Mr. Ajay Srivastava, New Delhi v. ACIT, New Delhi

ITA 5620/DEL/2010 | 2007-2008
Pronouncement Date: 22-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 562020114 RSA 2010
Assessee PAN AATPS0694M
Bench Delhi
Appeal Number ITA 5620/DEL/2010
Duration Of Justice 1 year(s) 2 month(s) 12 day(s)
Appellant Mr. Ajay Srivastava, New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 22-02-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 22-02-2012
Date Of Final Hearing 25-01-2012
Next Hearing Date 25-01-2012
Assessment Year 2007-2008
Appeal Filed On 10-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI. BEFORE SHRI I.P. BANSAL AND SHRI K.G. BANSAL I.T.A. NOS. 5619 & 5620(DEL)/2010 ASSESSMENT YEARS: 2006-07 & 2007-08 SHRI AJAY SRIVASTAVA ASSIST ANT COMMISSIONER OF C-1/109 JANAKPURI VS. INCOME-T AX CIRCLE 26(1) NEW DELHI. N EW DELHI. PAN: AATPS0694M ITA NO. 4089(DEL)/2011 ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF SHRI AJAY S RIVASTAVA INCOME-TAX CIRCLE 26(1) VS. C-1/109 JA NAKPURI NEW DELHI. NEW DELHI. (APPLICANT) (RESPONDENT) ASSESSEE BY : SHRI PRADEEP DINODIA C.A. & SHRI V.P. GUPTA ADVOCATE DEPARTMENT BY: MR S. GEETMALA MOHANANEY CIT DR& MRS. ANUSHA KHURANA SR. DR DATE OF HEARIN G: 25.01.2012 DATE OF PRONOUN CEMENT: 22.02.2012. ORDER PER K.G. BANSAL : A.M THESE TWO APPEALS OF THE ASSESSEE AND ONE APPEAL O F THE REVENUE INVOLVE A COMMON GROUND REGARDING DETERMINATION OF THE APPROPRIATE HEAD OF INCOME FOR TAXING THE SURPLUS REALIZED ON SALE OF SHARES. IN ASSESSMENT YEAR 2007-08 SIMILAR QUESTION HAS BEE N RAISED BY THE ASSESSEE IN RESPECT OF SURPLUS REALIZED ON REDEMPTION OF UNI TS OF THE MUTUAL FUNDS 2 (MF FOR SHORT) ALSO. THE CIT(APPEALS)-XXIV NEW DELHI HAS DECIDED THESE MATTERS IN FAVOUR OF THE REVENUE BY HOLDING T HAT THE SURPLUS REPRESENTS PROFITS AND GAINS OF BUSINESS. HOWEVER IN ASSES SMENT YEAR 2008-09 HIS SUCCESSOR HAS DECIDED THE MATTER AGAINST THE REV ENUE. THEREFORE APPEALS IN RESPECT OF ASSESSMENT YEARS 2006-07 AND 2007-0 8 HAVE BEEN FILED BY THE ASSESSEE AND THE APPEAL FOR ASSESSMENT YEAR 2008 -09 HAS BEEN FILED BY THE REVENUE. 1.1 IN ASSESSMENT YEAR 2006-07 THE ASSESSEE H AS TAKEN UP ONLY ONE GROUND THAT THE LD. CIT(APPEALS) ERRED IN UPHOLDING THE FINDING OF THE AO THAT THE GAIN OF RS. 10 54 870/- IS IN THE NATURE O F BUSINESS INCOME AS AGAINST THE CLAIM OF THE ASSESSEE THAT IT IS SHOR T-TERM CAPITAL GAIN (STCG FOR SHORT). IN ASSESSMENT YEAR 2007-08 THE ASS ESSEE HAS TAKEN UP A GENERAL GROUND NO. 1 THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE FINDING OF THE AO THAT THE GAIN IS CHARGEABLE AS BUSINESS INCOME. THEREAFTER THREE SEPARATE GROUNDS NUMBERED 2 3 AND 4 FURNISH THE DETAILS OF GAINS IN TERMS OF LONG-TERM CAPITAL GAIN (LTCG FOR SHORT) AND STCG OF RS. 19 99 360/- AND RS. 3 90 21 672/- IN RESPECT OF SHARES AND RS. 1 92 078/- IN RESPECT OF UNITS OF THE MF. IN GROUND NO. 3 IT IS ALSO MENT IONED THAT OUT OF STCG OF RS. 3 90 21 672/- A SUM OF RS. 3 84 36 249/- IS TH E SURPLUS ON SALE OF SHARES 3 OF ONLY ONE COMPANY UNITECH LTD. WHICH HAD ALLOT TED SUBSTANTIAL BONUS SHARES. IN ASSESSMENT YEAR 2008-09 THE REVENUE HAS TAKEN ONLY ONE GROUND THAT THE LD. CIT(A) ERRED IN TAXING THE SU RPLUS REALIZED ON SALE OF SHARES AS LTCG AND STCG INSTEAD OF TREATING IT AS BUSINESS INCOME. IT IS MENTIONED THAT IN DOING SO HE FAILED TO APPRECI ATE THE PROVISION CONTAINED IN SECTION 2(13) OF THE INCOME-TAX ACT 1961. AS THE APPEALS INVOLVE A COMMON GROUND WE THINK IT FIT TO DISPOSE THEM OFF BY WAY OF A COMMON ORDER. 1.2 THE LD. COUNSEL FOR THE ASSESSEE MADE HIS SUB MISSIONS BASED UPON THE IMPUGNED ORDER FOR ASSESSMENT YEAR 2007-08 W HICH HAS BEEN FOLLOWED IN ASSESSMENT YEAR 2006-07. ON THE OTHER HAND THE LD. CIT DR MADE SEPARATE SUBMISSIONS FOR ALL THE THREE YEARS IN C HRONOLOGICAL ORDER. WE PROCEED TO DESCRIBE THE FACTS ETC. IN THE ORDER IN WHICH THEY HAVE BEEN PRESENTED BY THE RIVAL PARTIES. 2. THE LD. COUNSEL FURNISHED THE DETAILS OF GAINS FOR THESE THREE YEARS AND ALSO FOR ASSESSMENT YEAR 2009-10 IN A TABULA R FORM. THIS TABLE IS REPRODUCED BELOW:- A.Y. SHARES UNITECH OTHERS 2006-07 STCG 10 54 870 10 54 870 2007-08 STCG LTCG 3 90 21 672 19 99 360 3 84 36 248 - 5 85 424 19 99 360 4 MF 1 92 078 1 92 078 2008-09 STCG MF LTCG MF 83 45 853 33 339 7 81 93 362 2 04 098 49 75 295 - 7 78 57 579 33 70 558 33 339 3 35 783 2 04 098 2009-10 STCG MF LTCG MF (4 82 131) (9 96 356) 64 20 823 (52 188) - - 60 69 336 - (4 82 131) (9 96 356) 3 51 487 (52 188) 2.1 HE ALSO POINTED OUT THAT ASSESSMENT ORDER F OR ASSESSMENT YEAR 2009-10 HAS BEEN PASSED BY THE AO IN WHICH THE S URPLUS HAS BEEN TAXED AS CAPITAL GAINS. A COPY OF THE ORDER DATED 30. 12.2011 HAS BEEN PLACED ON RECORD. 2.2 IT IS SUBMITTED THAT THE ASSESSEE HAS BEEN EA RNING DIVIDEND INCOME AND SURPLUS ON TRANSFER OF SHARES ETC. RIGHT FRO M ASSESSMENT YEAR 1995-96 THE DETAILS OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK ON PAGE NO. 15 FOR ASSESSMENT YEARS 1995-96 TO 2005-06. IN ALL THESE YEARS THE POSITION OF THE ASSESSEE IN SO FAR AS HEAD OF TAXATION OF THE S URPLUS IS CONCERNED HAS BEEN ACCEPTED BY THE AO. IT IS CLARIFIED THAT THE RETU RNS FOR ALL THESE YEARS HAVE BEEN PROCESSED U/S 143(1) AND NO ASSESSMENT HAS BEEN MADE U/S 143(3) OR 144. THE DETAILS ARE REPRODUCED AS UNDER:- S. NO. ASSTT. YEAR DIVIDENDS LTCG STCG 1 1995-96 10253 41018 -2840 2 1996-97 1527 11089 0 5 3 1997-98 8964 0 0 4 1998-99 5 1999-00 11397 0 0 6 2000-01 22859 0 -33244 7 2001-02 336057 0 -250682 8 2002-03 1628935 -41339 -1094 9 2003-04 12698 186690 0 10 2004-05 67920 48992 44 11 2005-06 79565 1010966 32787 2.3 REFERRING TO THE PAPER BOOK FOR ASSESSMENT YEA R 2007-08 IT IS SUBMITTED THAT THE ASSESSEE IS THE MANAGING DIREC TOR OF DIMENSION CONSULTING PVT. LTD. FROM WHICH HE DERIVES SALAR Y INCOME. APART FROM THIS INCOME IS DERIVED FROM THE BUSINESS OF AN I NSURANCE AGENCY IN WHICH COMMISSION RECEIVED FROM BIRLA SUN LIFE INSURANCE CO. LTD. HE DOES NOT MAINTAIN ANY BOOKS OF ACCOUNT. IN THE YEAR UNDER CONSIDERATION SURPLUS OF RS. 19 99 360/- WAS EARNED AFTER PAYMENT OF SECU RITIES TRANSACTION TAX (STT FOR SHORT). THIS INCOME WAS SHOWN AS LTC G. IT WAS CLAIMED THAT THE AMOUNT IS NOT INCLUDIBLE IN THE TOTAL INCOME O F THE ASSESSEE U/S 10(38) OF THE ACT. THE ASSESSEE ALSO REALIZED SURPLUS O N SALE OF SHARES AND REDEMPTION OF UNITS OF MF. THIS SURPLUS WAS SHOWN IN THE RETURN AS STCG. STT WAS PAID IN RESPECT OF THE SHARE TRA NSACTIONS. THEREFORE THE TAX WAS PAID IN ACCORDANCE WITH SECTION 111(A) O F THE ACT. THE DETAILS OF 6 THE GAINS HAVE BEEN MENTIONED ON PAGE NOS. 4 AND 5 OF THE PAPER BOOK. THESE DETAILS SHOW THAT THE STT WAS PAID IN RES PECT OF TRANSACTIONS IN SHARES RESULTING IN SURPLUSES WHICH ARE OFFERED F OR TAX AS LTCG AND STCG BUT THE STT IS NOT PAID IN RESPECT OF REDEMP TION OF UNITS OF THE MF. THESE DETAILS ARE REPRODUCED BELOW:- LONG-TERM CAPITAL GAIN ON WHICH STT PAID SHARE NAME DATE OF PURCHASE INVESTMENT NO. OF SHARES DATE OF SALE SALE PRICE LONG- TERM GAIN WITH STT SUZLON ENERGY OCT.