In the present case, the assessee is an employee and is in service of a company. He has salaried income. The assessee had also made purchases and had sold securities. He is maintaining two separate portfolios i.e. investment portfolio and trading portfolio. The Assessing Officer has admitted the said position in the assessment order.
It is pointed out that the shares in question which are subject matter of short term capital gains form part of the investment portfolio and were not part of the trading portfolio. We are not concerned with the trading portfolio in the present case as profits and gains from the trading portfolio have to be treated as business income ‘loss. As far as seven shares’ transactions subject matter of short term capital gains are concerned it is noticeable that in four cases, the shares were held for a period of more than 7 months, 8 months, 8.5 months and 11 months. In three cases shares were held for 2.4 months, 2.5 months and 4 months. Quantum or total number shares is substantial but the transactions in question are only seven in number and the period of holding as mentioned above cannot be treated as insignificant and small. Quantum or total number may not be determinative but in a given case keeping in view period of holding may indicate intention to make investment. The Tribunal applying the aforesaid tests in the present case has accepted the position of the assessee that these shares which are subject matter of short term capital gains were rightly held by the assessee and treated by the assessee an investment portfolio and not a trading portfolio. We also notice that the Tribunal has mentioned that the assessee has received substantial dividend income of more than Rs. 19 lakhs and Rs. 27 lakhs in the assessment year 2005-06 and 2006-07. The Assessing Officer as noticed above was influenced to a large extent of the fact that the assessee had earned huge profits during the year in question from the sale of the said shares. This can happen even in case of investment portfolio because when investment is liquidated to earn gains and change their portfolio. Element of uncertainty and risk is always there when a person deals in securities but this factor cannot be determinative factor whether the assessee is trading in shares or is an investor. Some investors do take risk. The Assessing Officer has recorded that during the financial year 2006-07, the assessee had indulged in frequent and regular trade in securities. The Assessing Officer did not refer to and specifically dealt with the transactions in question though the chart and the figures noted above in this order were available and on record at the time of original assessment. He has not mentioned whether the assessee had indulged in frequent transactions in the previous period or subsequently. Merely because the assessee had sold the said shares in the relevant year and made substantial gains and could not show basically the objective for acquiring the shares was not as an investor but as a trade. The ratio of sales and purchase may be relevant in a particular case but when an assessee liquidates any investment, the said ratio will always be in favour of sales.
The Tribunal in the facts of the present case has examined and correctly applied test/criteria, which has to be applied. We may note that in the earlier assessment years, transactions in the investment portfolio by the assessee were accepted by the Assessing Officer.
HIGH COURT OF DELHI
Date of Decision: 27th April, 2012.
ITA 1172/2011
CIT V/s. Vinay Mittal
ORDER
SANJIV KHANNA,J: (ORAL)
We have heard counsel for the parties. We frame the following substantial question of law :
“Whether the Income Tax Appellate Tribunal was right in holding that the gains from sale and purchase of various securities should be treated as long term capital gains or short term capital gains and not business income?”
2. The respondent Vinay Mittal is an individual and for the assessment year 2007-08 had filed his return of income on 31.10.2007 declaring total income of `6,00,62,080/-. Long term capital gains of `2,59,52,165/- which was claimed as exempt and this included short term capital gains of `5,53,32,591/- from sale and purchase of various securities.
3. The Assessing Officer held that the two amounts should be treated as business income and not income from capital gains and an addition of `8,12,84,756/- was made. The said addition was deleted by the first appellate authority and the Tribunal by the impugned order has affirmed the said deletion.
4. The appellant before us has filed a chart giving the details of the sale purchase transactions which are subject matter of the assessment year 2007-08. The chart reads as under :
Short Term Capital Gains
