Itta/17/2013 Of Sri Rupender Kumar Jain v. The Asst. Commissioner Of Income Tax, Circle 10 (1)

HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTAAND HON’BLE SRI JUSTICE K.C. BHANUI.T.T.A.Nos.17 and 18 of 2013 Date: 23-07-2013 I.T.T.A.No.17 of 2013: Between: Sri Rupender Kumar Jain,31, Paigah Colony, S.P. Road,Secunderabad. … Appellant And 1.The Assistant Commissioner of Income-tax, Circle 10(1), 6[th]Floor, I.T. Towers, Hyderabad.Floor, I.T. Towers, Hyderabad. … Respondent HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTAAND HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A.Nos.17 and 18 of 2013 COMMON JUDGMENT: (Per Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) These appeals are preferred against the judgment and order of the learned Tribunal dated 28-09-2012 inI.T.A.Nos.163/Hyd/2011 and 164/Hyd/2011 in relation to theassessment year 2007-08 and are sought to be admitted on thefollowing questions of law: “i). On the facts and in the circumstances of the case,whether the order of the Income Tax AppellateTribunal is not perverse in not appreciating thereasons on which the Commissioner of Income-tax(Appeals) has held the income to be from ‘short TermCapital Gains’ and not considering the fact that in theearlier years the department accepted the income tobe ‘capital gains’ and holding that the income is frombusiness? andwhether the order of the Income Tax AppellateTribunal is not perverse in not appreciating thereasons on which the Commissioner of Income-tax(Appeals) has held the income to be from ‘short TermCapital Gains’ and not considering the fact that in theearlier years the department accepted the income tobe ‘capital gains’ and holding that the income is frombusiness? and ii). On the facts and in the circumstances of the case,whether the Income-tax Appellate Tribunal is correct inlaw in holding that once the volume and frequency ishigh, the transactions are to be treated as businesstransactions and not for investment and therebyholding income from such transactions to be businessincome?”whether the Income-tax Appellate Tribunal is correct inlaw in holding that once the volume and frequency ishigh, the transactions are to be treated as businesstransactions and not for investment and therebyholding income from such transactions to be businessincome?” 2. The issue is very simple in these matters, whether thetransactions, in relation to the share trading done by the assesses,shall be treated as a business activity or investment activity. The Assessing Officer, in his fact finding, observed as follows: “Upon perusal of the Dmat account of the assessee it is found thatthere is no reflection of any share transaction thus reflecting theintension of the assessee not to take any delivery of the shares andkeep them in pool account of the broker. The bills/contract notessubmitted reflect frequent transaction of buying and selling as shownin Table-1. The Assessee had produced yearly transactionstatement from broker without any distinction of shares held forstock-in-trade and investment.” Again it was found by the Assessing Officer as follows: “The Assessee has also admitted that the profits derived fromthe transaction are reinvested in shares which suggest thatthe assessee is engaged in recurrent activity of investing inshares and reinvesting the profit earned from the transaction.This activity also gives the transaction of the assessee thecharacter of trading activity. The assessee further claimedthat the frequency of share transactions are very near andvolumes are high because of the reason that there was amarket rumor that the value of shares may go down in near future. In that case, the assessee could not have reinvestedthe proceeds from the transactions in shares and could havetaken recourse to other tools of investment. On the basis ofall these facts, the assessee’s claim that the profit should betreated as capital gains could not be accepted and the sameshall be treated as business activity and the profits shall betaken as business profit only.” future. In that case, the assessee could not have reinvestedthe proceeds from the transactions in shares and could havetaken recourse to other tools of investment. On the basis ofall these facts, the assessee’s claim that the profit should betreated as capital gains could not be accepted and the sameshall be treated as business activity and the profits shall betaken as business profit only.” 3. However, the Commissioner of Income Tax (Appeals), inour view, without getting any further material, reversed the aforesaid fact finding. The learned Tribunal also re-appreciated the fact and found as follows: “On perusal of the statements incorporated by the assessingofficer in the assessment order, we find that the assesseshave made several transactions of purchase of shares duringthe relevant year under consideration, and if there highvolume, frequency and regularity of the activity carried on bythe assesses in a systematic manner, it would partake thecharacter of business activities carried on by the assesseesin shares, and it cannot be said that the assesses havemerely made investments in shares.” The learned Tribunal, thus, reversed the order of theCommissioner of Income Tax (Appeals) and restored the order of theAssessing Officer. 