ORDER
P.M. Jagtap, Accountant Member - This appeal filed by the assessee is directed against the order of the ld. CIT(A) -31 Mumbai dtd. 26-09-2011 whereby he upheld the action of the A.O. in treating the short term capital gains of Rs. 4,44,26,913/- disclosed by the assessee arising from the sale of shares as business income of the assessee.
2. The assessee in the present case is an individual who is engaged in the business of trading in futures and options as well as allied stock market operations. The return of income for the year under consideration was filed by him on 30-9-2008 declaring a loss of Rs. 21,45,83,411/-. In the said return, profit from the transactions of purchase and sale of shares was declared by the assessee under the head "short term capital gain" (STCG). Keeping in view that the similar profit shown by the assessee as STCG in A.Y. 2006-07 was treated as business income of the assessee and the assessment made for the said year on this issue was upheld by the ld. CIT(A), the A.O. proceeded to examine the issue relating to the assessee's claim of STCG arising from profit on sale of shares for the year under consideration. In this regard, he analysed the entire transactions of purchase and sale of various scrips giving rise to the profit to the assessee and recorded his findings/observations on such analysis as under :-
"(a)
Transactions entered into are numerous, periodic, repetitive, voluminous with substantial regularity.
(b)
For period of holding upto 30 days there are 53 scrips involving as many as 164 transactions thereby indicating a broad spectrum of scrips and the penetration of the trade in the short span of 30 days in the stock market operations is well entrenched.
(c)
Number of shares / units involved i.e. the number of shares/units purchased and sold is a substantially large amount ranging from the quantum of approximately 96,98,333 Ninety six lacs Ninety eight thousand three hundred thirty three only. It may be appreciated that if for a 30 days holding period, the number of scrips/mutual funds traded in for a holding period of 30 days alone is to the tune of 27,22,735, one can only imagine as to what would be the total quantum of scrips for the entire period under consideration. This shows the great magnitude of the total number of scrips/mutual funds traded in.
(d)
The purchase cost incurred is in the vicinity of approximately Rs.71.87 crores and the sale proceeds obtained are approximately Rs. 66.91 crores demonstrating the huge quantum of transactions. (30 days holding period).
(e)
To give one concrete example in one scrip i.e. Nagarjuna Fertilisers there are 12 transactions in this period of one month involving approximately 8,75,000 shares with purchase cost in the region of approximately Rs.3.81 Crores. This would clearly show the substantial nature and quantum of transactions. Similarly, there are multiple transactions for scrips such as Reliance, Tata Steel, Religare etc.
(f)
For the entire year, it is seen that in all, there are about 98 scrips involving over 512 transactions, thereby clearly demonstrating he extensive transactions and thereby negating the claim for so called shot term capital gains.
(g)
Further, for the entire year the number of shares / units dealt in are almost to the tune of 96,68,933 with purchase cost indicated at approximately Rs.158.27 Crores and sale proceeds at approximately Rs.162.71 Crs.
(h)
The frequency of transactions are as high as 21 transactions for Jai Corp. Ltd. 30 transactions in KLG SYS TEL.
(i)
The very fact that a wide range of scrips are involved and frequency of transactions in them is very substantial goes on to show that they could not have been held as assets for any kind of appreciation at all whether in the near future or otherwise. It is thus seen that there has been substantial quantum involved with periodic, multiple and frequent transactions ranging over a large number of scrips. It can thus be seen that whether considered for the holding period of one month or for the entire S.T.C.G. period the facts of the case certainly give more credence to the view that the transactions are entered with not any steady or appreciation view point but are rather instruments for earning quick profits.
(j)
The following table shows holding period of scrips, based on the analysis of the entire portfolio :
| |
Sr. No. |
Nos of transactions |
Period of holding (days) |
| |
1 |
21 |
1 |
| |
2 |
59 |
2 to 7 |
| |
3 |
23 |
8 to 15 |
| |
4 |
61 |
16 to 30 |
| |
5 |
87 |
31 to 60 |
| |
6 |
76 |
61 to 90 |
Analysis of the above table further reveals that upto holding period of 15 days there are 103 transactions., 164 transactions up to 30 days and for a holding of period of 60 there are 251 transactions and upto 90 days holding period there are 327 transactions.