-05 56225 110 OCT.-05 141556 85331 STEEL AUTHO. OF INDIA FEB.05 138740 2000 AUG.06 157600 18860 SIMPLEX INFRASTRUCTURES APRIL 05 156163 1500 SEPT.& NOV. 06 507633 351469 PETRONET LNG. LTD. MARCH 04 75000 5000 NOV. 06 261684 186684 KOTAK BANK AUG-05 311934 700 AUG- 06 218074 -93860 INDO ASIAN FUSE APRIL 05 340484 3500 APRIL 05 & JULY 06 524062 183578 INDIABULLS & FINANCIAL SERVICES MARCH 04 605130 3750 JAN.07 1041787 436657 HINDUSTAN CONST. MARCH 05 230815 5000 MAY & AUG. 06 728202 497387 GEOJIT FINANCE JULY 05 288886 3000 JULY 05 512558 223672 ELECON ENGG. MAY-05 41289 550 OCT- 06 150871 109582 LONG-TERM CAPITAL GAIN FOR THE YEAR 2244666 4244026 1999360 7 SHORT TERM CAPITAL GAIN- MF MF NAME DATE OF PURCHASE INVESTMENT NO. OF UNITS DATE OF SALE SALE PRICE PROFIT UTI PSU FUND FRANKLIN PHARMA PLUS SBI BLUE CHIP FUND APRIL-06 FEB & MAY 06 FEB. 06 500000 1903949 1000000 32894.737 76746.033 100000.000 MAY 06 MAY & NOV-06 NOV.-06 433998 2028929 1133000 -66002 125080 133000 3403849 3595927 192078 SHORT TERM CAPITAL GAIN- SHARES SHARE NAME PURCHASE MONTH INVESTMENT NO. OF SHARES SALE MONTH SALE PRICE PROFIT IDFC AUG 05 622043 15910 MAY06 1155967 533924 INDIABULLS & FINANCIAL SERVICE MAY-06 760528 2250 JAN-07 615998 -144529 HDFC BANK AUG-05 325974 500 APR.-06 405855 79881 UNITECH NOV-05 3664641 25960 MAY/JULY- 06 12656491 8991851 UNITECH (BONUS) JULY-06 0 74000 OCT/NOV- 06 29444398 29444398 MORGAN STANLEY JAN-06 340700 10000 AUG-06 372990 32290 DALMIA CEMENT JULY-06 417660 1500 FEB-07 583965 166305 VENUS REMEDIES MAY-06 545266 1180 NOV-06 449007 -96260 UP HOTELS APR-06 376572 1224 SEPT-06 256941 -119631 BHEL JULY-06 191044 100 OCT-06 243091 52047 TUBE INVESTMENT MAR-06 95789 750 JUNE-06 51030 -44758 CROMPTON GREAVES MAY-06 617223 550 JULY-06 505034 -112190 J.P.ASSOCIATES NOV-06 522854 800 JAN.-07 579326 564 71 KIRLOSKAR OIL NOV-06 474711 1700 JAN.-07 446261 -28 450 MPHASISBTL AUG-06 904471 5000 OCT-06 1160605 30938 JINDAL STEEL & POWER MAR-06 368920 200 MAY-06 399858 32329 8 RAJESH EXPO JAN-07 472659 1250 FEB-07 504988 -31998 GUJRAT COKE MAR-06 302834 3000 APR-06 270836 -80324 VIYAYA BANK OCT-06 857050 15000 NOV-06 776727 -3677 2 PUNJAB TRACTORS FEB-07 269767 750 MAR-07 232995 46024 GATEWAY DISTRIPARKS OCT-06 827050 5000 OCT.-06 873074 39021672 STCG FOR THE YEAR 15843002 54864674 39021672 2.4 IN THE COURSE OF ASSESSMENT PROCEEDINGS THE A O RAISED QUESTIONS REGARDING SOURCE OF INVESTMENT IN VARIOUS SECURIT IES AVERAGE PERIOD OF HOLDING PURPOSE OF INVESTMENT AND THE REALIZATION OF THE SURPLUS. IT HAS BEEN SUBMITTED THAT INVESTMENT HAS ALWAYS BEEN MAD E FROM SAVINGS WHICH HAVE BEEN ACCUMULATED FROM HIS EARNINGS OVER THE YEARS. THE AVERAGE PERIOD OF HOLDING IN RESPECT OF SHORT-TERM SECURITI ES IS ABOUT FOUR AND HALF MONTHS. IN CALCULATING THIS AVERAGE PERIOD THE DATE OF ACQUISITION OF BONUS SHARES HAS BEEN TAKEN TO BE THE DATE OF ALL OTMENT. HOWEVER IF THE DATE IS TAKEN TO BE THE DATE OF ACQUISITION OF ORIGINAL SHARES THE PERIOD WILL BE ABOUT NINE MONTHS. THE OBJECTIVE IS TO EA RN RETURN ON SURPLUS FUNDS AND CONSOLIDATE THE SAVINGS SO THAT IMMOVABLE PRO PERTIES MAY BE PURCHASED IN FUTURE. THE ASSESSEE HAS ADOPTED A BALANCED APPROACH BY INVESTING SURPLUS FUNDS IN BANK DEPOSITS SHARES MUTUAL FUND ETC. THE GAIN REALIZED ON SALE OF SHORT-TERM ASSETS WAS USED PRIMARILY FOR PURCHASE OF IMMOVABLE PROPERTY INFUSING FUND IN THE NEW B USINESS FIXED DEPOSITS 9 WITH BANK AND PURCHASE OF CAPITAL ASSETS. TAX OBLIGATION WAS ALSO MET OUT OF THE GAIN. IT HAS BEEN CLARIFIED THAT THERE WAS ABNORMAL INCREASE IN THE PRICE OF SHARES OF UNITECH LTD. THIS COMPANY IN ITIALLY DIVIDED ONE SHARE OF FACE VALUE OF RS. 10/- INTO FIVE SHARES OF FAC E VALUE OF RS. 2/- AND THEREAFTER ALLOTTED 12 BONUS SHARES FOR EVERY SHA RE HELD BY A SHAREHOLDER. THUS THE SHAREHOLDING INCREASED 60 TIMES IN N UMBER. 98.5% OF THE GAIN IN THIS YEAR HAS BEEN EARNED FROM SALE OF SHARES OF THIS COMPANY. THE ASSESSEE HELD 5112 SHARES OF THIS COMPANY ON THE RECORD DATE 30.06.2006 WHICH BECAME 3 32 280 SHARES OF RS. 2/ - EACH ON THE SUB- DIVISION OF ORIGINAL SHARES OF RS. 10/- EACH AND AL LOTMENT OF BONUS SHARES. 2.5 THE ASSESSEE HAS ALSO FURNISHED A CHART R EGARDING FREQUENCY OF PURCHASE AND SALE OF SHARES IN A TABULAR FORM WHIC H SHOWS THAT 21 TRANSACTIONS OF PURCHASE WERE MADE AND 22 TRANSA CTIONS OF SALE WERE MADE IN THIS YEAR. THIS CHART IS REPRODUCED BELOW:- PURCHASE SOLD MONTH NUMBER OF TRANSACTIONS MONTH NUMBER OF TRANSACTION APRIL 1 SEPTEMBER 1 MAY 1+1+1 JANUARY NOVEMBER & JULY 3 JUNE NIL JULY 1+1+1 OCTOBER NOVEMBER FEBRUARY & OCTOBER 4 10 AUGUST 1+1+1 MAY APRIL & OCTOBER 3 SEPTEMBER NIL OCTOBER 1+1 NOVEMBER & OCTOBER 2 NOVEMBER 1+1+1 MAY JULY & JUNE 3 DECEMBER NIL JANUARY 1+1 AUGUST & FEB. 2 FEBRUARY 1 MARCH 1 MARCH 1+1+1 JUNE MAY &APRIL 3 TOTAL NUMBER OF TRANSACTIONS IN THE YEAR 21 TOTAL OF ALL THE TRANSACTIONS 22 2.6 IT IS FURTHER SUBMITTED THAT THE AO HAS FURNI SHED THE DETAILS OF STCG AND LTCG AS SHOWN IN THE RETURN ON PAGE 2 OF THE ASSESSMENT ORDER. IT HAS BEEN MENTIONED BY HIM THAT THE TRAN SACTIONS OF PURCHASE AND SALE ARE SPREAD THROUGHOUT THE YEAR. THESE TRANSAC TIONS HAVE BEEN MADE INDUSTRIOUSLY AND WITH ENTERPRISE WHICH RAISE THE ASSUMPTION THAT THEY ARE IN THE NATURE OF BUSINESS OR AT LEAST ADVENTURE I N THE NATURE OF BUSINESS. IT IS FURTHER MENTIONED THAT EVEN SALE OF LONG-TERM ASSET IS FOLLOWED BY PURCHASE OF SHARE. THIS IS TRUE BOTH IN RESPECT OF SALE OF SHARES AND REDEMPTION OF UNITS. THE DIVIDEND EARNED IS A PETTY AMOUNT OF RS. 3 25 603/- COMPARED WITH SURPLUS REALIZED ON SALE OF SHARES ETC. WHICH AMOUNTS TO ABOUT RS. 4.00 CRORE. THE AVERAGE HOLDING PERIOD IS SMALL WHICH CONTRADICTS THE ASSERTION THAT THE SHARES WERE HELD AS INVESTMENTS. IT IS FURTHER MENTIONED THAT APART FROM SALARY THE A SSESSEE EARNS BUSINESS 11 INCOME BY WAY OF COMMISSION AND THE AGENCY IS RU N THROUGH EMPLOYEES AND CONSULTANTS. IT HAS ALSO BEEN MENTIONED THAT B USINESS CAN ALSO BE CARRIED ON THROUGH OWN FUNDS. THE FACT THAT A P ART OF THE PROFIT IS UTILIZED FOR PURCHASE OF IMMOVABLE PROPERTY OR INVESTMENT I N ANOTHER VENTURE DOES NOT LEAD TO INFERENCE THAT THE SHARES WERE HEL D ON INVESTMENT ACCOUNT BECAUSE EVEN FROM THE NORMAL BUSINESS WITHDRAWALS ARE MADE FOR SUCH PURPOSES. THE INFRASTRUCTURE OF THE AGENCY BUSINE SS IS AVAILABLE TO THE ASSESSEE FOR CARRYING ON THE BUSINESS OF PURCHASE AND SALE OF SHARES AND UNITS. THUS ALL THE ARGUMENTS RAISED BY THE ASS ESSEE IN SUPPORT OF THE RETURN HAVE BEEN REBUTTED BY THE AO IN SO FAR AS HEAD OF TAXATION IS CONCERNED. 2.7 THE LD. COUNSEL ALSO REFERRED TO THE FINDINGS OF THE LD. CIT(APPEALS) MENTIONED IN VARIOUS SUB-PARAGRAPHS OF PARAGRAPH NO. 5. HIS FINDINGS ARE THAT (A) THE ASSESSEE HAD UNDERTAKEN TRANSACTION S IN SHARES ETC. IN EARLIER YEARS THIS YEAR AND IN SUBSEQUENT YEARS. IN THIS YEAR HE HAS DEALT IN SHARES OF MORE THAN 20 COMPANIES; (B) THE ASSESSEE HA D COMMERCIAL MOTIVE WHILE UNDERTAKING THE TRANSACTIONS IN SHARES ETC . AS IN THE SUBMISSIONS FOR ASSESSMENT YEAR 2006-07 IT HAS BEEN CLEARLY MENTI ONED THAT HE KEPT AN EYE ON FLUCTUATION IN QUOTATIONS. WHEREVER LOSS WAS ANTICIPATED HE SOLD 12 THE SHARES AT LOSS TO SAVE THE PRINCIPAL AMOUNT ; (C) THE INTENTION AT THE TIME OF INVESTMENT WAS NOT TO HOLD SHARES FOR L ONG PERIOD BUT TO EARN PROFITS IN THE VOLATILE MARKET WHICH CAN BE SE EN FROM THE FREQUENCY OF TRANSACTIONS; (D) THE MAGNITUDE AND FREQUENCY OF THE TRANSACTIONS CLEARLY LEAD TO AN INFERENCE THAT THEY WERE UNDERTAKEN AS A TRADER AND (E) EARNING OF PROFIT @ 346.3% IN THE TRANSACTIONS M AKE IT ABSOLUTELY CLEAR THAT IT REPRESENTS TRADING PROFIT AS INVESTMENTS CANNOT LEAD TO SUCH A HIGH RATE OF PROFIT. 2.8 HE CONSIDERED BOARD CIRCULAR NO. 4 OF 2007 WHICH HAS TAKEN INTO ACCOUNT THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. PVT. LTD. (1971) 82 ITR 586 AND H. HOLCK LARSEN VS. CIT (1986) 160 ITR 67. IT IS MENTIONED THAT THESE CASES AFFORD REASONABLE GUIDELINES TO THE AO. NO SINGLE PRINCIPLE WOULD BE DECISIVE TEST TO COME TO A CONCLUSION. THE TO TAL EFFECT OF ALL FACTS WILL HAVE TO BE CONSIDERED AS TO WHETHER THE SHARES AR E INVESTMENTS OR STOCK- IN-TRADE. ON THE BASIS OF THE FACTS IT HAS BEEN CONCLUDED THAT THE TRANSACTIONS ARE IN THE NATURE OF BUSINESS. THE F ACTS OF THE CASE OF GOPAL PURIHIT 12 TTJ 87 (MUM.) AND MANAGEMENT STRUCTUR E AND SYSTEM PVT. LTD. VS. ITO 41 DTR (MUM.) (TRIB.) 426 HAVE BEEN DISTINGUISHED BY 13 MENTIONING THAT THE SHARES HAVE NOT BEEN HELD FOR YEARS TOGETHER AND THE CLAIM FOR ASSESSMENT YEAR 2006-07 HAS NOT BEEN ACCEPTED WHICH IS THE FIRST YEAR OF COMMERCIAL TRADING. 2.9 THE CASE OF THE LD. COUNSEL IS THAT THE ASSE SSEE IS NOT A TRADER IN SHARES. HE HAD BEEN INVESTING SAVINGS OVER A P ERIOD OF TIME IN SHARES AS WELL AS IN OTHER ASSETS SO AS TO HAVE A BALAN CED APPROACH IN THE MATTER. TILL ASSESSMENT YEAR 2005-06 NOMINAL PROFITS A CCRUED WHICH WERE OFFERED AS CAPITAL GAINS. THE ASSESSING OFFICER A CCEPTED THE RETURNS U/S 143(1)(A). PROFIT IN YEARS UNDER CONSIDERATION I NCREASED SIGNIFICANTLY ON ACCOUNT OF REALIZATION OF INVESTMENT IN THE SHARE S OF UNITECH LTD. THE SHARE WAS INITIALLY SUB-DIVIDED INTO FIVE SHARES AND THEREAFTER 12 BONUS SHARES WERE ALLOTTED FOR EACH SHARE HELD BY THE ASSESSEE. THE INVESTMENTS AND SALE THEREOF WAS PRIMARILY FOR PURCHASE OF I NVESTMENT IN IMMOVABLE PROPERTIES AND ANOTHER VENTURE. THE ASSESSEE DOE S NOT HAVE ANY INFRASTRUCTURE FOR TRADING IN SHARES. THEREFORE T HE LD. CIT(APPEALS) ERRED IN HOLDING THAT THE TRANSACTIONS ARE ON TRADING ACC OUNT. 3. AS MENTIONED EARLIER THE LD. SENIOR DR STARTE D WITH THE FACTS FOR ASSESSMENT YEAR 2006-07. SHE REFERRED TO THE FIND INGS OF THE AO IN RESPECT 14 OF EACH OF THE SUBMISSIONS MADE BEFORE HIM. IT I S MENTIONED THAT THE DIVIDEND INCOME IS ONLY RS. 1 13 451/- WHILE THE C APITAL GAIN AMOUNTS TO RS. 10 54 870/-. THE LOSS INCURRED ON SALE OF S OME SHARES IS RATHER SMALL AND IT CANNOT BE SAID THAT MOST OF THE SHARES WER E SOLD AT LOSSES. IT ALSO CANNOT BE SAID THAT THE SHARES WERE SOLD TO PROT ECT THE EXISTING INVESTMENT. THE ASSESSEE HAS SYSTEMATICALLY PUR CHASED AND SOLD SHARES. FURTHER IT ALSO CANNOT BE SAID THAT MOST OF THE TIME IS DEVOTED FOR EARNING THE SALARY INCOME AS THE DETAILS OF PURCHASE AND SALE OF SHARES SHOW THAT CONSIDERABLE TIME HAS BEEN DEVOTED TO THIS ACTIVI TY. THE SUBMISSION THAT INVESTMENTS WERE MADE FOR PROTECTING THE CAPITAL AND TO FUND PURCHASE OF IMMOVABLE PROPERTY AT MUMBAI IS ALSO NOT CORRECT AS SALE OF SHARES AFTER SHORT INTERVAL OF PURCHASE SHOWS THE PROFIT MOTIV E. ALTHOUGH FREQUENCY OF TRANSACTIONS IS NOT EVEN THROUGHOUT THE YEAR BUT IT ALSO REMAINS THE FACT THAT THE TRANSACTIONS HAVE BEEN UNDERTAKEN WITH P URPOSE INDUSTRY AND ENTERPRISE. THE SUBMISSION THAT THE VALUE OF THE STOCK IS TAKEN AT COST PRICE IS ALSO NOT MATERIAL AS EVEN IN A CASE WH ERE BOOKS OF ACCOUNT ARE MAINTAINED THE TREATMENT GIVEN IN THE BOOKS IS NO T CONCLUSIVE OF THE MATTER. THE AVERAGE PERIOD OF HOLDING OF ABOUT 134 DAYS AND FREQUENCY OF TRANSACTIONS SHOW THAT PURCHASES WERE NOT MADE W ITH A VIEW TO EARN DIVIDENDS AND LONG-TERM RETURNS. THE FACT THAT LARGE PROFIT HAS ACCRUED 15 ONLY IN THIS YEAR DOES NOT LEAD TO THE CONCLUSI ON THAT THE TRANSACTIONS ARE NOT IN THE NATURE OF BUSINESS. THE ASSESSEE HAS A LSO SHOWN SPECULATIVE LOSS ON SALE OF SHARES WHICH SHOWS THAT THE ASS ESSEE INTENDED TO CARRY OUT THE BUSINESS. 