ACIT, MANGALORE vs. SRI. GAUTAM MAINI & MS. GEETHA MAINI, BANGALORE

O R D E R Per INTURI RAMA RAO, AM : These are the appeals filed by the revenue directed against different orders of the CIT(A), Mysore, dated 22/10/2013 for the assessment year 2005-06 and the CIT(A),LTU, Bangalore, dated 19/04/2013 for the assessment year 2006-07. Since common & 803Bang/2014 Page 2 of 7 issues are involved in both the appeals, we proceed to dispose of the same by this consolidated order.

3. Being aggrieved by the above decision, an appeal was preferred before the CIT(A). The CIT(A) held that the frequency and volume of transactions alone cannot be conclusive evidence to say that the assessee is a trader and therefore, accepted the contention of the respondent-assessee that he is only an investor. & 803Bang/2014 Page 3 of 7 4. Being aggrieved by this order of the CIT(A), the revenue is before us in the present appeals. The revenue raised the following grounds of appeal in 2005-06: 1. “The order of the learned C1T(A) is opposed to law and facts of the case.

2. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that the profits on securities transactions by the assessee should be treated as short term capital gains and not as business income.

3. On the facts and in the circumstances of the case the learned CIT(A) failed :0 appreciate the fact that the assessee was indulging in regular purchase and sale o shares and deriving the profits which is clearly in the nature of trading business in shares.

4. On the facts and in the circumstances of the case the learned CIT(A) erred in ignoring the fact that during earlier years, the assessee himself was treating the income from share trading as business income and only from AY 2005-06 onwards, i.e after introduction of Securities Transaction Tax, the assessee has switched to claim the same E S short term capital gains to avail the taxation benefit of 10%.

5. For these and other grounds that may be urged at the time of hearing, it is prayed that he order of the C[T(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.

6. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above.”

1. “The order of the learned CIT(A) is opposed to law and facts of the case.

& 803Bang/2014 Page 4 of 7 2. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that the profits on securities transactions by the assessee should be treated as short term capital gains and not as business income.

5. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above.”

Learned Departmental Representative vehemently argued that the CIT(A) had not considered any material facts to come to conclusion that the assessee is only an investor in shares. The CIT(A) merely concluded that the assessee is an investor considering the fact of the volume and frequency of the transaction alone cannot be the criteria to decide whether one is an investor or a trader in shares. On the other hand, the learned AR of the assessee relied on the orders of the CIT(A) and submitted that the assessee is entitled to maintain two portfolios i.e. trading as well as investment portfolio and he has referred to circular No.4/2007 dated 15th June 2007 issued by the CBDT. & 803Bang/2014 Page 5 of 7 We heard rival submissions and perused material on record. The issue in present appeal is regarding the nature of income from share transactions entered into by the respondent-assessee. The issue, whether the share transaction in a particular case should be treated as investment activity or trading activity is highly debatable issue, needless to mention that each case depends on its own facts and circumstances. There are various factors which are to be taken into consideration for deciding the particular issue such as frequency, volume, entry in the books of account, nature of funds, holding period and intention at the time of purchase of shares are relevant in deciding true nature of transaction and no single factor is conclusive. The most important factor is the intention of the assessee at the time of purchase which has to be gathered from the conduct of the assessee. The actual conduct has to be evaluated by analyzing the holding period etc. An investor makes purchases with a long term goal of earning income from investment and he is not tempted to sell the shares on every rise and fall in the market which are the attributes of a trader. The Hon’ble Apex Court in the case of G.Venkata Swami Naidu & Co. vs. CIT (35 ITR 594) held that in deciding the character of true nature of such transaction, following factors should be taken into consideration: i. Whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or were incidental to it. ii. The nature and quantity of the commodity purchased and resold – if the commodity purchased is in very large & 803Bang/2014 Page 6 of 7 quantity, it could tend to eliminate the possibility of investment for personal use, profession or enjoyment. iii. The repetition of the transaction. The Hon’ble Supreme Court also held that the intention at the time of purchase of shares is an important criterion to determine the true nature of such transactions. Applying the above position to the facts of the present case, the AO held that the respondent- assessee is a trader in shares on the consideration of volume and frequency of the transactions and in the immediately preceding year, they were shown as a trading activity. The assessee has failed to substantiate change in the method of treatment i.e. from trading to investment portfolio. Thus, the question is essentially a matter of fact and the respondent-assessee had failed to substantiate its claim by producing relevant evidence before the AO. The CIT(A) had merely allowed the appeal by holding that the volume and frequency of transaction cannot be conclusive evidence against respondent-assessee. No doubt, as per CBDT circular No.4/2007, the assessee is permitted to maintain two portfolios i.e. trading as well as investment portfolio but the assessee is duty bound to produce evidence that certain transactions were intended to be by way of investment and some are by way of business transactions. As the issue has to be decided based on the facts of the case, in the absence of any evidence on record that the assessee intended to hold certain shares as investments and the fact that in earlier years this was shown as a trading portfolio goes to prove that the claim fo the & 803Bang/2014 Page 7 of 7 assessee is merely bald. There was no evidence adduced by the assessee to show that some of the transactions were held as investment or to establish intention at the time of purchasing shares that the transactions were undertaken with a motive of investment. Therefore, in the circumstances, the CIT(A) is not justified to come to conclusion that the assessee is an investor without referring to any material or evidence. Therefore, we hold that the respondent-assessee is merely a trader in shares and profit arising on sale of such transaction should be assessed as business income. In the result, the appeals filed by the revenue are allowed.