TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 385
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....sident outside India' as per section 2(w) of the Foreign Exchange Management Act, 1999 (ie erstwhile section 2(q) of the Foreign Exchange Regulation Act, 1973) without appreciating the facts of the case; 3. erred in denying the exemption claimed by the Appellant under section 10(4)(ii) of the Income-tax Act, 1961 ('Act') and adding the interest earned on the NRE Accounts to the total income of the Appellant; Capital Gains on sale of shares and mutual funds under Portfolio Management Scheme ('PMS') 4. erred in treating the investment in shares and mutual funds made by the Appellant through a PMS as an 'adventure in the nature of trade', thereby holding it to be business income; 5. erred in not appreciating the fact that the Appellant was in full time employment first with Sun Life Assurance Company of Canada and later on with Metropolian Life Insurance Company of USA during the financial year 2007-08, and therefore the Appellant can never be said to be engaged in the business of dealing in shares; 6. erred in not taking into consideration that the Appellant like any other salaried individual, had invested his surplus from salary in shares and securiti....
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....his order. 7. Per contra, the ld. DR could not controvert the factual submissions of the assessee and could not controvert that the order of Ld. CIT(A) of A.Y. 2009-10 was accepted by revenue and no appeal was filed against the said order before the Tribunal. 8. We have considered the submissions made by both the sides and gone through the orders passed by lower authorities. It is noted that section 10(4)(ii) provides that interest income earned on NRE account shall be exempt under certain situations. The relevant part of provisions is reproduced below: "10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included - (1) to (3) xxxxxxxxxxxxxxxxxxxxxx (4) (i) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (ii) in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with (the Foreign Exchange Management Act, 1999], and the rules made thereunder: Provided that such individual is a person resident outside India as defined in clause (q) of section 2 of the said Act or is a person who has been p....
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....idiary of M/s Sunlife Assurance Co of Canada. It has been further held that assessee was a person not resident in India as per provisions of FEMA. It has been further held by Ld. CIT(A) that the assessee satisfied both the conditions of section 10(4)(ii) of the Act. It is further noted by us that in the year before us the assessment was done ex-parte and addition was made by the Ld. CIT(A) by way of enhancement. It is further noted that facts have not been properly analysed by Ld. CIT(A) in the impugned year. On the other hand, in the assessment year 2009-10 proper factual analysis were made by Ld.CIT(A) and his order has been accepted by the revenue as per the facts narrated before us by the ld. Counsel. Under these circumstances, we find that the interest income of the assessee is exempt u/s 10(4)(ii) of the Act and, therefore, addition made by the Ld.CIT(A) with regard to interest earned in NRE account is directed to be deleted. These grounds are allowed. 10. Grounds 4 to 7 deal with action of the Ld. CIT(A) in treating the capital gain on sale of shares in mutual fund under Portfolio Management Scheme (PMS, in short) as an adventure in the nature of trade and thereby holding i....
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....ager. Our attention was drawn to various clauses of the agreement to emphasise upon the fact that the whole investment objective of the assessee was to maximise the value of investments of the assessee. It was further shown to us that the Portfolio Manager was appointed for "investment management". It is further noted that the assessee had made the investment using his own funds and admittedly no borrowed funds were used by the assessee for making aforesaid investment. The only ground taken by the Ld. CIT(A) to treat this as an adventure in the nature of trade was that the assessee had more than 400 transactions and, therefore, assessee's dealings amounted to adventure in the nature of trade and resultant income was assessable under the head "Income from business". In reply to the same, the Ld. Counsel had produced before us, various details and documentary evidence to show that due to the use of electronic system of stock exchange the transaction was divided for similar quantities and, therefore, numbers of transactions appearing in the list were larger than the transaction actually entered into by the assessee. The instances were shown with respect to respective shares of Deccan ....
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....irectly or through professionally managed Portfolio Management Scheme and by doing so, it would not mean that the assessee is carrying on the business of investment in shares. Prof i ts f rom such investment , ei ther di rect ly or through professionally managed f irm, would st ill remain as prof its to be taxed as capital gains as the same will not change the nature of investment , which is in shares, and the law permits it to be taxed as capital gains and not as business income." 16. It is further noted by us that in the case of Radials International vs ACIT 367 ITR 1 (Del), Hon'ble Delhi High Court held that PMS agreement is merely an agreement for agency and could not be used to infer any intention to make profits; an intention of the assessee should be inferred holistically from conduct of the assessee and circumstances of the transactions. Similarly in the case of Radha Birji Patel (supra), the coordinate bench had taken a similar view wherein it was held that the transactions carried out under PMS are in the nature of transactions meant for maximisation of wealth rather than negotiating the profits on appreciation in value of shares. It was further held that real nature of....