(k)
The repetitive nature of transactions for 30 days holding period can be summarized below:-
VIDEOIND
| |
No of shares |
Date of purchase |
Date of sale |
Purchase amount |
Sale Amount |
Gain/Loss |
Holding period |
| |
28500 |
12/18/2007 |
12/19/2007 |
17,518,653.28 |
18,599,743.15 |
1,081,089.87 |
1 |
| |
12000 |
12/18/2007 |
12/26/2007 |
7,376,275.06 |
7,644,105.10 |
267,830.04 |
8 |
| |
8406 |
12/18/2007 |
12/26/2007 |
5,167,080.68 |
5,355,256.47 |
188,175.79 |
8 |
| |
19000 |
12/18/2007 |
12/27/2007 |
11,679,102.18 |
12,848,488.85 |
1,169,386.67 |
9 |
| |
17345 |
12/18/2007 |
12/27/2007 |
10,661,790.92 |
11,636,510.48 |
974,719.57 |
9 |
| |
155 |
12/24/2007 |
12/27/2007 |
99,562.17 |
103,987.27 |
4,425.09 |
3 |
| |
609 |
12/24/2007 |
1/2/2008 |
391,182.99 |
499,489.01 |
108,306.02 |
9 |
RELIGARE
| |
No of shares |
Date of purchase |
Date of sale |
Purchase amount |
Sale Amount |
Gain/Loss |
Holding period |
| |
40000 |
12/28/2007 |
12/31/2007 |
22,492,438.90 |
23,312,577.00 |
8210,138.10 |
3 |
| |
24340 |
1/2/2008 |
1/3/2008 |
16,566,610.10 |
17,167,574.85 |
600,964.75 |
1 |
| |
11600 |
1/2/2008 |
1/3/2008 |
7,936,182.16 |
8,203,569.86 |
267,387.70 |
1 |
| |
20808 |
1/2/2008 |
1/3/2008 |
14,164,050.13 |
14,639,784.01 |
475,733.88 |
1 |
| |
3532 |
1/2/2008 |
1/4/2008 |
2,404,239.96 |
2,486,072.22 |
81,832.26 |
2 |
| |
9250 |
1/2/2008 |
1/4/2008 |
6,296,494.80 |
6,473,913.75 |
177,418.95 |
2 |
| |
10 |
1/2/2008 |
1/22/2008 |
6,807.02 |
4,140.80 |
2,666.22 |
20 |
| |
35576 |
1/7/2008 |
1/22/2008 |
24,887,486.56 |
14,731,310.08 |
10,156,176.48 |
15 |
| |
36510 |
1/7/2008 |
1/22/2008 |
25,396,389.55 |
15,118,060.80 |
10,278,328.75 |
15 |
The above table represents the transactions for 30 days holding period. Further analysis beyond the said period indicates that the above data is only in respect of a few of the trades effected by the assessee and many more such examples are available to indicate the multiple trades done in respect of shares/mutual fund units of a single company or alternatively regular, multiple and frequent transactions across the board. It can also be observed that there has been a systematic and regular trading pattern and shares/mutual fund units have been purchased and sold at very regular intervals. This feature is seen in respect of buying of shares/mutual fund units of a single company or in respect of buying and selling of shares/mutual fund units of many a companies on the same day or for a very short holding period. It is well settled that whenever an activity is period, systematic and regular with a clear profit motive it can certainly assume the character of a business activity and these features are present in the assessee's case, at least for the short term capital gain. The volume of the shares/mutual fund units traded is also substantially high and the ratio of the shares/mutual fund units purchased to the shares/mutual fund unit sold is quite high. The above indicates that there are multiple trades done in respect of shares/mutual fund units of a single company or alternatively regular, multiple and frequent transactions across the board i.e crisscross transactions i.e. to say specifically that there are many scrip which have been traded on a single day or multitude of transactions in respect of a particular scrip/mutual fund has been done on a single day or for a very holding period.
It is a well settled principle that whenever an activity is period, systematic and regular with a clear profit motive it can certainly assume the character of a business activity and these features are present in the assessee's case, as regards the so called short term capital gain".