3.1 FURTHER SHE REFERRED TO THE FINDINGS IN ASSE SSMENT YEAR 2007-08 RECORDED BY THE LD. CIT(APPEALS). IT IS MENTIONE D THAT THE MOTIVE CAN BE INFERRED FROM THE SUBMISSIONS OF THE ASSESSEE MAD E IN ASSESSMENT YEAR 2006-07 THAT HE KEPT AN EYE ON FLUCTUATION IN TH E MARKET AND WHEREVER LOSS WAS ANTICIPATED THE SHARES WERE SOUGHT TO BE DISPOSED OFF EVEN BY INCURRING LOSS. THIS WAS ALLEGEDLY DONE TO SAVE THE CAPITAL. BUT IT SHOWS THAT THE MOTIVE WAS TO MAKE PROFIT. THE FOCUS WAS NOT ON EARNING DIVIDENDS BUT REAPING THE PROFIT ON ACCOUNT OF VOLATILITY IN THE MARKET AND THEREFORE THE STATED MOTIVE OF ACCUMULATING SAVIN GS FOR INVESTMENT IN HOUSE PROPERTY IS NOT ACCEPTABLE. AFTER SELLING SHARES AT LOSS FURTHER SHARES HAVE BEEN PURCHASED OUT OF THE SALE PROCEED INGS WHICH INDICATES THE DESIRE TO MAKE SYSTEMATIC TRANSACTIONS WITH A VIE W TO EARN PROFIT. THE SHARES WERE STATED TO BE HELD ON INVESTMENT ACC OUNT AND DELIVERY WAS TAKEN IN ALL CASES. THIS FACT IS NOT MATERIAL IN D ECIDING THE ISSUE. ACTUALLY WHAT IS TO BE SEEN IS THE REAL NATURE AND EFFECT OF THE TRANSACTION. IT ALSO 16 DOES NOT MAKE ANY DIFFERENCE WHETHER THE TRANSACT IONS ARE CARRIED OUT THROUGH A BROKER OR SUB-BROKER. WHAT IS REALLY M ATERIAL IS THE INTENTION OF THE ASSESSEE NAMELY WHETHER IT WAS TO MAKE A LO NG-TERM INVESTMENT OR TO CHURN INVESTMENTS WITH A VIEW TO MAKE PROFIT. IT IS ALSO CLEAR THAT GAIN OF 346.3% IN A FEW MONTHS CANNOT BE ACHIEVED I F THE MOTIVE IS TO HOLD THE ASSETS AS LONG-TERM INVESTMENTS. ACCORDINGL Y IT HAS BEEN HELD THAT THE ASSESSEE HAS UNDERTAKEN BUSINESS AND PURCHASES WERE NOT MADE WITH A VIEW TO HOLD THEM AS INVESTMENTS. 3.2 IN RESPECT OF ASSESSMENT YEAR 2008-09 IT IS MENTIONED THAT THE ASSESSEE UNDERTOOK REGULAR AND SYSTEMATIC ACTI VITY OF PURCHASE AND SALE OF SHARES AND ALSO SPECULATION IN SHARE TRANSACT IONS. THE EARNINGS FROM THIS ACTIVITY ARE MUCH HIGHER THAN THE SALARY INCOME. 3.3 IT IS THUS STRONGLY ARGUED THAT THE CONCURRE NT FINDINGS OF THE LOWER AUTHORITIES FOR ASSESSMENT YEARS 2006-07 AND 2 007-08 MAY BE UPHELD; AND THE ORDER OF THE LD. CIT(APPEALS) FOR ASSESSM ENT YEAR 2008-09 MAY BE REVERSED AND THE ORDER OF THE AO MAY BE RESTORED. 4. IN THE REJOINDER THE LD. COUNSEL REFERRED TO T HE ARGUMENT REGARDING SPECULATION LOSS AND IT IS MENTIONED THAT IT OC CURRED ON ACCOUNT OF BAD 17 DELIVERY. HOWEVER IT COULD NOT BE EXPLAINED AS TO HOW THE ASSESSEE COULD INCUR SPECULATION LOSS WHEN IT IS HIS CASE THAT ALL TRANSACTIONS ARE DELIVERY BASED. IT IS ALSO SUBMITTED THAT GAIN ON TRANSA CTION IN UNITS OF MUTUAL FUNDS HAVE BEEN HELD TO BE BUSINESS INCOME. 5. AT THIS STAGE WE MAY BRIEFLY EXAMINE THE FINDI NGS OF THE LD. CIT(APPEALS) FOR ASSESSMENT YEAR 2008-09 ALTHOUGH NONE OF THE CONTENDING PARTIES HAS REFERRED TO IT. THE LD. COUNSEL HAS DERIVED OUR ATTENTION TO THE DECISION IN THE CASE OF ITO VS . ROHIT ANAND (2010) 127 TTJ (DEL) (VO) 122 ON WHICH HEAVY RELIANCE HAS BEEN PLACED. IN THIS CASE THE ASSESSEE WAS DEALING IN JEWELLERY AN D SHARE-HOLDINGS WERE SHOWN AS INVESTMENT IN THE BOOKS. THE INVESTM ENT WAS OUT OF OWN FUNDS AND TRANSACTIONS IN SHARES WERE NOT FRE QUENT. THE SHARES WERE TREATED AS INVESTMENTS IN EARLIER YEARS. THE AO T OOK THE TRANSACTIONS TO BE ON ACCOUNT OF BUSINESS BECAUSE OF THE LARGE AMOU NT INVOLVED THEREIN. THE TRIBUNAL HELD THAT THE INTENTION HAS TO BE GATHER ED FROM THE CONDUCT OF THE ASSESSEE. SHOWING THE SHARES AS INVESTMENT IN THE BOOKS IS A MANIFESTATION OF THE INTENTION THAT THEY WERE HELD AS INVESTM ENTS. THE AO ONLY TOOK INTO ACCOUNT THE FACTUM OF APPRECIATION IN THE VA LUE OF SHARES. THEREFORE THE GAIN WAS HELD TO BE ON CAPITAL ACCOUNT. 18 6. WE MAY ALSO CONSIDER VARIOUS CASES RELIED UPO N BY THE RIVAL PARTIES. IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEV ELOPMENT CO. (P) LTD. (1971) 82 ITR 587 THE FACTS ARE THAT THE A SSESSEE-COMPANY WAS CARRYING ON THE BUSINESS OF MANAGING AGENTS OF V ARIOUS COMPANIES. IN ASSESSMENT YEAR 1957-58 IT SOLD 20000 SHARES OF NATIONAL PIPES & TUBES CO. LTD. 14150 SHARES OF INDIAN CONDUIT PIPES LTD. AND 10 PREFERENCE SHARES OF NATIONAL ROLLING STEEL ROPE S LTD. RESULTING INTO NET PROFIT OF RS. 1 26 027/-. IT HAD BEEN ACTING AS MANAGING AGENTS OF ALL THESE COMPANIES. 60700 SHARES OF NATIONAL PIPES AND TUBES CO. LTD. WERE ACQUIRED IN THE YEARS 1943 TO 1953. 10 700 SHARES WERE SOLD IN 1955 AND 20000 SHARES IN THE YEAR ENDING ON 31.3 .1957. THE PROFIT ON SALE OF 10700 SHARES WAS NOT EARLIER SUBJECTED T O TAX. AS A MATTER OF FACT THE ASSESSEE HAD NEVER BEEN TREATED AS A DEALER IN SHARES IN PAST ASSESSMENTS. THE CLAIM OF THE ASSESSEE WAS THAT T HE SURPLUS OF RS. 1 26 027/- AMOUNTED TO CAPITAL GAIN. THE SHARES W ERE SOLD TO REDUCE BANK OVERDRAFT AND ENTIRE SALE PROCEEDS WERE DEPOSITE D WITH THE BANK. THE AO TOOK NOTE OF THE FACT THAT THE ASSESSEE WAS AUT HORIZED TO DEAL IN SHARES THEREFORE IT WAS HELD THAT THE PROFIT WAS TA XABLE AS BUSINESS INCOME. THE AAC TOOK NOTE OF THE FACT THAT THE PURCHASES WERE MADE IN SEVERAL LOTS AND PAST RECORDS SHOW THAT THE ASSESSEE REGULARLY DEALT IN SHARES OF 19 THE COMPANY OF WHICH IT WAS ACTING AS THE MANAG ING AGENTS. THE COUNSEL FOR THE ASSESSEE ALSO POINTED OUT BEFORE THE TRI BUNAL THAT THE SALE PROCEEDS WERE CREDITED TO PROFIT AND LOSS ACCOUNT. THE J UDICIAL MEMBER HELD THAT THE ASSESSEE WAS DEALING IN SHARES BUT THE AC COUNTANT MEMBER TOOK A CONTRARY VIEW THAT THE DEPARTMENT HAD FAILED TO BRING ON RECORD ANY EVIDENCE TO SHOW THAT THE SHARES OF MANAGED COMPA NIES HAD BEEN PURCHASED WITH THE INTENTION TO SELL THEM AT P ROFIT. THE THIRD MEMBER BEING THE PRESIDENT OF THE TRIBUNAL IN THIS CASE AGREED WITH THE JUDICIAL MEMBER THAT THE ASSESSEE WAS A DEALER IN SHARES AS ITS TRANSACTIONS WERE CONFINED OF SHARES OF MANAGED COMPANIES. THE Q UESTION REFERRED TO THE HIGH COURT WAS-WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT PROFIT OF RS. 1 26 027/- AROSE TO THE ASSESSEE IN THE COURSE OF ITS BUSIN ESS AS A DEALER IN SHARES AND AS SUCH WAS LIABLE TO BE ASSESSED AS A R EVENUE PROFIT? THE HIGH COURT PROCEEDED TO CONSIDER THE QUESTION FROM A TOTALLY DIFFERENT ANGLE. IT TOOK INTO ACCOUNT THE FACT THAT A PART OF THE SH ARES WERE SUBSCRIBED TO FOR THE PURPOSE OF ACQUIRING MANAGING AGENCY OF NATIO NAL PIPES AND TUBES CO. AND SUBSEQUENTLY LARGE BLOCK OF SHARES WE RE PURCHASED AND HELD FOR LONG PERIOD AND THAT THE ASSESSEE SOLD SHARES IN BIG LOTS TO REDUCE ITS LIABILITY TO THE BANK IN THE OVERDRAFT ACCOUNT. THEREFORE IT WAS HELD THAT 20 THE PROFIT DID NOT ARISE TO THE ASSESSEE IN THE COURSE OF ITS BUSINESS AS A DEALER IN SHARES. THE HONBLE COURT MENTIONED THA T THE HIGH COURT WENT BEYOND THE SUBJECT MATTER OF CONTROVERSY WHICH EX ISTED BEFORE REVENUE AUTHORITIES AND THE TRIBUNAL. IT WAS NEVER PLE ADED THAT ALTHOUGH IT WAS A DEALER BUT THE SUBJECT MATTER OF SALE WAS HELD AS INVESTMENT. ITS