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2014 (5) TMI 18 - HC - Income TaxTreatment of sale of equity shares under Portfolio management scheme Business income OR capital gains Held that:- The PMS Agreement was a mere agreement of agency and cannot be used to infer any intention to make profit - The intention of an assessee must be inferred holistically, from the conduct of the assessee, the circumstances of the transactions, and not just from the seeming motive at the time of depositing the money - Along with the intention of the assessee, other crucial factors like the substantial nature of the transactions, frequency, volume etc. must be taken into account to evaluate whether the transactions are adventure in the nature of trade - the block of transactions entered into by the portfolio manager must be tested against the principles laid down, in order to evaluate whether they are investments or adventures in the nature of trade. The source of funds of the assessee were its own surplus funds and not borrowed funds - about 71% of the total shares have been held for a period longer than 6 months, and have resulted in an accrual of about 81% of the total gains to the assessee - only 18% of the total shares are held for a period less than 90 days, resulting in the accrual of only 4% of the total profits - a large volume of the shares purchased were intended towards the end of investment the contention of the revenue that an average of 4-5 transactions were made daily, and that only eight transactions resulted in a holding period longer than one year cannot be accepted - the number of transactions per day, as determined by an average, cannot be an accurate reflection of the holding period/frequency of transactions - even if only a small number of transactions resulted in a holding for a period longer than a year, the number becomes irrelevant when it is clear that a significant volume of shares was sold/purchased in those transactions thus, the Tribunal had erred in holding the transactions to be income from business and profession Thus the order of the Tribunal is set aside Decided in favour of Assessee.
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