3. On the basis of above findings/observations, the A.O. held that the real intention of the assessee was not to hold the shares from any long term perspective or to enjoy dividend thereon and it was mainly to earn profit from sale of said shares in the short term. He also noted the guidelines issued by the CBDT vide its Circular No. 4 of 2007 dated 15-6-2007 as well as the various judicial pronouncements laying down certain guidelines for deciding the real nature of transactions of purchase and sale of shares. Applying the said guidelines to the relevant facts of the case of the assessee, the A.O. found that the position that emerged was under :-
"(i)
The total quantum in respect of all transactions is to the extent of approximately Rs. 158.27 crores and Rs. 162.71 crores (approx.) for purchases and sales respectively. If these cannot be considered as substantial and huge quantum of transactions, one wonders as to what quantum could possibly quality as being substantial ?
(ii)
The assessee has dealt in 98 scrips in all with over 512 transactions and for holding period upto 30 days transactions across 53 scrips. This indicates that the transactions are frequent and involve a great amount of churning at regular intervals.
(iii)
The transactions are indeed extensive and for the total number of scrips/units involved are 96,98,333 for the entire period and 27,22,735 for upto 30 days. This fact brings out that the transactions are extensive and wide spread across a broad spectrum of scrips.
(iv)
The average holding period in many scrips ranges from merely one day to several days. The holding period upto 30 days is found in 53 scrips and many of these scrips have a typical holding pattern wherein there is frequent transaction's at short intervals. For holding period upto 90 days number of transactions increased to 78.
(v)
As to the issue of own funds or borrowed funds for financing the stock market operations one has to see the extent of loan/debt funds so as to decide the real intent of the assessee. No prudent person would risk taking loan funds and paying interest unless there is intention to indulge in systematic business activity. Perusal of the return of income and material on record shows that the assessee has actively and substantially utilized debt/borrowed funds to finance her stock market operations. This can be gauged from the fact that the total loan funds appearing in the balance sheet as on 31.03.2008 are to the tune of Rs.22.44 Crs. The total unsecured loan as on 31-3-2007 was approximately Rs.3.84 Crs. This means that during the year a net amount of approximately, Rs.18.60 Crs has been inducted and has gone a long way in financing the stock market operations of the assessee. In fact this is one of the important tests i.e. that of utilization of borrowed funds in determining this issue of so called short term capital gains vs. business income. Further, this implies deployment of substantial amount of borrowed funds to finance the stock market operations. Thus, it could not have been that loan funds have not been ploughed for buying stocks. This single factor of presence of not only huge unsecured loans but also the fact that during year almost Rs.18.60 Crs worth of loans were freshly inducted goes on to show that the intention was not one of investment but of maximum business gain.
(vi)
It cannot be said considering the assessee's facts and circumstances that the scrips purchased and sold could have been held as assets. It is a fact that the assessee is showing regular income from speculation and from F & 0 activity. She devotes substantial amount of time and energy in the arena of the stock market. No other independent activity apart from stock market operations is indicated, at least in any meaningful scale or manner. Thus, the surrounding facts and circumstances also appear to be against the assessee's view on the issue of short term capital gains vis-à-vis business income. Here also, it can be seen that given the basic nature of the assessee's activity i.e. the future and option activity, it is clear hat the assessee is across the board dealing in stock market for maximization of profits".
4. The A.O. also referred to the various tests applied to ascertain as to whether the transactions of purchase and sale of shares are in the nature of trade or investment and recorded his findings/observations on application of the said tests to the facts of the assessee's case as under:—
"(i)
Time Devoted : On this particulars issue it is very much clear that there is no independent or anterior activity wherein the assessee's time is employed other than for the stock market operations. The assessee is having regular business activity of futures and options from which profit or loss is being shown. In addition, there are several Stock Market operations and allied stock market activities which result in earning of so called short term capital gains, dividend, long term capital gains etc. Therefore, it is safe to conclude that almost in entirety, the time devoted by the assessee is in relation to Stock Market Operations in one form or the other. Had the assessee been engaged in some other activity from which income is being derived in a substantial way, apart from various incomes relating to Stock Market operations, there would have at least been a case to state that certain amount of time is devoted otherwise.