CASE WAS THAT IT WAS AN INVESTOR ALL THROUGH. THIS CASE WAS NOT ACCEPTED BECAUSE OF EXTENSIVE DEALINGS AND OTHER FACTS. THE FIGURES OF PURCHASE FOR YEARS 1954 TO 1957 WERE TAKEN INTO ACCOUNT AND THEREAFTER IT WAS CONCLUDED THAT AFTER A PARTICULAR POINT OF TIME THE ASSESSEE CEASED TO BE AN INVESTOR AND BECAME A DEALER. IT IS FURTHER M ENTIONED THAT THERE IS NO BAR FOR A DEALER TO BE ALSO AN INVESTOR IN SHA RES. THE FACT WHETHER A PART OF THE HOLDING IS INVESTMENT OR STOCK-IN-TRADE IS IN THE KNOWLEDGE OF THE ASSESSEE THEREFORE HE SHOULD BE IN A POSITION T O PRODUCE EVIDENCE TO SHOW WHETHER IT MAINTAINED ANY DISTINCTION BETW EEN INVESTMENTS AND STOCK-IN-TRADE. IN THIS CASE THE ASSESSEE HAD NOT MADE SUCH DISTINCTION. IT ALSO DID NOT PLACE ANY MATERIAL ON RECORD TO ESTABLISH THAT THE SHARES WHICH HAVE BEEN SOLD WERE TREATED DIFFERENTLY FROM THE SHARES STILL HELD BY IT. THE PROCEEDS WERE CREDITED TO PROFIT AN D LOSS ACCOUNT. NO DECISION WAS INVITED BY THE TRIBUNAL AS TO WHET HER THE SHARES IN QUESTION HAD BEEN HELD BY WAY OF INVESTMENTS THEREFORE IT WAS NOT OPEN TO THE HIGH 21 COURT TO GIVE A FINDING ON THIS QUESTION. THUS THE QUESTION WAS ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 6.1 FURTHER IN THE CASE OF CIT VS. H. HOLCK LA RSEN (1986) 160 ITR 67 (SC) THE QUESTION OF THE HIGH COURT WAS-WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ASSESSEE WAS A DEALER IN SHARES IN ACCOUNTING PERIOD RELEVANT TO ASSESSMENT YEARS 1 959-60 AND 1960-61? THE FACTS ARE THAT H. HOLCK LARSEN WAS A PA RTNER IN THE FIRM OF M/S LARSEN & TUBRO UP TO 1946. THE FIRM WAS CONVERTE D INTO A PRIVATE LIMITED COMPANY ON 08.02.1946. THE ASSESSEE WAS ALLOTTE D 53486 SHARES OF THIS COMPANY IN LIEU OF THE INTEREST IN THE FIRM. HE ALSO SUBSCRIBED TO 1875 SHARES. IN THE NEXT FEW ACCOUNTING YEARS UP T O FINANCIAL YEAR 1953-54 HE ACQUIRED 2994 SHARES AND SOLD 1550 SHARES. UP TO THIS FINANCIAL YEAR THE NUMBER OF SHARES PURCHASED AND SOLD AND THE NUMBER OF TRANSACTIONS WERE FEW AND FAR BETWEEN BUT IT BECAME LARGER IN NUMBERS AND CLOSER IN INTERVAL IN THE FEW SUCCEEDING YEARS THE POSIT ION OF WHICH HAS BEEN DEPICTED ON PAGE NO. 71 OF THE REPORT. BETWEEN FI NANCIAL YEARS 1954-55 AND 1959-60 THE ASSESSEE ACQUIRED 29969 SHARES AND SOLD 37360 SHARES AND EARNED PROFIT OF RS. 1 65 581/-. FURTHER THE ASS ESSEE ALSO DEALT IN PREFERENCE SHARES OF THIS COMPANY AND A FEW OT HER COMPANIES. HIS 22 CONTENTION THAT HE WAS ONLY AN INVESTOR WAS RE JECTED BY THE ITO AND THE AAC. THE TRIBUNAL FOUND THAT (A) THE ASSESSEE IS THE CHAIRMAN OF BOARD OF DIRECTORS OF THE COMPANY (B) THE COMPANY HAD EXTENDED ITS BUSINESS AND MADE GOOD PROFITS (C) ITS CAPITAL INCREAS ED AND THEREFORE RIGHT SHARES WERE ISSUED TO EXISTING SHAREHOLDERS ( D) THE ASSESSEE HAD SUBSTANTIAL HOLDING IN THIS COMPANY (E) IT WAS NOT OBLIGATORY FOR THE ASSESSEE TO ACQUIRE RIGHT SHARES (F) IN FACT TH E ASSESSEE WAS INDEBTED TO THE BANK AND WAS PAYING INTEREST AND (G) NOT ONLY RIGHT SHARES WERE SOLD BY THE ASSESSEE BUT HE ALSO SOLD SOME OF THE ORIGIN AL SHARES HELD BY HIM. ON THESE FACTS IT WAS HELD THAT THERE WAS MOTIV E TO EARN PROFIT AND DEALINGS IN SHARES WAS A PART AND PARCEL OF PROFIT MAKING SCHEME. THE HIGH COURT ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE THAT HE WAS NOT A DEALER IN SHARES. THE HONBLE SUPREME COURT CONSIDERED A NUMBER OF CASES. IT IS MENTIONED THAT THE QUESTION IS A MIXED QUES TION OF FACT AND LAW. THE FACTS HAVE BEEN DISCUSSED BY THE TRIBUNAL AND THE HIGH COURT. IN DECIDING SUCH A QUESTION ALL RELEVANT FACTS HAV E TO BE TAKEN INTO ACCOUNT. THE ASSESSEE WAS IN NEED OF MONEY FOR REDUCING HIS OVERDRAFT IN THE BANK. HE HAD TO REMIT MONEY TO DENMARK FOR PURCHASE OF A HOUSE. THE RIGHT SHARES WERE SUBSCRIBED TO AS FAILURE TO DO SO WOULD HAVE ADVERSELY AFFECTED THE VALUE OF SHARES IN THE MARKET. THE REFORE THE CONDUCT OF THE 23 ASSESSEE WAS THAT OF A PRUDENT INVESTOR. ACCORD INGLY THE VIEW OF THE HIGH COURT WAS UPHELD. 6.2 IN THE CASE OF CIT VS. ESS JAY ENTERPRISES ( 2007) 165 TAXMAN 465 (DEL) THE ASSESSEE HAD SHOWN 95 000 SHARES OF JAI PRAKASH INDUSTRIES LTD. PURCHASED IN 1990-91 AND SUBSEQUENT SUBSC RIPTION TO 20000 SHARES IN THE RIGHT ISSUE OF THIS COMPANY IN 1993-94 A S INVESTMENTS. ALL THESE SHARES WERE SOLD IN TWO YEARS. THE HONBLE C OURT CAME TO THE CONCLUSION THAT THERE IS NO EVIDENCE ON RECORD T O SHOW THAT THE INVESTMENT WAS CONVERTED INTO STOCK-IN-TRADE OF THE BUSINESS OF THE ASSESSEE. THEREFORE THE FINDING OF THE TRIBUNAL THAT THE SHA RES WERE HELD AS INVESTMENT WAS HELD TO BE CORRECT ON FACTS. I N THE CASE OF CIT VS. GOPAL PUROHIT (2010) 228 CTR (BOM.) 582 THE ASSESS EE HAD MAINTAINED TWO ACCOUNTS IN RESPECT OF SHARE ACTIVITIES ONE AS INVESTMENT PORTFOLIO AND THE OTHER AS STOCK-IN-TRADE. ALL THE TRANSACTIONS I N INVESTMENT PORTFOLIO WERE DELIVERY BASED TRANSACTIONS. THE TRIBUNAL RETUR NED A FINDING THAT SALE OF SHARES FROM THE INVESTMENT PORTFOLIO LED TO CAP ITAL GAINS. THE HONBLE COURT UPHELD THE DECISION BY MENTIONING THAT A PERSON CAN BE A DEALER AND INVESTOR AT THE SAME TIME. IN ABSENCE OF ANY EVIDENCE TO THE CONTRARY 24 BROUGHT ON RECORD BY THE REVENUE THE TRANSACTI ONS IN INVESTMENT PORTFOLIO WERE ON CAPITAL ACCOUNT. 6.3 IN THE CASE OF ASSISTANT CIT VS. OM PRAKASH AR ORA (2012) 134 ITD 217 (DEL) THE TRANSACTIONS IN SHARES WERE HELD TO BE ON CAPITAL ACCOUNT AND THE FOLLOWING FINDING WAS RECORDED:- 9. AS MENTIONED EARLIER THE BULK OF PROFIT IS ON SALE OF 15000 EQUITY SHARES AND 1 80 000 BONUS SHARES OF UNITECH LTD. THEREFORE IT BECOMES NECESSARY TO EXAMINE THE NATURE OF THESE HOLDINGS. AS MENTIONED EARLIER THE A SSESSEE HAD PURCHASED 5000 SHARES OUT OF WHICH 2000 SHARES W ERE SOLD IN THE EARLIER YEAR. THE AO HAD ACCEPTED THAT TH E SHARES WERE HELD ON INVESTMENT ACCOUNT AS THE GAIN FROM SA LE OF 2000 SHARES WAS TAXED UNDER THE HEAD CAPITAL GAINS . REMAINING 3000 SHARES WERE SUB-DIVIDED IN 15000 SHARES I N THIS YEAR. THE INFERENCE WOULD BE THAT 3000 SHARES SUB-D IVIDED INTO 15000 SHARES WERE ALSO HELD ON INVESTMENT ACCOU NT. IN RESPECT OF 15000 SUB-DIVIDED SHARES THE ASSESS EE RECEIVED 1 80 000 BONUS SHARES. BONUS SHARES CAN BE ISSU ED ONLY OUT OF ACCUMULATED PROFIT IN THE FORM OF GENERAL RES ERVE AVAILABLE WITH THE ISSUING COMPANY. ISSUANCE OF SUCH SHARES DOES NOT ENHANCE THE VALUE AS THE RESERVES OF T HE ISSUING COMPANY GET REDUCED ON ISSUANCE OF BONUS SHAR ES. THEREFORE THE NATURE OF BONUS SHARES HAS TO BE TAKEN AS SAME AS THE ORIGINAL SHARES. THIS VIEW FINDS S UPPORT FROM THE DECISION IN THE CASE OF MADAN GOPAL RADHEY L AL (SUPRA). ACCORDINGLY IT HAS TO BE HELD THAT THE ORIGINAL E QUITY SHARES AND THE BONUS SHARES WERE HELD ON INVESTMENT ACCOUNT. 