Where the units delivered and security transaction tax has been paid than the transaction can be shown as short term or long term capital gain

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
Briefly stated facts of the case are that the assessee an individual derives income from house property, business income, long term and short term capital gain and other sources, filed return declaring total income at Rs.86,78,840/-. During the course of assessment proceedings, the AO on the basis of the details filed by the assessee noticed that for the purpose of earning long term capital gain and short term capital gain, the assessee had entered into a large number of transactions of purchase and sale of shares of various companies. He further noted that the frequency of purchase and sale was very high and volume thereof was large. He further observed that in some cases, the period of holding was a few days only. He further noted that transactions where no delivery was taken, but were squared up on the same day the profit/loss was declared as business income, while in respect of shares of which delivery was taken the surplus/short fall was declared as short term capital gain/long term capital gain depending upon the period of holding of such shares. The AO on the basis of analysis and details observed that the assessee was not interested to wait for a long period of time for profits and had sold some shares even at a loss. He also noted that in earlier years too i.e. in assessment years 2003-04, 2004-05 & 2005-06 the trend was the same. He was accordingly of the view that considering the number of script transacted, the amount involved, and number of transactions undertaken, it was clear that the assessee was not an investor but a trader and had entered into the share market for the purpose of earning quick profit only. Accordingly a show cause notice was issued by the Assessing Officer asking the assessee to explain as to why capital gain declared by him in the return of income filed be not treated as business income. In response the assessee filed a detailed reply before the AO vide his letter dated 21.11.2008 interalia stating therein, that his object was to act as a prudent investor and earn regular income by way of dividend which was evident from his return showing earning of dividend income in the year under assessment itself where he has earned dividend from around 600 companies amounting to Rs.5,13,734/-. The assessee further submitted that the bifurcation between long term and short term capital gain was done on the basis of period of holding of shares transacted. The assessee submitted that his intention was that of making of investment and not trading, and the same was highlighted by the fact that during the year he had sold some shares which were held by him for more than 5-10 years and above also. The assessee further submitted that where ever delivery of the shares was not taken but transactions were squared up on the same day the resultant income/loss was declared as business income/business loss (speculation) only. The Assessing Officer however not being satisfied with the submissions filed and for the reasons mentioned in page 29 of the detailed assessment order, held that the assessee is a trader in shares and consequently he treated capital gain, both long term, as well as short term declared in the return of income filed as business income and taxed accordingly. In support of the conclusion that assessee was not an investor but a trader in shares, the Assessing Officer has also rel ied upon Instructions No. 1827 dated 31.8.1989 issued by CBDT as well latest CBDT Circular No. 4/2007 dated 15.5.2007, both these circulars he has reproduced in the order. In addition, he has relied upon various case laws of different courts including Hon’ble Apex Court/ High Courts and different benches of the Tribunal . The AO has set out 12 criteria in the assessment order on the basis of which according to him, after analyzing the facts of the case, the assessee was held to be a trader and not an investor, thereby treating all the capital gains, long term capital gains and short term capital gains as business income. The AO accordingly held the capital gains (long term capital gains and short term capital gains) as business income and assessed the total income of the assessee at an income of Rs.1,18,64,040/- vide assessment order dated 23.12.2008 passed u/s 143(3) of the Income Tax Act, 1961 (in short the Act).

Citation :
Assistant Commissioner of Income Tax 19(3), Room No.305, 3rd Floor,Piramal Chambers,Parel,Mumbai-400012.APPELLANT V/s Mrs.Rajpal Sethi ,Jewel Arcade, 2nd floor,Waterfield Road, Bandra (W),Mumbai-400050 PAN: ABDPS0231M RESPONDENT