TaxTMI 
TaxTMI 
2012 (9) TMI 793
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....ad "capital gains" or "business income". The ground of appeal taken by assessee reads as under: "1. On the facts and circumstances of the case and in law, the ld CIT(A) erred in rejecting the plea of the assessee to treat the income as capital gains (arising out of sale of shares, units and securities through Portfolio Management Services) of Rs. 1,42,002 and not "profit and gains of business or profession. 2. Under the facts and circumstances of the case, ld CIT(A) ought to have accepted that a sum of Rs. 52,127 as short term capital gain, Rs. 33 as bank interest and Rs. 89,842 for dividend as exempt as disclosed by the appellant in the return of income." 5. It is relevant to state that the assessee received dividend income of Rs. 89,842 in assessment year 2003-04 and submitted that in the said assessment year i.e. 2003-04, the dividend income was not exempt from tax. Accordingly, same is to be assessed under the head "income from other sources" and did not make any submission. The assessee also conceded that bank interest of Rs. 33/- is to be assessed as income from other sources. Hence, only dispute is in regard to Rs. 52,127 as to whether it is to be assessed under the hea....
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....essee with an intention for purchase and sale of shares appointed a Portfolio Manager by giving power of attorney to Kotak Securities on its behalf for doing business of shares and securities. He has further stated that the assessee while filing the return itself claimed the receipts from investments as 'business income' and not as 'capital gains'. Ld CIT(A) relying on decision of Hon'ble Supreme Court in the case of Goetze India Ltd vs CIT, 284 ITR 323 (SC) stated that assessee to claim a relief, had to file a revised return and that this requirement could not be circumvented by claiming the relief in any other form. Hence, assessee is in further appeal before the Tribunal. 9. On behalf of assessee, a written submission was filed, which is placed on record. It is submitted that assessee is assessed to tax for more than 15 years. Since several years in past, the investment in shares and units of Mutual Funds have been consistently reflected as investment in the books of account and income from transfer of such shares or redemption of Mutual Funds has been accepted by the department giving rise to capital gains. Ld A.R. submitted that in the assessment year 2003-04, assessee place....
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....ed in Stock Exchanges and other independent companies. Ld A.R. submitted that the AO has considered business income only because the assesee while filing the return inadvertently has shown the profit earned through Portfolio Manager under the head 'business income'. Ld A.R. relying on the decision of Hon'ble P&H High Court in the case of Commissioner of Income-tax v. Ramco International, 332 ITR 306(P&H) and Hon'ble Delhi High Court in the case of Commissioner of Income-tax v. Jai Parabolic Springs Ltd, 306 ITR 42 (Del) submitted that it is not necessary to file revised return and claim could be made even at the time of assessment proceedings in respect of legal ground and the AO should decide the same as per law. He further submitted that ld CIT(A) has also not considered the above fact and confirmed the action of AO merely on the ground that no revised return was filed by the assessee. Ld A.R. referred decision of Pune Bench of ITAT in the case of ARA Trading & Pvt Investments Ltd vs DCIT in ITA No.499/Pn/2008 order dated 31.8.2009 and submitted that it was held that investments made through a portfolio manager would give rise to capital gains. To substantiate his submission, he ....
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....erned business activity vis-a-vis activity of some one else who is at the helm of affairs can be said to be a vital significance. The subtle distinction such intricate issue. In this situation when neither the purchase nor sales are decided by the assessee but for that purpose the portfolio manager is assigned, then the term "dealing" cannot be attached with the assessee. Facts have revealed that the portfolio manager is empowered to decide what is to be purchased and what is required to be sold in the market as also the time of transaction, which is a core factor in this business; is altogether under the control and supervision of the portfolio manager. As we have seen from the case law cited supra merely selling and buying by itself does not mean the business activity of systematic purchase and sale, nevertheless it has not been done directly by the assessee in the present case. 25. In the backdrop of above decisions, the facts of the case indicate that it was an activity of wealth maximization rather than profit maximization. To arrive at the right conclusion in such type of cases and considering the peculiarity of the facts we have to take shelter of a landmark judgment in th....
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....t transactions are concerned, these transactions are undisputedly carried out by the assessee's Portfolio Manager and, therefore, these items are clearly in the nature of transactions meant for maximization of wealth rather encashing the profits on appreciation in value of shares. The very nature of Portfolio Management Scheme is such that the investments made by the assessee are protected and enhanced and in such a circumstance, it cannot be said that Portfolio Management is scheme of trading in shares and stock. 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. In our consideration view, 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. As regards the high number of transactions, which have been referred to by the Assessing officer, we have noted, on a p....
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.... the nature of PMS is not clearly discussed. Ld D.R. also placed reliance on the decision of Mumbai Tribunal in the case of Mafatlal Fabrics Pvt Ltd vs. DCIT, 49 SOT 303(Mum) and also the decision of Hon'ble AP High Court in the case of PVS Raju vs ACIT, (2012) 18 Taxman.com 2(AP). He submitted that the order of ld CIT(A) should be confirmed that income arising to the assessee through PMS is business income. 13. Ld A.R. in his rejoinder submitted that the reliance placed by ld D.R. in the case of Radials Internationals (supra) is not applicable to the case of the assessee as in that case, the period of holding by the Portfolio Manager varied from 2 days to a few months. He further referred para 13 of the said order and submitted that the volume of transaction was very high, quantity of share traded was huge and considering the above facts, the Tribunal found that there was no difference between similar transactions carried out by an individual in shares and the transactions carried out by portfolio manager. Ld A.R. submitted that the Tribunal decided the said case in view of peculiar facts existing before it, which is not in assessee's case. He submitted that in assessee's case, t....
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....siness income" or "capital gains". We observe that in the assessment year 2003-04, assessee placed a part of fund of Rs. 50 lakhs with Kotak Securities as PMS and entered into agreement, copy placed at pages 30 & 31 of PB. In A.Y. 2003-04, there is a profit of Rs. 52,127. We observe that assessee while filing the return, has shown the said income as business income. However, during the course of assessment proceedings, assessee filed a letter dated 25.11.2005 and stated that the said income is to be assessed under the head "capital gains". The authorities below did not accept the said contention of the assessee on the ground that the assessee did not file a revise return and claim made by way of a letter could not be accepted. We are of the considered view that merely because assessee claimed an income under the head 'business income' but is to be assessed under the law under another head cannot be rejected only on the ground that no revised return has been filed. The AO has to decide the assessability of income under correct head on the basis of the facts and as per provisions of I.T.Act. Moreover, when the assessee has taken the said ground before ld CIT(A), ld CITA) couldnot rej....
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....gement of Portfolio is an independent activity and not governed by client i.e. assessee. The relevant clauses of the agreement, extract of which we have mentioned above, clearly establish that the purpose is to take decision to make investment and to provide statement to the assessee on quarterly basis. In the PMS, there is no assured guarantee against loss or degeneration of capital. As per SEBI guidelines, the Portfolio Manager is authorized to purchase and sale of shares on behalf of the client against securities after obtaining written permission. They are not authorized to undertake purchase and sale of securities which are settled otherwise than by actually delivery or transfer of securities. The Portfolio Manager at their own discretion can make investments. Considering the above scheme of Portfolio Management, we are of the considered view that the investments made by the assessee through PMS is meant for maximization of wealth and not with a view to do trade in purchase and sale of shares. Further, we observe that the department has not disputed the fact that the Portfolio Manager have the sole and absolute discretion to make the investments for and on behalf of the asses....
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....he income as business income and not as capital gains. Therefore, the said case could not be applicable to the facts of the present case. Considering above submissions and cases cited before us, we hold that the very nature of PMS is such that investments made by the assessee cannot be said to be scheme of trading of shares and stocks and, accordingly, the profit is to be assessed under the head 'capital gains'. Therefore, grounds of appeal taken by assessee are allowed in part as indicated hereinabove. 17. Now we take up appeal for assessment year 2004-05 being I.T.A. No.2125/M/2008. 18. Grounds of appeal are as under: "1. On the facts and circumstances of the case and in law, the ld CIT(A) erred in confirming the addition of capital gains(arising out of sale of shares, units and securities through Portfolio Management Services) of Rs. 46,92,074 and not "profit and gains of business or profession. Under the facts and circumstances of the case, the ld CIT(A) ought to have accepted that a sum of Rs. 46,92,075 as short term capital gain Rs. 1,81,936 as speculation income and Rs. 2,36,279 for dividend as exempt as disclosed by the appellant in the return of income. 2. On the f....
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....d under the head 'capital gain'. Hence, Ground No.1 of the appeal is partly allowed as indicated above. 22. Ground No.3 of appeal is in respect of interest u/s.234C of the Act, which is consequential and does not require any specific adjudication. 23. Now we take up appeal for assessment year 2005-06 being I.T.A. No.4126/M/2008. 24. Grounds of appeal are as under: "1. On the facts and circumstances of the case and in law, the ld CIT(A) erred in confirming the addition of capital gains(arising out of sale of shares, units and securities through Portfolio Management Services) of Rs. 67,23,366 as "profit and gains of business or profession. Under the facts and circumstances of the case, the ld CIT(A) ought to have accepted that a sum of Rs. 71,62,055 as short term capital gain Rs. 50,692 as speculation income and Rs. 3,78,117 for dividend as exempt as disclosed by the appellant in the return of income. 2. On the facts and circumstances of the case, ld CIT(A) erred in confirming the interest charged u/s. 234B and 234C of the I.T.Act." 25. In respect of Ground No.1 of appeal, ld A.R. submitted that dividend income of Rs. 3,78,117 is exempt in A.Y. 2005-06 u/s.10(34) of the Act. ....