TaxTMI 
TaxTMI 
2017 (5) TMI 1666
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....8223; treated as „Business Income‟ Rs.1,62,13,057/-. Aggrieved by the assessment order dated 31-12-2010, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) upheld the findings of Assessing Officer qua disallowance u/s. 14A of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). In respect of treating of Capital Gains from PMS activities as „Business Income‟, the First Appellate Authority by placing reliance on the decision of Tribunal in the case of KRA Holding & Trading P. Ltd. Vs. Dy. Commissioner of Income Tax in ITA No. 500/PN/2008 for assessment year 2004-05 decided on 31-05-2011 and in the case of Shri Apoorva Patni Vs. Addl. Commissioner of Income Tax in ITA No. 239/PN/2011 for assessment year 2006-07 decided on 21-06-2012 accepted the contentions of assessee. Now, the assessee in appeal has assailed the confirming of disallowance u/s. 14A of the Act and the Department in its appeal has impugned the findings of Commissioner of Income Tax (Appeals) in allowing income earned from PMS as Capital Gains. 3. Shri C.H. Naniwadekar appearing on behalf of the assessee submitt....
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....s) has accepted the contentions of assessee by following the order of Tribunal in the case of KRA Holding & Trading P. Ltd. Vs. Dy. Commissioner of Income Tax (supra) and in the case of ARA Trading & Investments P. Ltd. Vs. Dy. Commissioner of Income Tax in ITA No. 499/PN/2008 for assessment year 2004-05 decided on 31-05-2011. The assessee had availed discretionary Portfolio Management Services to manage its investment activities. Under such circumstances the discretion to invest in specific stock, the quantum of investment, time of investment /disinvestment is entirely of Portfolio Manager. 8. We find that similar issue had come up before the Co-ordinate Bench of the Tribunal in the case of Shri Apoorva Patni Vs. Addl. Commissioner of Income Tax (supra). The Tribunal in the said case after considering the decisions rendered in the cases of KRA Holding & Trading P. Ltd. Vs. Dy. Commissioner of Income Tax (supra) and ARA Trading & Investments P. Ltd. Vs. Dy. Commissioner of Income Tax (supra) held that the profit arising on investment carried out by the assessee through PMS does not result in gain assessable under the head business income. The relevant extract of the findings of ....
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....arry on business activity, the same was shown under the head Business income'. It also included speculative transaction and day trading, whereas no such transactions were entered into by the PMS. The appellant has also emphasized that i was prudent investment activity of the PMS to buy a target quantity of a particular scrip in small lots for averaging purpose; and it should not be treated as frequent and repetitive transactions. The appellant then goes on to cite the decision of the ITAT, Mumbai Bench in the case of Janak S. Rangwala, 11 SOT 627 in which it was observed that mere volume and magnitude of transaction will not alter the nature of transaction if the intention was to hold the shares as investment and not as stock in trade. Similar explanation has been given once again by the letter dt 14.6.2010 by the appellant in response to the AO's report." We have examined the position, in particular the analysis made out by the Commissioner of Income-tax (Appeals) in the extracted portion with reference to the statement and transactions which have been placed n the Paper Book filed before us. In our considered opinion, the inference drawn out by the Commissioner o....
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.... AO, and the date of sale has been mentioned as 17.10.2005 and 23.1.2006 in the case of two different PMS's. This instance points out to a wrong conclusion by the AO as here the shares have been sold after those have become ex-dividend. Coming to two more instances pointed out by the AO in this chart, shares of Nalco have been sold on 30.3.2006 which was after the ex-dividend date of 23.9.2005; and the sale of ONGC shares by DSPML was made on 30.12.2005, which also is after the ex-dividend date of 1.9.2005. It is, therefore, clear that the instances pointed out by the AO did not support this argument, except in the case of two or three instances, where the sale has been made just before the shares becoming ex-dividend; and there was a possibility that the dividend would have been declared and known to the PMS. However, such instances are few and far between; and it cannot lead to a conclusion of indulging in a business activity. Moreover, as has been explained elsewhere by the appellant, such day to day decisions regarding purchase and sale of particular scrips are not that of the appellant, but of the portfolio manager since the appellant's case was that of engagement of D....
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....ich case there could be multiple repetitions within a few days; or even during the same day." 14. In this context, we find that the Assessing Officer has treated even the gain on investments held for more than 12 months also as business income. Quite clearly as per the statement in respect of gains and investment in shares through PMS provider placed at page 73 of the Paper Book, the holding period goes upto even 18 months before the investment was liquidated. Be that as it may, the factor of period of holding cannot be ascribed to the assessee, inasmuch as it has no control on such decision making in a Discretionary PMS arrangement, because such decisions are taken by the PMS provider as we have observed earlier. In any case, in so far as the present case is concerned, the Investment Objective of the assessee mandated to the PMS provider was to achieve growth prospects and the actuality of transactions carried out by the PMS provider in order to achieve the stated Investment objective of the assessee cannot be made a basis to charge the assessee of having a different objective. Considering the aforesaid matters, we, therefore, are of the view that the objections made out ....