4. Learned counsel for the appellants submits that the Tribunalought not to have reversed the fact finding of the Commissioner ofIncome Tax (Appeals) and there is no material to controvert thereasons recorded by the Commissioner of Income Tax (Appeals). 5. The learned Tribunal has noted the facts recorded by theAssessing Officer and his fact finding that it is a business activity andnot an investment activity. Thereafter, following the establishedprinciples of law, the learned Tribunal came to the conclusion that theshare transactions cannot be held to be an investment activity and it isa business activity. 6. Learned counsel for the appellants submits that on theidentical fact, this Court has admitted a matter. In our consideredopinion, when the Assessing Officer and the learned Tribunal, bothfound on fact that the said transaction is a business activity and not aninvestment activity, the law will automatically come into operation. 7. The jurisdictional High Court in the case of P.V.S. RAJU & ANOTHER v. ADDITIONAL COMMISSIONER OF [1]INCOME-TAXhas laid down the tests when a particular sharetransaction should be treated as a business activity or investmentactivity, and those tests are as follows: (a)The frequency of buying and selling of shares by the appellantswere high;were high; (b)The period of holding was less; (c)The quantum of turnover was on account of frequency oftransactions, and not because of huge investment;transactions, and not because of huge investment; (d)The intention of the assessee to make quick profits on a hugeturnover;turnover; (e)No. of scrips shares held for fewer days; (f)Whether engaged in dealing in the same scrips frequently;(g)Intention of the assessee in buying shares is not to deriveincome by way of dividend on such shares, but to earn profits onthe sale of the shares.(g)Intention of the assessee in buying shares is not to deriveincome by way of dividend on such shares, but to earn profits onthe sale of the shares. (h)Whether the assesses had indulged in multiple transactions oflarge quantities with high periodicity. These periodic transactionsselecting the time of entry and exit in each scrip, called for regulardirection and management which would indicate that it was in thenature of trade;large quantities with high periodicity. These periodic transactionsselecting the time of entry and exit in each scrip, called for regulardirection and management which would indicate that it was in thenature of trade; (h)Whether the assesses had indulged in multiple transactions oflarge quantities with high periodicity. These periodic transactionsselecting the time of entry and exit in each scrip, called for regulardirection and management which would indicate that it was in thenature of trade;large quantities with high periodicity. These periodic transactionsselecting the time of entry and exit in each scrip, called for regulardirection and management which would indicate that it was in thenature of trade; (i)Repeated transactions, coupled with the subsequent conduct ofthe assessee to re-enter the same scrip or some other scrip, inorder to take advantage of market fluctuations lent the flavour oftrade to such transactions;the assessee to re-enter the same scrip or some other scrip, inorder to take advantage of market fluctuations lent the flavour oftrade to such transactions; (j)The assesses were purchasing and selling the same scripsrepeatedly, and were switching from one scrip to another;repeatedly, and were switching from one scrip to another; (k)Mere classification of these share transactions as investment inthe assessee’s books of accounts was not conclusive;the assessee’s books of accounts was not conclusive; (l)The intention of the assesses at the time of purchase was onlyto sell the shares immediately after purchase;to sell the shares immediately after purchase; (m)Frequency of purchase and sale of shares showed that theassessee never intended to keep these shares as investment;andassessee never intended to keep these shares as investment;and (n)It is only for the purpose of claiming benefit of lower rate of tax,under Section 111A of the Act, that they had claimed certainshares to be investment, though these transactions were only inthe nature of trade.under Section 111A of the Act, that they had claimed certainshares to be investment, though these transactions were only inthe nature of trade. 8. The learned Tribunal, while applying the above tests, onfact found that the aforesaid tests were satisfied in this case to holdthat the share transaction is a business activity and not an investmentactivity. In view of the fact finding, this Court is unable to admit theappeal to re-appreciate the said fact. 9. The appeals are, accordingly, dismissed. There will be noorder as to costs. Miscellaneous Petitions pending, if any, shall standclosed. _________________ K.J. SENGUPTA, CJ Date: 23-07-2013YCR _________________ K.C. BHANU, J [1]340 ITR 75 AP