Section 45: Capital gains –Business income- Investment in shares- A company can have two portfolio – investor and a trader at the same time- Investment was held to be assessable as short term capital gains. [Section 28i)]

10. The Pr. CIT-12 vs. Business Match Services (I)
Pvt. Ltd [ Income tax Appeal no 699 of 2016  Dated: 27^th November, 2018 (Bombay High Court)].

 [Business Match Services (I) Pvt. Ltd vs.
DCIT; dated 19/08/2015 ; ITA. No 7267/M/2010, AY: 2007-08 and 2008-09, Bench B,
Mum. ITAT ]

Section
45: Capital gains –Business income- Investment in shares- A company can have
two portfolio – investor and a trader at the same time- Investment was held to
be assessable as short term capital gains. [Section 28i)]

The assessee company is engaged in the business of providing
consultancy services in the field of private placement of shares to foreign
institutional investors, financial institutions.

During the two years under consideration, the assessee also dealt in
purchase and sale of shares. It declared a portion of profits arising on sale
of shares as Short term Capital Gain (STCG) and the remaining portion was offered
as its business income, i.e. the assessee has maintained separate portfolios
for investment and trading assets. In both the years under consideration, the
AO did not agree with the claim of STCG declared by the assessee and
accordingly assessed the same as business income. 

The CIT(A) confirmed the view of the A.O, upon which, the issue
reached the Tribunal at the hands of the Assessee.

Being aggrieved with the order of the CIT(A), the assessee filed the
Appeal before ITAT. The Tribunal find that the AO has considered all the shares
together to take the view that the assessee has indulged in trading in shares.
However, the fact remains that the assessee itself has offered gains arising on
shares held as trading stock as its business income. The assessee has claimed
the gains arising on sale of Adani Enterprises Limited only as Short Term
Capital Gain with the claim that it has held the same as its investment. It is
now well settled proposition that a person is entitled to maintain two separate
portfolios, one for its investment and another one for its trading assets. For
this proposition, it relied on to the Circular No.4/2007 dated 15/06/2007
issued by the CBDT and also the decision rendered by Hon’ble High Court
in the case of Gopal Purohit (2010) (228 CTR 582). In the instant case,
the A.O has not disproved the claim of the assessee that it has maintained two
different portfolios as discussed above. Even though the Ld. CIT(A) has
observed that the question whether transactions were in the nature of trade or
otherwise is largely dependent upon the facts of each case, yet we are of the
view that the Ld CIT(A) has not properly appreciated the facts prevailing in
the instant case. The Tribunal held that the intention of the assessee at the
time of purchase of shares of Adani Enterprises Limited was to hold it as its
investments. The A.O has not brought any material on record to show the
contrary, which means that the AO has arrived at the adverse conclusion only on
surmises. Accordingly, the gains arising on its sale should be assessed as
Short term capital gains only. Accordingly, the gains arising on sale of shares
of Adani Enterprises Limited under the head “Income from Capital gains.” In the
earlier year also, Assessee had claimed capital gain out of its sale of shares.
Same was accepted by the A.O.

Being aggrieved with the order of the ITAT, the Revenue filed the
Appeal before High Court. The Court observed that the dispute pertains only to
one scrip namely the shares of M/s. Adani Enterprise Ltd., Assessee had
purchased the shares in installments and after holding them for some time, sold
them also in installments. Thus, there were no instances of repetitive purchase
and sale of shares. From the balance sheet, it could be gathered that the
Assessee had used its own funds or interest free funds, borrowed from the
Directors of the Company in order to purchase the shares. The Assessee had
taken physical delivery of the shares and in the books of account, treated the
same as an investment. Inter alia, on said grounds, Tribunal had ruled in
favour of the Assessee. Whether the purchase and sale of shares is in the
nature of investment or business venture, would depend on facts and
circumstances of each case. There are judicially laid down guidelines and parameters
to judge whether in a case, the sale of shares would give rise to business
income or capital gain. In the present case, the Tribunal has applied the
correct parameters to the facts, emerging from the record. The revenue appeal
was dismissed.