HARESH MADHAVJI HINDOCHA,MUMBAI vs. DCIT 22(1), NAVI MUMBAI

The assessee is aggrieved by the decision of the ld. CIT(A) in confirming the action of the AO in assessing the Short Term Capital Gains (STCG) of Rs.1.13 crores arising on sale of shares as business income of the assessee.

The assessee is engaged in the business of trading in shares and F & O transactions. Besides declaring business income from the above said operations, the assessee also declared gains arising on purchase and sale of shares as Capital gains, i.e., the assessee declared STCG on sale of shares at Rs.1.13 crores and Long Term Capital loss on sale of shares at Rs.0.46 crores. Though the AO observed that the assessee is carrying on purchase and sale of shares as a trading activity, yet he accepted the Long term Capital loss declared by the assessee. However, the AO took the view that the income from STCG is to be treated as income from 5108/M/14-Haresh Madhavji business, since the volume and frequency of transactions were high. The AO noticed that the details of STCG furnished by the assessee has carried out transactions in about 200 different scripts and the holding period was less. The AO also noticed that the assessee has earned dividend income of Rs.7,12,830/- only as against the STCG of Rs.1.13 crores and further about 60% of the capital amount has been invested in shares. Accordingly, he assessed STCG of Rs.1.13 crores as income from business. The ld. CIT(A) also confirmed the order of the AO. Aggrieved, the assessee has fled this appeal before us.

The Ld A.R submitted that the assessee is deriving salary income from a company and is also dealing in shares. He submitted that the assessee has clearly earmarked the share transactions into business transactions and investment activity. He submitted that the Hon’ble Bombay High Court has held in the case of Gopal Purohit that an assessee can act both as trader and investor. He submitted that the assessee has earned dividend income also and has not borrowed any funds for the purpose of making investment in shares. He submitted that the assessee has invested own funds only in shares. He further submitted that the capital gains arising on sale of shares have been held to be capital gains by Ld CIT(A) in AY 2008-09 and 2009-10 and the revenue has accepted the said orders of Ld CIT(A). He also submitted that the assessee has dealt in only 76 scrips and the total number of transactions was only 113 only. He submitted that the orders placed by the assessee with the broker were executed in more than one instalment and hence the volume looks high. Accordingly he submitted that the consistency in the treatment of the gains arising on sale of shares should be maintained as held by the Hon’ble Bombay High Court in the case of Gopal Purohit (228 CTR 582) and hence the gains arising on sale of such shares should be assessed as capital gains only.

On the contrary, the Ld D.R submitted that the assessee has been purchasing and selling shares continuously and hence the volume and frequency of transactions were very high. He further submitted that the period of holding was as low as one day and 44% of the shares have been held for less than 30 days. The Ld D.R further submitted that the activity of the assessee should be examined every year and principles of resjudicata shall not apply to income tax proceedings.

We heard the parties and perused the record. The dispute is with regard to the nature of receipt of profit arising on sale of shares. The assessee claims the same to be capital gain, whereas the AO has assessed the same as business income of the assessee. It is well settled 2

We notice that the assessee has made investment in shares from out of his capital balance only, i.e., the assessee has not borrowed any money for the purpose of investments in shares. We further notice that the assessee is also a director in a company and drawing salary therefrom. Hence, it is seen that the assessee is having other activities also. During the year under consideration, the assessee has dealt in 76 scrips and the repetitive transactions were not available. Accordingly to ld A.R, the broker has executed single order in more than one instalment. We further notice that the ld CIT(A) himself has pointed out that more than 56% of shares have been held for more than 30 days. We also notice that the assessee’s claim of Long term capital loss has been accepted by the AO, meaning thereby the assessing officer has partially accepted the fact that the assessee is also acting as investor. Hence, in our view, the low period of holding in respect of certain scrips may not be considered to be the sole determining factor. The number of transactions has been claimed to be 113 and the same shows that the assessee has not carried on share trading activity on full time basis. The assessee has also earned dividend income of Rs.7.12 lakhs.

All the factors discussed above, in our view, shows that the intention of the assessee was mainly to act as investor only. Accordingly, we are of the view that the gains arising on sale of shares should be assessed under the head Capital gains only. Accordingly, we set aside the order of Ld CIT(A) and direct the AO to assess the profits arising on sale of shares as Capital gains only.