(ii)
Whether the transaction is an independent activity or related to normal trade/business of the assessee : Here again the transactions in question are not at all independent but are rather integrally to the transactions from future and options which is the main activity of the assessee.
(iii)
Motive/Intention: - The issue of motive / intention is closely connected with the first two issues i.e. that of time devoted and whether the activity in question is an independent one? It has already been demonstrated as per the discussion in the first two points that the entire spectrum of the assessee's activity revolve round the stock market operations as well as the quantum of time devoted clearly indicates the motive and is an important key opener in realizing the true mental make up of the assessee. The assessee argues that her intention is for long term appreciation and earning dividend/interest income. The assessee on this matter borders on the ridiculous for it is amply evident that reality of the situation is at a total variance with the facts of the case. This is because what to talk of long term appreciation in the stocks held by the assessee, it is evident that the assessee is not even looking for any kind of appreciation of investments but rather is in the market for maximizing profits. The intention is further understood by the fact that as mentioned for short holding period of 30 days itself, there are 164 transactions across 53 scrips. This fact also importantly speaks a lot about the motive/intention.
(iv)
Source of Acquisition: Another notable test to deduce the real nature of the transaction, as is clear from the guidelines issued to the Assessing Officer in the C.B.D.T.'s Instruction 4 of 2007 and various judicial pronouncements, is the source of acquisition of funds. It is by far the most important and singularly significant tests for determining the real nature of the so called short term capital gains and is a eye opener in demonstrating the real motive and intent of the assessee. In the aforementioned paras it been clearly stated how there is utilization of loan/debt funds in funding the stock market operations. This whole issue has been discussed in detail at Para 4(p)(v) of this order. It is a fact that the total amount of loans taken as on 31.03.2008 is Rs.22.45 Crs. and more so the fresh induction of unsecured/debt funds is a huge amount of approx. Rs.18.60 Crs thereby indicating a substantial and massive deployment of debt fund to finance the stock market operations. This single issue alone clinches the case against the retention of so called short term capital gains and clearly demonstrates that the intention of the assessee beyond doubt is to be in the stock market for maximization of gains. It is also very clear that on this point that the preponderance of evidence is very much against the assessee.
(v)
Period of Holding: As regards the period of holding, it is very much clear that the period of holding is as short as one day for certain transactions. In fact, as already mentioned, the holding period of 53 scrips running across 164 transactions is less than 30 days. The total value of purchase in respect of all such transaction is at Rs.71.87 Crs. There have been 80 transactions wherein he holding period is up to 1 week, 103 transactions up to 15 days and 164 transactions have been squared off in a month. Further, there are 327 transactions wherein the purchase and sale have been completed within 90 days i.e. about three months. It can thus be seen that the assessee's contention as regard the period of holding do not stand to reason and the overall pattern of the holding period indicates that the share cannot be intended to be held as assets. No investor would ordinarily have such short holding periods, at least in a substantial number of transactions unless the intention to earn maximum profit.
(vi)
Frequency of transactions:- In the assessee's case it is clear that there has been a very high regularity in the trading pattern and shares have been purchased and sold at very regular intervals, whether it is in respect of buying of shares of a single company or in respect buying and selling of shares of many a company on the same day (crisscross holding pattern). This points out to nothing but the highly frequent transactions. Thus, on the issue of frequency as well, it is observed that the transactions are carried out at substantial frequency which would not be case, had the assessee been mere investor as has been claimed.
(vii)
Number of Stocks invested in : By no stretch of imagination could it argued that investment in 96 stocks is a meager number so as to exclude the assessee from falling in the gamut of being a trader. Here again, it is the assessee's own self serving logic which leads her to say that in case of normal trader the number of stocks would be much lower although with very high frequency. In fact, given the number of stocks traded it would not be improper to say that the assessee's motive is not one that of an investor.
(viii)
Whether investment in listed or unlisted:- It makes little difference to the overall position as to whether the dealings have been made in listed securities traded in recognized stock exchanges in answering the ultimate question as to whether stocks are held as assets or used for business?