10. THIS BRINGS US TO THE FINAL DETERMINATION OF T HE QUESTION. WE FIND THAT THE SHARES WERE TREATED AS INVESTME NTS INVESTMENTS WERE MADE FROM OWN FUNDS A LARGE NU MBER OF TRANSACTIONS HAVE BEEN UNDERTAKEN BUT THE ASSESS EE DOES NOT HAVE HIS OWN INFRASTRUCTURE TO CARRY ON THE BUSI NESS AND 25 TRANSACTIONS ARE NOT IN THE LINE OF MARKETING AND DISTRIBUTION OF BOOKS AND MAGAZINES. IN SUCH A SITUATION EAS Y ACCESS TO THE INFRASTRUCTURE OF QUANTUM SECURITIES (P) LT D. SHORT PERIOD OF HOLDING AVAILABILITY OF EXPERIENCE AN D KNOWLEDGE AND UNDERTAKING LARGE NUMBER OF TRANSACTIONS DO NOT OVERRIDE THE ORIGINAL INTENTION OF INVESTMENT IN SHARES. WE MAY MENTION HERE THAT NO SINGLE FACTOR IS DECISIVE IN COMING TO A CONCLUSION IN THE MATTER. SIMILARLY THE NUMBER OF POINTS FOR AND AGAINST ALSO CANNOT BY THEMSELVES CAN LEAD TO A PROPER INFERENCE. WHAT ONE HAS TO DO IS TO WEIGH EACH FACTOR VIS-- VIS THE WEIGHT OF OTHER FACTORS. WE FIND THAT P RIOR AND SUBSEQUENT ACCEPTANCE OF THE ASSESSEE AS INVESTO R IN SHARES COUPLED WITH THE FACT THAT BULK OF PROFIT HAS BE EN EARNED FROM SALE OF BONUS SHARES OF UNITECH LTD. WHICH ARE TAKEN AS INVESTMENT BECAUSE OF THE HISTORY OF THE CASE OU T WEIGH OTHER FACTORS. ACCORDINGLY IT IS HELD THAT THE LD. CIT( A) WAS RIGHT IN HOLDING THAT SURPLUS REALIZED ON SALE OF SHARES IS TAXABLE UNDER THE HEAD CAPITAL GAINS. 7. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE LD. COUNSEL HAS DISCUSSED ALL THE APPEALS WITH REFERENCE TO THE IMPUGNED ORDER FOR ASSESSMENT YEAR 2007-08 . HOWEVER THE LD. DR HAS DISCUSSED THE FACTS OF EACH CASE SEPARA TELY. WE HAVE SEEN FROM THE DECISION IN THE CASE OF GOPAL PUROHIT (SU PRA) THAT A PERSON COULD BE AN INVESTOR AND A DEALER IN SHARES SIMULTANEOUSL Y. FURTHER AS SEEN FROM THE DECISION IN THE CASE OF H. HOLCK LARSEN (SUPR A) AN INVESTOR MAY CONVERT HIMSELF INTO A DEALER. A DEALER MAY ALSO CONVERT HIMSELF INTO AN INVESTOR WITH THE PASSAGE OF TIME. THEREFORE W E THINK IT FIT TO DISCUSS THE FACTS OF EACH YEAR SEPARATELY AND DECIDE T HE MATTERS ACCORDINGLY. 26 8. THE FACTS IN RESPECT OF ASSESSMENT YEAR 20 06-07 ARE THAT THE ASSESSEE HAS SHOWN INCOME FROM SALARY HOUSE PR OPERTY AND CAPITAL GAINS. A LOSS OF RS. 7 673/- HAS BEEN SHOWN AS SPECULAT IVE LOSS IN SHARES DUE TO NON-DELIVERY OF SHARES. THE ASSESSEE HAS UNDERTAK EN TRANSACTIONS IN SHARES OF 52 COMPANIES. THE GAIN FROM THESE TRANSACTIONS HAS BEEN SHOWN AS STCG AMOUNTING TO RS. 10 54 870/-. ON PERUSAL OF T HE STATEMENT IT IS SEEN THAT MANY A TIME SHARES OF A COMPANY HAVE BEEN PURCHASED IN ONE LOT ON ONE DAY AND THEREAFTER SOLD ON A PIECEMEAL BASIS ON DIFFERENT DATES. TO ILLUSTRATE THIS POINT SHARES OF ANDHRA SUGA R WERE PURCHASED ON 18.05.2005 AND SOLD ON 24.05.2005 AND 25.05.2005 . THERE ARE CONVERSE SITUATIONS ALSO FOR EXAMPLE SHARES OF AMTEX IN DIA WERE PURCHASED ON 10.05.2005 AND 17.05.2005 AND ALL THESE SHARES WERE SOLD ON 18.07.2005. THUS THE TRANSACTIONS OF PURCHASE AND SALE FAR EXCEED IN NUMBER THAN THE NUMBER OF COMPANIES WHOSE SHARES HAVE BEEN PURCHASED OR SOLD. THE ASSESSEE HAS ALSO PURCHASED AND SOL D UNITS OF 10 DIFFERENT MUTUAL FUNDS. THE ASSESSEE DOES NOT MAINTAIN B OOKS OF ACCOUNT. THE ASSESSEE HAS NOT BORROWED MONEY FOR PURCHASE OF S HARES OR UNITS. HE DOES NOT HAVE INFRASTRUCTURE TO CARRY OUT TRANSACTION IN SHARES ON HIS OWN AND THEREFORE THE TRANSACTIONS ARE PUT THROUGH A BROKER. IN OTHER WORDS THE TRANSACTIONS ARE NOT IN THE LINE OF THE NORMAL CO URSE OF BUSINESS. IN PAST 27 THE ASSESSEE HAD SHOWN THE PURCHASE AND SALE ON INVESTMENT ACCOUNT AND THE RETURNS FILED BY HIM WERE ACCEPTED U/S 143( 1). HOWEVER THE NUMBER OF TRANSACTIONS IN THIS YEAR HAS INCREASED VE RY SIGNIFICANTLY. THE REASON FOR FREQUENT PURCHASE AND SALE IS STATED TO BE TO SAFEGUARD THE INVESTMENT AND TO ACCUMULATE MONEY FOR INVESTMENT IN PROPERT Y. THE QUESTION IS- WHETHER THE TRANSACTIONS ARE ON CAPITAL ACCOUNT OR ON REVENUE ACCOUNT? VARIOUS CASES DISCUSSED ABOVE SHOW THAT ALL FACT ORS ARE TO BE TAKEN INTO ACCOUNT IN COMING TO A PROPER CONCLUSION AND NO SINGLE TEST IS DETERMINATIVE OF THE ISSUE. THE AO HAS RELIED ON THE DECISION IN THE CASE OF KARAM CHAND THAPER & BROTHERS (P) LTD. VS. CIT (1971) 82 ITR 899 (SC). THE HONBLE COURT MENTIONED THAT LOCKIN G UP SHARES FOR ABOUT 14 YEARS MUST BE HELD TO BE AN UNUSUAL FEATURE IF THE SHARES ARE TO BE CLASSIFIED AS TRADING ASSETS OF THE ASSESSEE. THIS CIRCUMSTANCE IS MORE CONSISTENT WITH THE FINDING THAT SHARES WERE HEL D AS INVESTMENTS. WHAT EMERGES IS THAT A LONG PERIOD OF HOLDING SHOULD BE ASSOCIATED WITH INVESTMENT. HOWEVER THE CONVERSE MAY NOT ALWAYS BE TRUE. IN THE CASE OF ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD. (SUPRA) THE ASSESSEE HAD PURCHASED SHARES OF THOSE COMPANIES FOR WHIC H IT ACTED AS MANAGING AGENTS. NO SUCH CONNECTION HAS BEEN SHOWN BETW EEN ASSESSEE ON ONE HAND AND THE COMPANIES OF WHICH THE SHARES WERE H ELD AND SOLD. THE 28 DECISION IN THE CASE OF G. VENKATASWAMY NAIDU &CO . VS. CIT (1959) 35 ITR 594 ALSO SHOWS THAT IT WAS ACTING AS MA NAGING AGENTS OF THE MILLS AND ADJOINING LANDS WERE PURCHASED WITH A VIEW TO SELL THEM TO THE MILLS ON APPRECIATION IN VALUE THEREOF. IN THE CASE O F H. HOLCK LARSEN (SUPRA) IT HAS BEEN HELD THAT THE QUESTION IS A MIXED QU ESTION OF FACT AND LAW. THE RIGHT SHARES WERE SUBSCRIBED TO ENSURE THAT MARKET VALUE OF THE SHARE DID NOT GO DOWN. THE SHARES WERE SOLD TO REDUC E THE DEBT FROM THE BANKS. THEREFORE THE FACTS OF THIS CASE ARE AL SO DISTINGUISHABLE. IN THE CASE OF ESS JAY ENTERPRISES (P) LTD. THE ASSE SSEE ACQUIRED THE SHARES OF ONLY ONE COMPANY AND SHOWED THEM IN THE BOOKS AS INVESTMENT. THE ASSESSEE DOES NOT MAINTAIN ANY BOOKS AND HE HAS TRANSACTED IN A LARGE NUMBER OF SHARES AND UNITS. IN THE CASE OF ROHI T ANAND (SUPRA) THE ASSESSEE WAS DEALING IN JEWELLERY AND INVESTMENT WAS MADE IN A FEW SHARES WHICH WERE NOT EVEN ROTATED. THE INFERENC E WAS DRAWN FROM CLASSIFICATION OF THE SHARES IN