High frequency & volume in share deals with short holding period is trading activity

CA Saurabh Chokhra

Brief of the case:

The Hon’ble Bombay HC in the above cited case held that when the assessee’s volume of purchasing and selling shares is quite high with higher frequency of buying and selling with holding 75 days or less then its prima facie indicate that it is engaged in trading of shares unless assessee provide a sound reasoning that why transactions should not be considered as trading activity.

Facts of the case:

• The assessee is engaged in the business of trading of shares. For, AY 2008-09, the assessee  filed its return of income declaring profit in trading of shares at Rs.7.75 lakhs and short term capital gain at Rs.77.85 lakhs.
• Assessee treated profit as short term capital gains in all cases where period of holding was more than one day and for the shares held for one day or lesser profits were considered as business profits.
• The AO in his order held that the amount shown as short term capital gains on shares is in fact profit earned in the business trading activity in shares carried out by the assessee.
• CIT(A) also upheld the order of AO . On appeal before tribunal, tribunal observed that there are various factors such as frequency, volume, entry in the books of accounts, nature of funds used, holding period etc. which are relevant in deciding the true nature of transactions and no single factor is conclusive.
• Tribunal found that most of the shares have been sold within 30 days of its purchase and maximum holding period is 75 days and thus, concluded that the act ivity of purchase and sale of shares claimed to be on account of investment was in fact profit from its activity of trading in shares to the extent of Rs.77.85 lakhs.
• Aggrieved assessee is in appeal before High Court.
  

Contention of the Assessee:

Assessee’s learned counsel submitted that an assessee is entitled to hold shares, both on Investment account as well as on trading account and assessee has rightly classified the shares hold for more than 1 days as investments as they were not intended for trading.

Held by Hon’ble Bombay High Court: