TaxTMI 
TaxTMI 
2013 (10) TMI 761
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....ase and sale in shares and securities. According to the AO , It cannot be said that the shares/securities have been held as assets. Proceeding further, the AO questioned the LTCG and the STCG shown by the assessee. The AO asked the assessee to show cause why these transactions should not be considered as resulting into business income. The assessee filed a detailed reply dt. 7.12.2010. The same has been exhibited in the assessment order at pages 2 to 7. It was explained to the AO that the assessee is not engaged in any business activity. It has appointed Portfolio Managers and these Portfolio Managers are investing the moneys into various securities. It was further explained that the investment in equity shares and mutual funds have been made out of corpus fund received from settler of the trust. The said funds have been used for investment activities only. However, the submissions of the assessee did not find favour from the AO who was of the opinion that the transactions are carried out regularly and frequently, quantities of purchase/sales are generally large, assessee has sold shares even for loss whereas a prudent investor normally never sells shares on loss and the assessee h....
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....an be taxed only under the head capital gains. The assessee directed the attention to the Ld. CIT(A) to the CBDT Circular No. 4 dt. 15.6.2007 as well as Instruction No. 1827 dt. 31.8.1989 and pointed out that even the CBDT has accepted that the assessee can have two types of portfolio one as investment and the other as stock-in-trade. Reliance were placed on the decision of Bombay Tribunal in the case of Janak S. Rangwala Vs ACIT 11 SOT 627, in the case of Gopal Purohit 20 DTR 99 , M/s. SMK Shares & Stock Broking Pvt. Ltd. in ITA No. 799/M/2009, Madangopal Radhelal 73 ITR 652, Neelkanth Ambalal Modi Vs S.A.L. Narayan Row 61 ITR 428 and CIT Vs Maharajkumar Kamal Singh 89 ITR 05. 5. After considering the facts and the submission made by the assessee, the Ld. CIT(A) relied upon the decision of the Delhi 'F'Bench in the case of M/s. Redials International Vs ACIT in ITA No. 1368(Del) of 2010 dt. 16.12.2011. The Ld. CIT(A) discussed the decision of the Delhi Bench at length. The Ld. CIT(A) rubbished the decision of the ITAT Pune 'A' & 'B' Bench in the case of KRA Holding & Trading Pvt. Ltd., and HRA Trading & Investment Pvt. Ltd., respectively stating that these decisions are relative....
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....ies Ltd. A perusal of the contract between the assessee and the Reliance Capital Asset Management Ltd. show the intention of the assessee as provided at point No. 3 at page-1 of the agreement exhibited at page-56 of the Paper book which is as under: "The client is desirous of appointing the portfolio manager for managing the investment of its funds on a discretionary basis to avail of investment advisory and portfolio management services from the portfolio Manager, for the purpose of investment to be made in securities" 9. At clause 11.10 of the same agreement, it is provided ---- The Portfolio manager shall not a) Trade on margin or on a speculative basis on behalf of the client. All transaction shall be on delivery basis. b) Pledge or give loan on securities held on behalf of the client to a third person without obtaining a written permission from the client. c) The Portfolio Manager shall not deal based on price-sensitive classified information. 10. Similar clauses are found in the agreements with other three Portfolio managers. A perusal of these agreements clearly show that the intention of the assessee to appoint these Portfolio managers is to invest its ....
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.... of Manan Nalin Shah in ITA No. 6166,2125 & 4126/M/08 has considered the decision of the Delhi Bench. After considering the decision of the Delhi Bench in detail , while deciding the issue, the Tribunal has thus held as under:- "We observe that the only dispute is as to whether the profit arising to the assessee through the transactions carried out for purchase and sale of shares as well as units of mutual fund through PMS is to be assessed under the head "business 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.....
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....of shares/units. During the course of hearing, ld D.R. submitted that when the Portfolio Manager is appointed, he acts as an agent on behalf of the assessee to do trade. However, similar issue has been considered by Pune Bench of Tribunal in the case of ARA Trading & Investment Pvt Ltd (supra). The relevant extracts from paras 22 to 27 have been produced hereinabove. We observe that Portfolio Manager is appointed in pursuance of an agreement, therefore, the management 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 t....
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.... may also state that at the time of hearing, ld D.R. referred the decision of ITAT Mumbai in the case of Immortal Financial Services Pvt Ltd. vs DCIT, 44 SOT 88(Mumbai). In the said case, the Tribunal confirmed the action of ld CIT(A) that profit from purchase and sale of shares is business income considering the frequency of buying and selling of shares over a short span of period and also the fact that the assessee in the books of account has also treated the 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. [Bold Letters for emphasis by us ] 15. It is also worth noting that for the method of valuation of stock of shares reflected in the balance sheet, the admitted position is that the assessee has not adopted the method of va....