THE BOOKS. IT IS ALSO SEEN THAT THE SHARES HAD NOT BEEN ROTATED. THE FACTS OF THIS CASE ARE TO THE CONTRARY AS SHARES HAVE BEEN SOLD OSTENSIBLY TO SAFEGUARD INVESTMENTS. IN THE CASE OF OM PRAKASH ARORA (SUPRA) THE BULK OF PROFIT AROSE ON SA LE OF SHARES OF UNITECH LTD. RECEIVED AS BONUS SHARES. A REFERENCE WAS MAD E TO THE DECISION IN THE CASE OF CIT VS. MADAN GOPAL RADHEY LAL (1969) 73 ITR 652 (SC) IN 29 WHICH IT WAS MENTIONED THAT THE COURT IS UNABLE TO AGREE WITH THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. MANIKLAL CHUNNILAL & SONS LTD. THAT BONUS SHARES RECEIV ED BY A SHAREHOLDER WHO CARRIES ON A BUSINESS IN SHARES AND SECURITIES IPSO FACTO BECOME ACCRETION TO HIS STOCK-IN-TRADE. BONUS SHARES W OULD NORMALLY BE DEEMED TO BE DISTRIBUTED BY THE COMPANY AS CAPITAL AN D THE SHAREHOLDERS RECEIVE THE SHARES AS CAPITAL. IN THIS CONNECTION THE D ECISION OF COMMISSIONERS OF INLAND REVENUE VS. JOHN BLOTT (1921) 8 TC 101 AND CIT VS. MERCANTILE BANK OF INDIA (1936) 4 ITR 239 WERE REFERRED TO . FROM THE DETAILS OF THE SHARES PURCHASED AND SOLD TO WHICH WE HAVE ALR EADY MADE A REFERENCE IT IS FOUND THAT THE ASSESSEE HAS NOT RECEIVED ANY BONUS SHARES WHICH HAVE BEEN SOLD IN THIS YEAR. THEREFORE THE RATIO OF THIS CASE IS NOT APPLICABLE. FURTHER WE FIND THAT THE ASSESSEE HAS MADE SUBS TANTIAL NUMBER OF TRANSACTIONS NOT ONLY IN THIS YEAR BUT SUBSEQUEN T TWO YEARS ALSO. THEREFORE THE FACTS ARE DISTINGUISHABLE. THUS WE HAVE TO DECIDE THE ISSUE ON THE BASIS OF THE IMPRESSION WE GET BY LOOKING AT THE DEALINGS OF THE ASSESSEE AND CIRCUMSTANCES SURROUNDING IT. WE FIND THAT AN INVESTOR WOULD NOT ENTER INTO PURCHASE AND SALE TRANSACT IONS OF SHARES OF 52 COMPANIES AND UNITS OF 10 MUTUAL FUNDS IN A SINGL E YEAR. THE TRANSACTIONS ARE NUMEROUS AND PERIOD OF HOLDING IS SMALL. TRANSACTIONS OF THIS 30 MAGNITUDE CAN BE UNDERTAKEN ONLY AFTER DEVOTING SUBSTANTIAL TIME TO THE STUDY OF MOVEMENTS IN THE MARKET. ANY ONE WHO UN DERTAKES SUCH LARGE NUMBER OF TRANSACTIONS KEEPING THE MARKET CONDIT IONS IN VIEW WOULD OBVIOUSLY ASSUME THE CHARACTER OF A DEALER. I T MAY BE MENTIONED HERE THAT DEALING IN A COMMODITY CAN ALSO BE DONE W ITH OWN FUNDS. PAST RECORD IN THIS CONNECTION IS NOT MATERIAL. AS THE ASSESSEE HAS NOT MAINTAINED BOOKS OF ACCOUNT THEREFORE THE INTEN TION CAN BE ASCERTAINED ONLY FROM THE CONDUCT. WHEN WE LOOK TO THE TRANSACTIONS AS A WHOLE THE IMPRESSION WE GET IS THAT HE HAS DEALT I N SHARES AND UNITS AND HAS NOT ACTED AS INVESTOR IN SHARES AND UNITS. AC CORDINGLY IT IS HELD THAT THE AO RIGHTLY TAXED THE SURPLUS ARISING FROM THE TRANSACTIONS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. 9. WE NOW PROCEED WITH THE FACTS OF THE CASE OF THE ASSESSMENT YEAR 2007-08. THE ASSESSEE HAD FILED HIS RETURN ON 31 .07.2007 DECLARING TOTAL INCOME OF RS. 4 34 28 744/-. THIS INCOME WAS SHOW N UNDER THE HEADS SALARY HOUSE PROPERTY BUSINESS CAPITAL GAIN AN D OTHER SOURCES. UNDER THE HEAD CAPITAL GAIN THE LTCG WAS SHOWN AT RS. 19 99 360/- AND STCG AT RS. 3 90 21 672/-. WHILE THE LTCG WAS CLAIMED T O BE NOT INCLUDIBLE IN THE TOTAL INCOME BY DINT OF PROVISION CONTAINED IN SECTION 10(36) LOWER 31 RATE OF TAX WAS CLAIMED TO BE APPLICABLE IN RESP ECT OF STCG. WE HAVE ALREADY REPRODUCED THE DETAILS OF STCG AND LTC G IN PARAGRAPH NO. 2.3. THE STCG HAS BEEN SHOWN IN RESPECT OF SALE OF SHARES OF 21 COMPANIES. THE LTCG HAS BEEN SHOWN IN RESPECT OF SALE OF SHARES OF 10 COMPANIES. THE ASSESSEE HAS ALSO PURCHASED AND SOLD UNITS O F THREE MUTUAL FUNDS. THEREFORE THE FACTS PRIMA FACIE SEEM TO BE IN PARI-MATERIA WITH THE FACTS FOR ASSESSMENT YEAR 2006-07. HOWEVER THE ASSES SEE HAS ALSO SHOWN STCG OF RS. 2 94 44 398/- IN RESPECT OF 74 000 BON US SHARES OF UNITECH LTD. APART FROM THAT THE ASSESSEE ALSO SOLD 25 960 SUB-DIVIDED SHARES OF UNITECH LTD. AND EARNED PROFIT OF RS. 89 91 85 1/-. WE HAVE ALREADY MADE A MENTION OF THE DECISION IN THE CASE OF MADAN GOPAL RADHEY LAL (SUPRA) IN WHICH THE HONBLE SUPREME COURT HAD H ELD THAT BONUS SHARES WOULD NORMALLY BE DEEMED TO BE DISTRIBUTED BY T HE COMPANY AS CAPITAL AND THE SHAREHOLDERS RECEIVE THE SHARES AS CAP ITAL. THEREFORE THE SALE OF 74 000 BONUS SHARES OF UNITECH LTD. MAY STAND ON A DIFFERENT FOOTING EVEN IF THE ASSESSEE IS HELD TO BE A DEALER IN SHARES . IN THE AFORESAID CASE IT HAS ALSO BEEN MENTIONED THAT AFTER HAVING RECEIVED BONUS SHARES THE ASSESSEE COULD HAVE CONVERTED THEM INTO STOCK-IN-T RADE OR RETAINED AS CAPITAL ASSET. HOWEVER THE FACTS IN THIS BEHAL F HAVE NOT BEEN EXAMINED BY THE TRIBUNAL AND EVEN IN THE SUPPLEMENTARY STATE MENT NO ATTEMPT HAS BEEN 32 MADE TO SET OUT THE FACTS ON WHICH THE CONCLUSI ON WAS DRAWN. IN VIEW OF THIS POSITION THE MATTER WAS DECIDED IN FAVOU R OF THE ASSESSEE AND AGAINST THE REVENUE. THUS THIS DECISION LAYS D OWN THAT BONUS SHARES WILL ORDINARILY BE TREATED AS THE CAPITAL ASSET WHI CH CAN BE RETAINED AS CAPITAL ASSET OR CONVERTED INTO STOCK-IN-TRADE. THE LOWER AUTHORITIES HAVE NOT RECORDED ANY FINDING THAT THE BONUS SHARES WERE CONVERTED INTO STOCK-IN- TRADE. THEREFORE IN ABSENCE OF ANY EVIDENCE TO THE CONTRARY THE CONCLUSION IS THAT THEY WERE HELD AS CAPITAL ASS ET. CONSEQUENTLY PROFIT ON SALE OF BONUS SHARES WOULD BE IN THE NATURE OF CA PITAL GAIN. RESPECTFULLY FOLLOWING THIS DECISION IT IS HELD THAT THE TRA NSACTIONS CLASSIFIED AS LTCG AND STCG EXCEPT SALE OF BONUS SHARES ARE IN THE NATURE OF BUSINESS TRANSACTIONS. INCOME THEREFROM IS RIGHTL Y ASSESSABLE AS BUSINESS PROFITS. HOWEVER THE SALE OF BONUS SHARES OF UN ITECH LTD. LEAD TO PROFIT WHICH HAS TO BE CLASSIFIED AS STCG. IN COMING TO THE DECISION WE HAVE HEAVILY RELIED ON THE CASE OF MADAN GOPAL RADHE Y LAL (SUPRA). THEREFORE IT WOULD BE APPROPRIATE FOR US TO REPROD UCE THE FINDINGS ON PAGE NOS. 655 AND 656 OF THE REPORT: WE ARE UNABLE TO AGREE WITH THE JUDGMENT OF THE BO MBAY HIGH COURT (TO WHICH REFERENCE WAS MADE BY THE TRIBUNAL) IN CIT VS. MANIKLAL CHUNNILAL & SONS LTD. (IT REF. NO. 16 OF 1 948) THAT BONUS SHARES RECEIVED BY A SHAREHOLDER WHO CARRIES ON BUSINESS IN SHARES AND SECURITIES 'IPSO FACTO BECOME ACCRETI ON TO HIS 33 STOCK-IN-TRADE'. BONUS SHARES WOULD NORMALLY BE DEE MED TO BE DISTRIBUTED BY THE COMPANY AS CAPITAL AND THE SHARE HOLDER RECEIVES THE SHARES AS CAPITAL. THE BONUS SHARES AR E ACCRETIONS TO THE SHARES IN RESPECT OF