(ix)
Treatment in Books of Account: it may be that a particular treatment in Books of Account will not preciated alter the real position. Moreover merely showing of stocks as investment and invoking the issue of method of accounting as well as reference to past treatment is to skirt the issue and is a mere camouflage of assessee real intent which is trading in shares. As will be demonstrated with the help of various judicial pronouncements in the later portion of this order, treatment un books of account as investment, though has some evidentiary value, certainly it is not a conclusive evidence to demonstrate that the shares must have been held as assets, especially given the case that facts and circumstances and conduct of the assessee suggest otherwise. A reference has already been made in the earlier paras of this order that the treatment in books of account as "investments" and its subsequent acceptance would not in any manner at as "estoppel' to preclude the Department from appreciating the real position. The assessee cannot rely on her own discretionary head of account and nomenclature as conclusive proof that the share investment made must have yielded capital assets especially when all other facts point to the contrary.
(x)
Whether the transactions were settled by actual delivery/Payment etc:- it is very relevant to note that the settlement of transactions by payment on actual delivery is no guarantee that the dealings have not been made with the intention of maximization of profit. Had the delivery been the only criteria in deciding that all the delivery based transactions are by way of investment purpose, there would have been no situation wherein delivery based transaction can also form part of business activity. If taken this way, it will result in an absurd situation wherein just because delivery is taken it has to be that the dealing in shares must result in investment activity. Obviously, this cannot be true in a situation wherein delivery based transactions are present which are highly multiple, numerous and frequent. In such cases business intent can very well be deduced.
(xi)
Whether the assessee maintains two portfolios one for investment and another for trading: - On his issue also assessee's own convenient and self serving categorization of portfolios into trading or investment will not affect the reality of the situation. Conversely, just because investment portfolio is being maintained that in itself does not in any manner preclude the authorities from ascertaining the real position as well as the real nature of the transactions.
(xii)
Facts and surrounding circumstances : It is most imperative to note that the facts and surrounding circumstances of the assessee's case, especially her close connection with all manner of activity in the stock market, the principle activity being future and option activity, existence of borrowed funds, the multiplicity of transactions all go on to show the existence of intent to trade in stock as a business activity. No other independent activity apart from stock market operations is indicated, at least in any meaningful scale or manner. Thus, the surrounding facts and circumstances as well are also clearly against the assessee."
5. On the basis of above findings/observations recorded by him on application of the various guidelines as well as test laid down in the CBDT Circular as well as in the various judicial pronouncements, the A.O. arrived at a conclusion that the relevant transactions of purchase and sale of shares were made by the assessee as trader and not as investor. Accordingly, the profit arising from the said transaction was treated by the A.O. as business income of the assessee as against STCG claimed by the assessee in the assessment completed u/s 143(3) of the Income Tax Act, 1961 vide and order dtd. 30-12-2010.
6. Against the order passed by the A.O. u/s 143(3) of the Act, an appeal was preferred by the assessee before the ld. CIT(A) challenging the action of the A.O. in treating the profit arising from sale of shares as business income instead of STCG. Before the ld. CIT(A), it was submitted on behalf of the assessee that the shares held at the end of each financial year were shown in the balance sheet as investment at the cost price. It was also submitted that the assessee was earning dividend income and the profit or loss on sale of shares was declared under the head short term and long term capital gain regularly depending upon the period of holding. It was submitted that the assessee had incurred heavy loss from futures and options trading which was separately disclosed under the head business income. It was submitted that all the delivery based transactions in shares, on the other hand, were made by the assessee as investor and the profit arising from the said transaction was rightly shown under the head "capital gains". It was contended that just because the assessee was trading in futures and options, he could not be denied the advantage available to him as an investor by availing the benefit of lower rate of tax applicable to STCG. It was also contended that merely because some share were sold on a short period, the same would not lose its basic character of investment. It was submitted that the loans were raised by the assessee for future and option business and they had no connection with the profit earned from the share transactions. As regards the observation of the A.O. regarding the investment made by the assessee in 53 different scrips to draw an adverse inference against the assessee on the issue of nature of transaction, it was submitted that there is no prohibition in the Act regarding the maximum number of scripts in which one can invest. It was contended that all the transactions of purchase and sale of shares had been duly reflected in the D-mat account maintained by the assessee showing that the same were delivery based and it was thus a case where the entire portfolio of shares was maintained by the assessee as investor and not stock-in-trade.
