2011 (5) TMI 1087 - AT - Income Tax

Income from share trading via Portfolio Management Services classified as Capital Gains; expenses disallowed for short-term gains.

Assistant Commissioner of Income-tax Central Circle-VI, Kolkata Versus Shri Raghupati Singhania And Vice-Versa. Deputy Commissioner of Income-tax Central Circle-VI, Kolkata. Versus M/s. Shri Harishankar Singhania, Shri Vikrampati Singhania And Vice-Versa.

The Tribunal upheld the CIT(A)'s decision in a case concerning the classification of income from share trading through Portfolio Management Services (PMS) ... - Issues Involved:1. Classification of income from share trading through Portfolio Management Services (PMS) as Capital Gains or Business Income.2. Allowability of deductions u/s 48 for management fees and other expenses paid to Portfolio Managers.Summary:Issue 1: Classification of Income from Share Trading through PMSThe primary issue in the appeals was whether the profit from share trading by the assessee through PMS should be classified as 'Capital Gains' or 'Business Income.' The Assessing Officer (AO) treated the income as business income, arguing that the intention of the assessee at the time of purchase, frequency, and volume of transactions indicated trading activity. The CIT(A) reversed this decision, holding that the assessee had always been an investor in shares, and the transactions carried out through PMS did not change the nature of the investment. The Tribunal upheld the CIT(A)'s decision, stating, 'We are of the view that in case transactions are carried out through PFMs, it cannot change the character of transaction and transaction will remain of investment.'Issue 2: Allowability of Deductions u/s 48The second issue in the cross objections was whether management fees and other expenses paid to Portfolio Managers, as well as custody fees, were allowable deductions u/s 48 in computing short-term capital gains. The AO disallowed these expenses, and the CIT(A) confirmed the disallowance, stating that these expenses were not directly related to the acquisition or transfer of the capital asset. The Tribunal agreed, noting, 'the management fee and other expenses paid to PMFs and custody fee paid for maintaining demat are not in relation to transfer of share rather it is paid for preservation of assets i.e. the shares and securities.' Consequently, the Tribunal dismissed the cross objections of the assessee.Conclusion:The Tribunal dismissed both the appeals of the revenue and the cross objections of the assessee, thereby upholding the CIT(A)'s decisions on both issues. The income from share trading through PMS was classified as Capital Gains, and the deductions for management fees and other expenses were disallowed u/s 48.