WHICH THEY ARE ISSUED BUT ON THAT ACCOUNT THOSE SHARES DO NOT BECOME STOCK-IN-TRADE O F THE BUSINESS OF THE SHAREHOLDER. A TRADER MAY ACQUIRE A COMMODITY IN WHICH HE IS DEALING FOR HIS OWN PURPOSES AND HO LD IT APART FROM THE STOCK-IN-TRADE OF HIS BUSINESS. THERE IS N O PRESUMPTION THAT EVERY ACQUISITION BY A DEALER IN A PARTICULAR COMMODITY IS ACQUISITION FOR THE PURPOSE OF HIS BUSINESS; IN EAC H CASE THE QUESTION IS ONE OF INTENTION TO BE GATHERED FROM TH E EVIDENCE OF CONDUCT AND DEALINGS BY THE ACQUIRER WITH THE COMMO DITY. BONUS SHARES HAVING BEEN RECEIVED BY THE ASSESSEES IN RESPECT OF THEIR STOCK-IN-TRADE DID NOT THEREFORE BECOME PART OF THEIR STOCK-IN-TRADE MERELY BECAUSE THEY WERE ACCRETIONS TO THE STOCK-IN-TRADE. THE BONUS SHARES WERE RECEIVED AS C APITAL; THEY COULD BE CONVERTED BY THE ASSESSEES INTO THEIR CAPI TAL ASSET. THE TRIBUNAL OBSERVED IN PARAGRAPH 5 OF ITS ORDER T HAT 'THE ASSESSEE DEALS IN SHARES AND THE SALES PROCEEDS OF THE BONUS SHARES WAS (WERE) RECEIVED BY HIM IN THE COURSE AND AS PART OF HIS SHARE DEALING BUSINESS. THE AMOUNT RECEIVED BY THE ASSESSEE IS THEREFORE PART OF HIS PROFIT FROM THE SHARE DEAL ING BUSINESS AND IS LIABLE TO TAX AS SUCH'. COUNSEL FOR THE ASSE SSEES CONTENDED THAT THE TRIBUNAL HAS NOT REFERRED TO ANY EVIDENCE IN SUPPORT OF ITS CONCLUSION AND HAS MADE A CRYPTIC ST ATEMENT WHICH IS NOT CAPABLE OF THE INTERPRETATION THAT THE ASSESSEES HAD CONVERTED THE BONUS SHARES INTO THEIR STOCK-IN- TRA DE. IF THERE IS NO PRESUMPTION THAT THE ACCRETION TO THE STOCK-IN-T RADE NECESSARILY GETS INCORPORATED INTO THE STOCK-IN-TRA DE SAYS MR. CHAGLA IN THE ABSENCE OF EVIDENCE SHOWING THAT THE BONUS SHARES WERE TREATED BY THE ASSESSEES AS STOCK-IN-TR ADE THE FINDING OF THE TRIBUNAL CANNOT BE SUSTAINED. COUNSE L INVITED OUR ATTENTION TO THE SUPPLEMENTARY STATEMENT OF CASE IN WHICH THE TRIBUNAL RECORDED THAT IN THE COPIES OF BALANCE-SHE ETS FILED BY THE ASSESSEES AS OF 14TH FEB. 1948 8TH MARCH 194 9 AND 8TH MARCH 1950 THE SHARES DID NOT FIND A PLACE AND TH AT THE SALE PROCEEDS OF THE BONUS SHARES WERE CREDITED IN THE C APITAL ACCOUNT OF THE ASSESSEES FOR THE FOUR YEARS IN QUES TION ON THE LAST DATES OF THE RELEVANT ACCOUNTING YEARS. 34 BUT THE TRIBUNAL HAS FOUND THAT THE SALE PROCEEDS O F THE BONUS SHARES WERE RECEIVED IN THE COURSE AND AS PART OF T HEIR BUSINESS IN SHARES AND WERE ON THAT ACCOUNT TAXABLE. IT IS S OMEWHAT UNFORTUNATE THAT THE TRIBUNAL HAS NOT SET OUT IN DE TAILS THE FACTS FOUND BY IT AND THE INFERENCE DRAWN THEREFROM. EVEN IN THE SUPPLEMENTARY STATEMENT NO ATTEMPT HAS BEEN MADE TO SET OUT THE FACTS ON WHICH THE CONCLUSION WAS BASED. THE OR DERS OF THE ITO AND THE AAC ARE ALSO NOT BEFORE US. THE MERE CIRCUMSTANCE THAT IN THE COPIES OF THE BALANCE-SHEE TS TENDERED BY THE ASSESSEES THE BONUS SHARES DID NOT FIND A PL ACE HAS IN OUR JUDGMENT NO IMPORTANCE AND THE CREDIT ENTRIES IN THE CAPITAL ACCOUNT ON THE LAST DATES OF THE RESPECTIVE ACCOUNTING YEARS IN THE FOUR YEARS IN QUESTION ALSO DO NOT SUP PORT AN INFERENCE IN FAVOUR OF THE ASSESSEES. THE QUESTION POSED FOR THE OPINION OF THE COURT WAS NOT WHETHER THE CONCLUSION OF THE TRIBUNAL WAS FOUNDED ON EVIDENCE BUT WHETHER THE S ALE PROCEEDS OF THE BONUS SHARES WERE OF THE NATURE OF REVENUE. ON THIS QUESTION AN INQUIRY INTO WHETHER THE CONCLUSIO N OF THE TRIBUNAL IS SUPPORTED BY THE EVIDENCE CANNOT BE MAD E. IN INDIA CEMENTS LTD. VS. CIT (1966) 60 ITR 52 (SC) THIS COURT OBSERVED THAT IN A REFERENCE UNDER THE IT ACT THE H IGH COURT MUST ACCEPT THE FINDINGS OF FACT MADE BY THE TRIBUN AL AND IT IS FOR THE PERSON WHO HAS APPLIED FOR A REFERENCE TO C HALLENGE THOSE FINDINGS FIRST BY AN APPLICATION UNDER S. 66( 1). IF HE HAS FAILED TO FILE AN APPLICATION UNDER S. 66(1) EXPRES SLY RAISING THE QUESTION ABOUT THE VALIDITY OF THE FINDINGS OF FACT HE IS NOT ENTITLED TO URGE BEFORE THE HIGH COURT THAT THE FIN DINGS ARE VITIATED FOR ONE REASON OR ANOTHER. THE PRINCIPLE O F THAT CASE APPLIES HERE. IT IS NOT OPEN TO THE ASSESSEES TO CO NTEND ON THE QUESTION RAISED THAT THE FINDING OF THE TRIBUNAL IS NOT SUPPORTED BY EVIDENCE. THE ANSWER RECORDED BY THE HIGH COURT IS DISCHARGED . THE ANSWER TO THE QUESTION SUBMITTED IS IN THE AFFIRMAT IVE. NO ORDER AS TO COSTS OF THE APPEAL TO THIS COURT AND OF THE REFERENCE IN THE HIGH COURT. 35 10. FINALLY WE TAKE UP THE APPEAL OF THE REVEN UE FOR ASSESSMENT YEAR 2008-09. THE ASSESSEE HAD FILED THE RETURN DECLA RING TOTAL INCOME OF RS. 1 62 68 906/- ON 29.09.2008. THE ASSESSEE DECLA RED INCOME FROM SALARY HOUSE PROPERTY BUSINESS OF INSURANCE AGENCY CAP ITAL GAINS AND OTHER SOURCES. THE DISPUTE IS ONLY IN RESPECT OF THE HE AD OF INCOME UNDER WHICH INCOME FROM PURCHASE AND SALE OF SHARES IS TO BE ASSESSED. IN THE RETURN THE ASSESSEE DECLARED LTCG IN RESPECT OF TRANS ACTIONS IN SHARES OF FIVE COMPANIES AND UNITS OF FOUR MUTUAL FUNDS AND STC G IN RESPECT OF TRANSACTIONS OF SHARES OF 13 COMPANIES AND UNIT S OF THREE MUTUAL FUNDS. THE DETAILS ARE AVAILABLE IN THE PAPER UNDER F OUR DIFFERENT HEADS. FURTHER IT IS SEEN THAT THE ASSESSEE HAS SHOWN LTCG ON SALE OF BONUS SHARES OF KOTAK BANK LTD. AND UNITECH LTD. HE HAS ALSO SHOWN STCG ON SALE OF BONUS SHARES OF UNITECH LTD. IT IS NO DOUBT TRUE THAT THE VOLUME OF ACTIVITY IN TERMS OF NUMBER OF COMPANIES WHOS E SHARES ARE DEALT IN HAS COME DOWN IN THIS YEAR BUT IT CANNOT BE SAID THAT HE HAS CEASED TO CONDUCT THIS BUSINESS. THEREFORE THE FINDINGS G IVEN IN EARLIER YEARS APPLY TO THE FACTS OF THIS YEAR ALSO. IN PARTICULAR FINDINGS FURNISHED IN THE ORDER FOR ASSESSMENT YEAR 2007-08 EQUALLY APPLICABLE THEREFORE THEY ARE MADE APPLICABLE TO THIS YEAR ALSO. THE RESULT IS THAT TRANSACTIONS IN BONUS SHARES 36 OF KOTAK BANK LTD. AND UNITECH LTD. ARE HELD TO BE ON CAPITAL ACCOUNT AND ALL OTHER TRANSACTIONS ARE HELD TO BE ON BUS INESS ACCOUNT. 11. IN THE RESULT: (I) THE APPEAL OF THE ASSESSEE FOR ASSESSMENT Y EAR 2006-07 IS DISMISSED AND THE APPEAL FOR ASSESSMENT YEAR 200 7-08 IS PARTLY ALLOWED; AND (II) THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2008-09 IS PARTLY ALLOWED. SD/- SD/- (I.P. BANSAL) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA COPY OF THE ORDER FORWARDED TO:-SHRI AJAY SRIVASTAV A JANAKPURI NEW DELHI. ACIT CIRCLE 26(1) NEW DELHI. CIT(A) CIT THE D.R. ITAT NEW DELHI. ASSISTANT REGISTRAR.