Tribunal classifies PMS income as capital gain, setting aside CIT(A) orders

The Tribunal ruled in favor of the assessee, determining that income from purchases and sales of shares through Portfolio Management Scheme (PMS) should be treated as capital gain. Previous decisions in similar cases supported this classification, as the PMS Manager had sole investment discretion, no borrowed funds were used, and the average holding period exceeded two months. With no distinguishing features presented for the current years, the Tribunal set aside the CIT(A) orders and allowed the appeals.

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Issues involved:
Whether income earned from purchases and sale of shares through Portfolio Management Scheme (PMS) operations should be assessed as business income or as capital gain.

Analysis:

Issue 1: Nature of income earned from PMS
The appeals were filed by the assessee against different orders of CIT(A) for assessment years 2006-07 and 2005-06, questioning the assessment of income earned from purchases and sales of shares through Portfolio Management Scheme (PMS) as business income instead of capital gain. The assessee had historically treated income from sale of shares/units as capital gain, but income from PMS was assessed as business income by the Assessing Officer (AO) for the assessment year 2003-04. CIT(A) concurred with the AO's view for subsequent years as well. However, the Tribunal, in previous cases involving similar issues, had held that income earned from PMS should be assessed as capital gain. The Tribunal noted that the PMS Manager had sole discretion over investments, the assessee did not use borrowed funds, and the average holding period of shares was more than two months. As no distinguishing features were presented for the current years, the Tribunal decided in favor of the assessee, setting aside the CIT(A) orders and allowing the appeals.

Conclusion:
The Tribunal ruled in favor of the assessee, holding that income earned from purchases and sale of shares through Portfolio Management Scheme (PMS) operations should be assessed as capital gain based on previous decisions in similar cases. The Tribunal found no distinguishing features to warrant a different decision for the current assessment years, leading to the allowance of the appeals.

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