TMI Blog2011 (12) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal by the assessee for assessment year 2006-07 arises out of order of the ld. CIT (Appeals)-XXIV, New Delhi. 2. The grounds of appeal raised by the assessee are as follows :- "1. The order passed by the ld. CIT (Appeals), New Delhi under section 250(6) dismissing the appeal against the assessment order passed under section 143(3) of the Income-tax Act, 1961 by the ld. ACIT assessing the total income for assessment year 2006-07 at Rs. 3,37,26,993/- and raising the demand of Rs. 16,36,716/- is bad in law and needs to be quashed; 2. That ld. CIT (Appeals), New Delhi has erred in facts and law in holding transactions relating to sale/purchase of equity shares under Portfolio Management Scheme as an adventure in the nature of trade and not as a sale of investments; 3. That ld. CIT (Appeals), New Delhi has erred in facts and law in holding the Long Term and Short Term gains/losses on sale of equity shares under Portfolio Management Scheme as business income and not under the head Capital Gains; 4. That ld. CIT (Appeals), New Delhi has erred in facts and law in holding the charging of tax on the gains/losses on sale of equity shares under Portfolio Management Scheme a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee as investments and not stock-in-trade. 4. This contention of the assessee was turned down by the assessing officer relying on CBDT Circular No. 4 dated 15/06/2007 and decision of Authority for Advance Ruling reported Fidelity Northstar Fund, In re [2007] 288 ITR 641/158 Taxman 372 (AAR - New Delhi). He noted that the assessee has purchased and sold shares with the motive of earning profit. The holding period of shares during the relevant previous year ranged from two days to a few months at the most. It was evident that the object of the investment in these shares was not to derive income by way of dividend, but to earn profit through sale as in almost all the transactions the share bought were sold in short period of time. The assessing officer thereafter examined the nature of Portfolio Management Scheme and duties of portfolio manager. He noted that portfolio manager proceeds systematically to manage on an ongoing basis the collection of securities in his custody in tune with market variations to optimize in the return of process. He carries out regular follow-up trading operations, selling securities on hand and/or buying new items of security based on the sent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and share transaction tax etc. as business expenditure as it appears that the same have been debited in the assessee's account by the broker/service provider. The result thereof has been shown as sale consideration. All transactions of purchases and sale of shares were undertaken by the assessee through professional portfolio managers under PMS. The investment in equity shares was started in assessment year 2005-06, which was accepted under scrutiny and assessment year 2006-07 was the second year of trading. The investment in mutual fund had been considered as capital investment and income derived there-from has been assessed as capital gain during the previous years as well as during relevant year. Only the nature of income derived from sale/purchase of equity shares has been disputed by the assessing officer. 6. As regards the claim of the assessee that income derived from share trading has been assessed as capital gains in the preceding year, ld CIT(A) had held that merely because the tax authorities had assessed it as capital gain in preceding year would not in any way operate as res-judicata to preclude from holding the same as business income in subsequent year. He place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such an intention was clearly discernible from the facts of the case. 7. Regarding the contention of the assessee that actual delivery was given at the time of purchase and sale and, therefore, the transactions were in the nature of investments. In this regard the ld. CIT (Appeals) observed that the assessee acquired shares and sold. They were not held as property which yielded to its owner an income or personal enjoyment merely by virtue of its ownership as the fee paid to the broker was more than the return on the property excluding return on account of trading of the property. Therefore, the shares were acquired with the object of a deal. A large number of shares were sold in short period. All these facts clearly showed that the assessee was engaged in dealing in shares. As regards the frequency of number of similar transactions, the ld. CIT (Appeals) observed that the assessee has entered into numerous and frequent transactions on regular basis to carry out his trading venture in shares. The ld. CIT (Appeals) therefore, came to the conclusion that the assessee was carrying on dealing in shares in a systematic and organized manner. Therefore, the conclusion of the assessing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hemes. Under PMS as per SEBI the term 'Portfolio' means a collection of securities owned by an investor. It represents the total holding of the securities belonging to any person. 'Portfolio Manager' means any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client [whether as a discretionary Portfolio Manager or otherwise] the management or administration of a portfolio securities or the funds of the client as the case may be. From the definition of 'Portfolio Manager' it is clear that portfolio manager acts like an agent who buys and sells shares on behalf of the Individual. The portfolio manager devotes sufficient time in reshuffling the shares on hand in line with changing dynamics of the market. It prevents holding of dormant or stocks of depreciating value. The PMS provides the skill and expertise to steer through the complex volatile and dynamic conditions of the market. A portfolio manager proceeds systematically to manage on an on going basis the collection of securities in his custody in tune with market variations to optimize his returns in the process. He carries out regular follow-up trading operations, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. We may also like to mention that there is difference in investment in mutual fund and PMS. In case of mutual fund the investor is allotted units for the amount invested by him in the mutual fund. The mutual fund manager purchases and sells shares frequently and makes profit/loss. The profit/loss so earned/incurred, increases/decreases the net asset value of the units. The units are also tradable depending upon the lock in period and terms of the fund. However, in the case of PMS the amount is invested under the scheme. No units or instruments are issued, which can be traded. The portfolio manager undertakes trading in shares to maximize the profits on behalf of the investor. Therefore, the investment in PMS cannot be equated with that of investment in units of mutual fund. 12. Further, in case of an assessee, who purchases shares from the market and sells frequently after getting them routed through the DEMAT account. Such transactions will be in the nature of trading activity and the resultant profit will be assessed as business profits. Merely because the shares are credited to DEMAT account at the time of purchase and debited at the time of sale would not make the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the year have not been recorded in the books of accounts as investment nor it is feasible to record as the details were not available with the assessee and the assessee has no control or say as to when and the type of shares or the period of holding of the shares. Therefore, in our considered opinion, the transactions are in the nature of business. The decision relied upon by the assessee in the case of Gopal Purohit (supra) is not applicable to the facts of the assessee's case. 14. It is also a settled law that the principle of res-judicata is not applicable to income tax proceedings. Hence, the assessing officer was not debarred in taking a different view if the earlier view was not in accordance with law. It is also a settled law that the mistake committed earlier should not be perpetuated. Hon'ble Supreme Court in the case of Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120/22 Taxman 49 has held mistake committed earlier should be rectified. It should not be perpetuated. Hon'ble Supreme Court summarized their views at page 124 in following words:- " ..To perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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