7. After considering the submissions made on behalf of the assessee as well as the material available on record including the order of the A.O., the ld. CIT(A) found that the similar issue was decided by the A.O. as well as by the ld. CIT(A) against the assessee in A.Y. 2006-07 treating the STCG shown by the assessee on sale of shares as business income and the matter was set aside by the Tribunal to the file of the A.O. for deciding the same afresh by applying the following parameters:—
"i.
whether assessee is indulging in share transactions as business or as investment is to correlate with reference to the F & 0 on the same day this may indicate that the nature of transaction is that of business as an adventure;
ii.
the AO gives a finding that the assessee has no other work except share related transactions whereas before the CIT(A) it was contended that the assessee's main activity is that of manufacturing and export of garments in which he is associated as director/partner in various concerns and only in this year share market transactions are more compared to earlier years. Since these facts are not examined by the AC in its correct perspective, we are of the opinion that the AC should analyse the transactions a fresh vis-à-vis the income earned in F & C section, and
iii.
as seen from the statement of income in the earlier years there were also speculation transactions. If the assessee is having speculation transactions in share market (other than F & C) that can be an indication of indulging in business transactions. The AC is directed to keep in mind the facts of the case, analyse the issue, examine the source of income vis-à-vis the record of the assessee in earlier and later years and also the transactions undertaken in speculation and F & C trading so as to come to a conclusion whether assessee is an investor or trader)".
8. In view of the decision of the Tribunal for A.Y. 2006-07, the ld. CIT(A) proceeded to apply the parameters suggested by the Tribunal to the facts of the assessee's case as involved in the year under consideration and recorded his findings/observations on such application as under:—
"On perusal of the details furnished by the appellant before the AO as well as in appeal, it is seen that the appellant has transacted in same scripts/shares bought for the purpose of derivative trading ( F & C ) and STCG on same days or dates; in respect of BHEL (18.01.2008), BIOPAC (05.07.2007), DISHTV (28.05.2007), GRABAL (18.01.2008) HANUNG (10.07.2007), IBREALEST (14.05.2007), ICSA (26.12.2007) IFCI (29.05.2007, 08.10.2007, 09.10.2007 & 20.12.2007), Mundra Port Ltd (28.12.2007) Nagarguna Fertilizers Ltd. (14.08.2007, 09.10.2007 & 15.10.2007), OPTOCIRCUI (22.06.2007), PSTL (31.12.2007), REL CAP (14.01.2008), RIL (30.04.2007, 30.07.2007 & 09.10.2007), Religare (28.12.2007 & 02.01.2008), RNRL (29.10.2007), SBI (10.10.2007), Tata Steel (29.10.2007) and TRIL (31.12.2007) etc. On these days the appellant has transacted in the same scripts or derivatives in the delivery based transactions as well as in F & 0 or speculation transactions. Regarding, the main activity of the appellant, it is seen that although traditionally the appellant was engaged in the family business of manufacturing and export/trading of garments through various family owned concerns but during the relevant assessment year, as admitted by the AR, the said business is more or less stopped due to heavy losses incurred. However, for the last 2-3 assessment years the appellant has carried out substantial transactions in various stock market activities of trading in derivatives or F & 0 transactions, delivery and non delivery based share transactions. Therefore, on account of the same the main activity of the appellant for the relevant assessment year are on account of his participation in various stock market operations, as discussed above. In this regard, it will be noted that the total share of profits as a partner for the relevant accounting year from the two partnership firms in which he is a partner, is as under:
i.
M/s Aarkay Fashion Garments Rs.(-)10,04,894/-
ii.
M/s East West Handicraft Enterprises Rs. 2,33,038/-
2.3.6. The income earned as well as turnover achieved from the garments business is miniscule in comparison to the share trading activity in share market carried out by the appellant during the relevant accounting year. The appellant has incurred a net loss of Rs.25.91 crores on total turnover of Rs.941.11 crores in F & 0 transactions as against STCG of Rs.4.44 crores on total turnover of Rs.162.70 crores and LTCG of Rs.5.77 crores on total turnover of Rs.10.73 crores. Therefore, as admitted by the AR during the relevant accounting year the main activity of the appellant was his participation in various share market transactions, as discussed above. It is an admitted fact that the appellant is engaged in the speculation transactions of derivatives (F&O) consistently during the relevant accounting year as well as in the preceding and subsequent assessment years. The appellant too has shown speculative income I loss of (-)Rs. 4,41,232/- on share trading in the AY 2002-03, Rs.22,71,077/- in the AY 2003-04 and Rs.33,15,710/-in the AY 2004-05. Therefore, applying the various parameters as laid down by the honourable ITAT in the case of the appellant for the assessment year 2006-07, as discussed above, it is seen that the same are duly satisfied by the appellant so as to infer that he is a trader in the shares/mutual funds on which STCG are shown dung the relevant assessment year.
2.3.7. Therefore, the appellant has purchased and sold a particular share in respect to speculative transaction as well as in respect to short term capital gain transaction, on the same dates in respect of various or scrips, as discussed above. Although, the AR contested that the borrowed funds were utilized only for the purpose of derivative transactions or F & 0, but he has failed to prove the same while furnishing the necessary documentary evidences or books of account. From the transaction account of the appellant maintained with the brokers and related bank accounts maintained it is seen that common funds are used for all the stock market operations or transactions carried out by the appellant through these brokers. Therefore, the contention of the AR, that the borrowed funds are utilized only for speculation or derivative transactions and not for the delivery based transactions is not substantiated. Rather, considering to the common account and common pool of funds used for all these stock market transactions, it is proved that the borrowed funds are used for delivery based transactions as well as for funding non delivery based transactions or derivative or speculation transactions. Therefore, considering to these facts available in the case of the appellant as well as duly taking into consideration the substantial or large volume, consistent, regular and repetitive transactions undertaken in the same scripts both for the delivery based transactions and non-delivery based transactions including F & 0 transactions, and considering to the various parameters laid down by the honourable ITAT, in the case of the appellant (supra), it is clear that the only motive of the appellant in carrying out these delivery based transactions are to earn quick profits. Therefore, these transactions are in the nature of his trading or business transactions and not investment transactions".
9. The ld. CIT(A) thus found that as per the parameters suggested by the Tribunal in its order for A.Y. 2006-07 while restoring the back the similar issue to the file of the A.O., the assessee had made delivery based transactions in shares to earn quick profit and such transactions thus were in the nature of trading transaction. He, therefore, upheld the action of the A.O. in treating the STCG declared by the assessee on account of profit from the transactions in shares as business income. He also noted that Shri Karan R. Bahl, son of the assessee himself had disclosed similar profit earned from the transaction in delivery based share as business income under the identical facts and circumstances of the case. Aggrieved by the order of the ld. CIT(A), the assessee has preferred this appeal before the Tribunal.
10. The ld. counsel for the assessee mainly reiterated before us the submissions made on behalf of the assessee before the ld. CIT(A) in support of assessee's case that the profit arising from delivery based transactions in shares is chargeable to tax under the head capital gains as rightly claimed in the returns of income. He contended that future and option transactions are different from the delivery based transactions in shares and since the profit/loss arising from F&O transactions was declared by the assessee under the head profits and gains of business or profession, the profit arising from delivery based transactions in shares should be treated as chargeable to tax under the head "capital gain" as the portfolio of the said shares was separately maintained by the assessee as investment. He pointed out that there were no speculation transactions entered into by the assessee other than the future and option transactions.
11. The ld. D.R., on the other hand, strongly relied on the orders of the authorities below in support of Revenue's case on this issue. He contended that various tests and guidelines laid down in the various judicial pronouncements as well as in the circular issued by the CBDT have been applied by the A.O. to the facts of the assessee's case to come to the conclusion that the transactions in shares were made by the assessee as trader and not as an investor. He invited our attention to the relevant findings/observations recorded by the A.O. in this regard and submitted that the same are sufficient to show the intention of the assessee which was to trade in shares and not to held the shares as investment. He submitted that even the parameters suggested by the Tribunal in the order passed in assessee's own case for A.Y. 2006-07 have been duly taken into consideration by the ld. CIT(A) and on such consideration, he has found that the assessee is trader in shares and not investor.
