ACIT 13(2), MUMBAI vs. ANAND GUPTA HUF, MUMBAI

order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA),who allowed the appeal.The AO challenged the order of the FAA and the Tribunal vide its order dated 16/ 03/ 2016 decided the matter.The assessee filed an MA and the Tribunal recalled its order. 2.Effective ground of appeal is treatment to be given to the share transactions carried out by the assessee for the year under consideration.During the assessment proceedings the AO found that the assessee had declared short term capital gains at Rs.49,55,908/-.He directed it to explain why Short Term Capital Gains (STCG) earned on shares should not be treated as business income instead of short term capital gains,as it had dealt in numerous and multiple share transactions.As per the AO,no reply was submitted in that regard.He relied upon the CBDT's Circular No .4 of 2007 dated 16/06/2007 and came to the conclusion that the transactions in question were entered into by the assessee with a profit motive. He held that the shares were disposed off within short period of time without earning any dividend, that the primary motive of the assessee-HUF was to realise profits on the difference in the purchase and sale price of the shares, that it had dealt in large number of shares, that as on 31-03-2008 total investment in shares was shown at Rs. 1,20,86,691/-,that the dividend received by him during the year was only Rs.1,03,240/-,that the shares which were held as investment were generally those which would earn higher dividend or yield good returns on being liquidated, that it received meager amount of dividend which clearly shows that shares 2073/M/13-(08-09) Anand Gupta(HUF)

have been purchased for the purpose of trading,that in the earlier assessment years,the assessee-HUF’s activities of purchase and sales of shares was treated as trading activity and profit arising therefrom was taxed as business income instead of capital gain, that the assessee had purchased and sold shares in large quantities utilizing funds borrowed by pledging the shares,that it was similar to the bank overdraft facility enjoyed by a trader by hypothecation of his stocks,that the shares were not purchased by it for investment purpose, that the income arising could not be treated as investment in shares and the resultant income/loss arising out of them had to be treated as income/loss under the head capital gain. 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA).Before him,the assessee submitted that it dealt in shares by way of investment in shares,that it would invest in primary and secondary market and sells the shares at the opportune time, that it had done transactions in all 83 scrips (sales and purchase during the year) out of which 18 were for long term capital gains and the transactions were not so voluminous, that most of the transactions were single transaction involving either sale or purchase of share,that it had earned total short term profit of Rs. 49,54,908/- , out of which Rs. 31,97,721/- was earned from 9 scrips which had an average investment period of 6 or more than 5 months and also the value of transaction was not voluminous,that no financial loan or assistance had been availed and no expenditure had been claimed,that the average period of holding of shares during the year had been from five to eight months and the shares were reflected in the books of accounts as investment,that it earned gains in respect of almost all the shares which shows that the shares were invested for capital gains and also dividend income was earned on quite a few shares.It referred to the CBDT Circular No. 4 of 2007 dated 16-06-2007 and relied upon the cases of V. Nagesh (ITA No. 5410/Mum/2008)Gopal Purohit (20 DTR 99). The FAA after considering the assessment order and the submissions of the assessee held that the holding period in the assessee's case in most of the shares was for the period of 180 days to 365 days than the period from one to 180 days,that the day-wise holding of share was more than 50% in respect of share from 180 to 365 days,that the transactions in F&O and speculative were not part of its share transactions, that it had given the treatment in its books as investment, that the holding period for most of the shares was 5 to 8 months and the assessee-HUF had earned dividend of Rs.1,03,240/-.With respect to the short term capital gain of Rs.49 lakhs,it was argued that out of the said amount the assessee had earned Rs. 31. 97 lakhs from 9 scrips and that the holding period ranged from 3½ to 11 months. Relying on 2073/M/13-(08-09) Anand Gupta(HUF) the decision of the FAA in the immediate preceding year,he held that the STCG in respect of shares held for the period above 2 months to be taxed as STCG only.He further held that merely because the volume of transactions was somewhat large was not decisive to hold that the assessee was trader in shares as held in the case of Gopal Purohit (supra). He referred to the cases of N.S.S Investments (P) Ltd.(277ITR 149) and Ketan Kumar A. Shah (242 ITR 83) wherein it was held that where shares had already been held as investment and were never transferred or converted as stock in trade, the profit on sale of such shares was assessable as capital gains.In view of the above discussions and reasoning,the FAA directed the AO to treat the short term capital gain of Rs.49,54,908/- earned by the assessee as STCG. 4.Before us,the Departmental Representative (DR)submitted that the Mumbai-Tribunal in the case of the assessee-HUF for the AY.2006-07 in ITA /887/ Mum/2010,vide orders dated 31- 05-2011 on identical facts and circumstances, had allowed the appeal of the Revenue by up- holding the decision of the AO in bringing to tax gains on sale of shares as business income, that the AO had clearly proved that assessee was not an investor. The Authorised Representative(AR) supported the order of the FAA and stated that the assessee had not carried out any speculative business during the year under consideration, that there was no day-trading, that the number of transactions carried out during the year were very low, that the holding period was, in the most of the cases, more than 180 days. He referred to page number 17 of the paper book. 5.We have heard the rival submissions and perused the material before us. We find that holding period in the case of the assessee is between 180-365 days (only in 3 cases the shares were held for less than 30 days), that majority of the shares sold during the year were part of the opening balance (Pg.17 of the PB),that the future and options and speculated transactions are not part of the share transactions for the year under consideration,that the assessee had not borrowed outside funds to make investment in the shares, that the frequency of the transactions is not very high, that out of the total short-term capital gain of Rs. 49.55 lakhs, Rs.32.80 lakhs (more than 75% of the STCG) had been earned on the scrips which had holding period of more than 5 months,that it had earned LTCG of Rs.24.36 lakhs during the year under appeal, that the value of the shares was taken at cost in the balance sheet, that assessee had earned dividend income also.

2073/M/13-(08-09) Anand Gupta(HUF) In our opinion,a single factor cannot decide the issue as to whether an assessee is a trader or an investor-rather various factors have to be considered to decide the issue.But,the basic thing to be considered is the intention of the assessee.As long back as year 1934 itself,the Hon’ble Allahabad High Court(2ITR155)had,in the matter of Seth Gangasagar,held that as to whether a purchase of shares is made with the intention of trading or investing depended on intention of the purchaser and this intention had to be deduced from the facts and circumstances of each case.Principle enumerated by the Hon’ble Court holds good even today.If all the facts, mentioned in the earlier paragraph,are considered cumulatively,it becomes clear that assessee could not be treated as trader in shares for the year under consideration. We have gone through the order of the Tribunal for the AY.2006-07.We find that in that year the assessee was carrying out speculative business and had borrowed funds for making investment. The matter was decided on the facts of that particular year. As the facts of the case for the year under consideration are different and therefore in our opinion the matter has to be decided accordingly.It is said that principle of res judicata not applicable in the tax-proceedings. Therefore,considering the peculiar facts and circumstances of the case for the year under appeal,we hold that the order of the FAA does not suffer from any legal or factual infirmity. Confirming his order,we decide the effective ground of appeal in favour of the assessee.