2010 (11) TMI 145 - AT - Income Tax

Tax Tribunal: Gains as Capital, Not Business Income. Controlled PMS, Limited Transactions = Wealth Strategy.

The Tribunal upheld the CIT(A)'s decision to treat the gains as short term capital gains rather than business income. The Tribunal emphasized the ... Business income or Short term capital gain - Whether, the assessee is engaged in the business of dealing in shares or investment in shares is essentially a question of fact and it has to be determined with regard to the entirety of the circumstances - Held that: in circumstance, in which the assessee is engaged in a systematic activities of holding portfolio through a PMS Manager, it cannot, by any stretch of imagination, be said that the main object of holding the portfolio is to make profit by sale of shares during the course of maintaining the portfolio investment over the period - decided in favor of assessee. Issues: Assessment of short term capital gains as business income.Analysis:1. The Assessing Officer questioned the correctness of the CIT(A)'s order regarding the treatment of short term capital gains as business income for the assessment year 2006-07. The AO observed that the assessee disclosed short term capital gains and losses in shares of various companies, leading to scrutiny under the CASS system. The AO relied on CBDT circular No.4 of 2007 and the Supreme Court judgment in G.Venkataswami Naidu & Co v. CIT to argue that the transactions indicated trading in shares rather than investment. The AO concluded that the gains on share sales should be treated as business income.2. The assessee contended that she invested surplus funds in shares and stocks for growth and capital appreciation through a Portfolio Management Scheme (PMS) managed by ASK Raymond James. The assessee argued that the tests laid down in the G.Venkataswami Naidu case were not applicable to her situation. She highlighted that her transactions were limited, not indicative of a trading pattern, and made from surplus funds shown in her balance sheet as investments.3. The CIT(A) reversed the AO's decision, emphasizing that the assessee did not exhibit characteristics of a trader in shares. The CIT(A) noted the controlled nature of the PMS, the limited number of transactions, and the absence of a trading pattern. The CIT(A) concluded that the gains should be treated as short term capital gains and not business income. The Tribunal upheld the CIT(A)'s decision, emphasizing that the transactions were part of a wealth maximization strategy rather than trading, and the high number of transactions was due to the structure of the PMS, not independent dealings.4. The Tribunal's analysis focused on the nature of the transactions, the systematic approach of holding shares through a PMS, and the absence of trading characteristics in the assessee's activities. The Tribunal rejected the AO's contentions, affirming the CIT(A)'s decision to treat the gains as short term capital gains. The Tribunal dismissed the appeal, upholding the order of the CIT(A) on 30 November 2010.