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of <h1>ITAT rules in favor of appellant, treats PMS share profits as capital gains, grants relief on interest charges</h1> <h3>Anusuya Suren Mirchandani Versus Assistant Commissioner of Income Tax 12 (2) Mumbai-</h3> Anusuya Suren Mirchandani Versus Assistant Commissioner of Income Tax 12 (2) Mumbai- - TMI Issues:1. Tax treatment of capital gains from sale of equity shares through Portfolio Management Services.2. Charging of interest under sections 234B and 234C of the Income Tax Act.Analysis:Issue 1: Tax treatment of capital gains from sale of equity shares through Portfolio Management ServicesThe appellant challenged the order of the Commissioner of Income Tax (Appeals) confirming the addition of capital gains as 'Profit and Gains of Business or Profession.' The Assessing Officer held that the appellant's activities in trading shares through Portfolio Management Services (PMS) indicated a business motive rather than investment intent. The AO concluded that the appellant's share transactions constituted a business activity, and thus, the profits should be treated as business income. The First Appellate Authority (FAA) upheld the AO's decision, directing that all gains from short-term or long-term capital gains be treated as business income. The FAA considered the PMS manager as an agent of the appellant, engaging in trading activities on her behalf, and charged commission for the same. The FAA rejected the application of sections 10(38) and 111-A to the profits derived from PMS.During the appeal before the ITAT, the Authorized Representative argued that the investment was made through portfolio managers, and the basic elements of a business were absent in the transactions. The ITAT, after considering relevant precedents, including the decision in Manan Nalin Shah, held that the profits from share transactions through PMS should be assessed as capital gains, not business income. The ITAT found that the PMS did not guarantee against capital loss, and the investment was aimed at wealth maximization, not trading. Therefore, the ITAT concluded that the FAA was incorrect in taxing the share transactions as business income.Issue 2: Charging of interest under sections 234B and 234C of the Income Tax ActThe appellant also contested the charging of interest under sections 234B and 234C of the Income Tax Act. The ITAT considered this issue as consequential and allowed it for statistical purposes. Additionally, the appellant raised legal concerns regarding the FAA's decision to disallow the claim of short-term and long-term capital gains under section 10(38) without providing a prior notice or hearing. The ITAT found a violation of principles of natural justice in the FAA's directions to the AO, leading to an increase in the appellant's income. Consequently, the ITAT reversed the FAA's order on this issue, holding that the appellant was entitled to relief.In conclusion, the ITAT allowed the appeal filed by the appellant, reversing the FAA's decision and providing relief on the additional grounds raised regarding the tax treatment of capital gains and the charging of interest under sections 234B and 234C of the Income Tax Act.
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