares in question.

++However, the reasoning adopted by the Assessing Officer loses sight of the fact that merely because the shares had been purchased from borrowed funds obtained on high rate of interest would not change the nature of the transaction from investment to one in the nature of an adventure in the nature of trade. Moreover, in the light of the findings recorded by Commissioner (Appeals) that the assessee had held the shares in question for fourteen months, which is a long period for the purpose of long term capital gain; the intention of the assessee had always been that of making investment in shares and not dealing in shares, which was also apparent from the fact that the shares had not been treated as stock in trade by the assessee; even after the sale, the assessee had made investment in bonds of NABARD, indicating that he had treated the same as long term capital gain; as well as the fact that the assessee had not split the shares in lots but had sold the same in one lot; it is not possible to agrée with the contention raised on behalf of the revenue that the transaction in question is an_adventure in the nature of trade and therefore, the Income derived by the assessee from the said transaction is a business income and cannot be treated as capital gain. Insofar as the second ground for holding the transaction in question to be an adventure in the nature of trade, viz., that the assessee was not the legal owner of the shares and was not having physical possession thereof, is concerned, if the said ground were to be accepted, then, as had been rightly contended on behalf of the assessee, there was no transaction in the hands of the assessee and as such, there was no question of taxing the said transaction merely on the ground that the assessee had offered the same as capital gain. It is nobody's case that delivery of shares allotted was not taken at all. The shares were held by Maniram Consultants as security towards loan advanced to the assessee indicating that the assessee was the owner of shares which were offered and held as security.

Appeal of the revenue is dismissed.

Order pronounced in the open court on 12.07.2024.