12. We have considered the rival submissions and also perused the relevant material available on record. In our opinion, the issue as to whether the assessee has carried out the transactions in shares as "trader" or "investor" mainly depends on the intention of the assessee to purchase and hold the shares and such intention has to be gathered from the facts and circumstances involved in each case. There are several aspects which needs to be taken into consideration collectively in order to ascertain the intention of the assessee. In the various judicial pronouncements certain guidelines have been laid down which could be applied to the facts of the given case to ascertain whether the transactions in shares are in the nature of trade or investment. The CBDT has also issued certain guidelines on the similar lines which are helpful to decide the issue as to whether the shares are held by the assessee as stock-in-trade or investment. A perusal of the assessment order passed by the A.O. in the present case shows that after applying the such guidelines to the facts of the assessee's case, it was inferred by the A.O. that the transactions in shares entered into by the assessee were in the nature of trade. The relevant portion of the A.O.'s order analyzing the relevant factual position of the assessee's case in the light of various criterias and guidelines has already been reproduced by us in the foregoing portion of this order and as is clearly evident from the findings/conclusion recorded by the A.O. in this context, the assessee was found to be entered into the transactions of shares as trader irrespective of the treatment given by him to the said shares in the books of account which even otherwise is not conclusive to decide this issue.
13. As noted by the A.O., apart from the transactions in delivery based shares, the assessee was indulged in future and option transactions in shares simultaneously and there was no other activity carried on by the assessee in the year under consideration other than the stock market operations. All the receipts from future and options were credited by the assessee to the P&L account and various establishment expenses were debited in the said P&L account indicating that an organized and systematic activity was being carried on by the assessee. Income in the form of dividend was earned by the assessee only in respect of few scrips which gave a very low rate of return as compared to the value of shares held by the assessee. In majority of the transactions in shares, the assessee did not hold the shares beyond a period of one month. The assessee was also found to have entered repeatedly in the same scrips which he had already disposed of which again goes to show that the motive of the assessee was to maximize the profit from the share transaction and not to remain invested for longer time. The involvement of the assessee in share transactions was not an occasional one but it was only the activity of the assessee which was carried on regularly in a systematic and organized manner. The short period of holding of shares clearly revealed that there was no intention of the assessee to hold the shares for longer term to earn dividend income. The assessee was also found to have invested in the shares from the substantial borrowed funds and there was huge funds borrowed by the assessee for this purpose even in the year under consideration.
14. In addition to the various adverse finding recorded by the A.O. on application of the relevant guidelines and tests to the facts of the assessee's case, the ld. CIT(A) also examined this issue by applying the parameters suggested by the Tribunal in the order passed in assessee's own case for A.Y. 2006-07 while restoring a similar issue to the file of the A.O. On such examination, he found that the assessee had transacted in the same scrips/shares bought for the purpose of derivative trading (F&O) and STCG on same dates. He also found that the main activity of the assessee was relating to the stock market transaction not only in the year under consideration but even in the immediately preceding as well as succeeding year. He also found that the stand of the assessee of having used the borrowed funds only for the purpose of F&O transactions was not substantiated and it was a case of common pool of funds maintained by the assessee which were used for all the stock market transactions including the delivery based transactions.
15. Having regard to all the findings of facts recorded by the A.O. as well as by the ld. CIT(A) on application of relevant guidelines and criterias as discussed above, we are of the view that the position that clearly emerges is that the transactions of purchase and sale of shares entered into by the assessee were in the nature of "trade" and it was not a case were the intention of the assessee was to purchase and hold the shares as "investment". The profit arising from the transactions of purchase and sale of shares thus was chargeable to tax in the hands of the assessee under the head "profits and gains of business of profession" as rightly held by the authorities below and not under the head "capital gain" as claimed by the assessee. We, therefore, find no merit in this appeal filed by the assessee and dismiss the same.
16. In the result, appeal of the assessee is dismissed.
VARSHA