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2015 (8) TMI 220 - ITAT MUMBAI

2015 (8) TMI 220 - ITAT MUMBAI - TMI - Gain from the sale of shares - capital gain OR business income. - assessee trust contends that the gain was capital gain exempt from tax u/s 10(38) - Held that:- As held by CIT(A) and not refuted by the Department, that the Trust is expressly prohibited from undertaking any business activity. Moreover, the avowed intention of the Trust has never been disproved and it is only that the alleged intention of carrying on business has been superimposed thereon. T .....

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ssessee’s claim holding pattern by way of diversification of asset was also not repelled by the A.O.; that the fact that a Portfolio Manager was appointed is synchronous with the intent and objective of the creation of the Trust; and that holding the shares of just one corporate entity not being desirable was a decision as per the prudence of the Trust.

We, for the above discussion, are ad idem with the ld. CIT(A), in arriving at the conclusion that from the sale of shares undertaken .....

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en taken into consideration by the ld. CIT(A), though this provision is clearly applicable to the facts of the case. Accordingly, the grievance of the assessee is found to be justified and is accepted as such. We hold that the profit on the transfer of shares is assessable as capital gain exempt u/s 10(38) of the Act. - Decided in favour of assessee. - I .T.A. No.5397, I .T.A. No. 5709/Mum/2013 - Dated:- 31-7-2015 - SHRI A.D. JAIN AND SHRI N.K. BILLAIYA, JJ. For The Assessee : Shri S.E. Dastur & .....

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he assessee, on the other hand, contends that the gain was capital gain exempt from tax u/s 10(38) of the I.T. Act. 2. There is a delay of 18 days in the filing of the assessee s appeal. As per the application seeking condonation of the delay, the assessee has contended in the accompanying affidavit (assessee s paper book pages 75-77), that since the main ground of appeal raised before the ld. CIT(A), challenging the assessment of the long term capital gain arising out of the sale of shares as b .....

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relied on the directions of the ld. CIT(A) and, consequently had sought to tax the long term capital gain; that a notice of demand u/s 156 of the Act was thus issued, demanding ₹ 2,12,75,180/- from the assessee; that it is pursuant to the aforesaid order passed by the A.O., giving effect to the ld. CIT(A) s order, that the assessee has become aggrieved and has had to prefer this appeal; and that it is due to this reason, that an inadvertent delay of 18 days has occurred in filing the appea .....

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of the ld. CIT(A), that the notice u/s 156 of the Act as above, was issued to the assessee. It is this, which has grievanced the assessee, necessitating the filing of the present appeal. The delay in question, i.e., the delay of 18 days in filing the appeal has occurred in the process. The ld. CIT(A) decided the assessee s appeal vide order dated 5-6-2013. The certified copy of this order was received by the assessee on 27-6-2013. The due date for filing the appeal was 26-8-2013. The A.O. s orde .....

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l thereagainst. Moreover, no malafide intention can be ascribed to the assessee, in view of the above facts, for delaying the filing of the appeal. 4. For the above reasons, finding that sufficient cause prevented the assessee from filing the appeal within time, the delay of 18 days, occurred in the filing of the assessee s appeal, is hereby condoned. 2. Coming to the merits of the case, the facts are that the assesse is a private Trust, having as its objective, to ensure an effective succession .....

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ct. The A.O. proposed to treat the gains as the business income of the assessee and the assessee was asked to explain as to why this should not be done, the assessee Trust having been created on 24.3.2010 and the shares, transferred to the D-Mat account on 26-3-2010, having been sold on 30-3-2010, i.e., within seven days of the formation of the Trust. The assessee submitted a written explanation dated 11-2-2013. This comprehensive letter stands reproduced in the impugned order, at pages 2 to 7 t .....

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ent, rather than a business. It was observed that since the objective behind creating the Trust was not to hold the shares as investment, but to sell them, the sale of the shares was clearly a business activity and the profit arisen out of the sale was undoubtedly a business income of the assessee. 4. By virtue of the impugned order, the ld. CIT(A) directed the A.O. to treat the gain arisen out of the purchase and sale of shares as a capital gain, rather than business income, as held by the A.O. .....

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he A.O., the conduct of the assessee clearly shows that the intention for the creation of the trust was not to hold the shares as investment, but to sell the same for earning profit; that the volume, frequency, continuity and regularity of transactions in a systematic manner for earning income through a Portfolio Manager, as correctly observed by the A.O., confirmed the activity as a business activity carried on by the assessee with the primary objective of maximizing the profit. 6. The ld. Coun .....

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ation of the Trust corpus, and the income generated therefrom, for the benefit and maintenance of the beneficiaries of the Trust and the ensuring of an effective intergenerational transfer of wealth, and such other objectives, as are specifically detailed in Schedule I of the Trust Deed. It has been contended that the shares in question were not purchased, as wrongly observed by the A.O., but were gifted and that it is a case of sale simplicitor of the corpus of the Trust; that the Trust was set .....

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lso perused the record. The issue is as to whether the ld. CIT(A) has correctly directed the A.O. to treat the gain in question as capital gain and not business income, as had been done by the A.O. The objects of the Trust, as visualized in its Trust Deed, are as follows (assessee s paper book, page 51):- The objects of the Trust primarily would be utilization of the Trust Corpus and the income generated thereon for the benefit and maintenance of the Beneficiaries to the Trust, ensuring effectiv .....

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rance premium or any other requirement which according to the Trustee is essential to ensure welfare and benefit of the Beneficiaries, etc. c. To provide for consolidation and ring fencing of assets. d. To undertake investment activities in immovable assets. e. To contribute to charitable initiatives, which are unanimously recommended by the Beneficiaries. It is evident from the above, that it is the utilization of the Trust corpus and the income arising therefrom, for the benefit of the childre .....

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to undertake investment activities, immovable assets. Clause (b) makes provision for consolidation and ring fencing of the assets. 9. Schedule II to the Trust Deed (assessee s paper book, pages 64-67), contain the list of the beneficiaries. Beneficial interest and distribution has been provided for during the life of the Settlors and post their demise, upon termination of the Trust. In Schedule III to the Trust Deed, (assessee s paper book, pages 68-71), the powers and duties of the Trust Deed a .....

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that the object of the Trust was to ensure an effective succession planning mechanism and intergenerational transfer of Trust corpus and income. It was stated that the long term capital gain of ₹ 14,69,09,814/-, earned on the sale of shares, was exempt from tax u/s 10(38) of the Act. It was stated that the Trust had received six lacs shares of M/s Tech Mahindra from the Settlor of the Trust, as the corpus of the Trust. This letter/certificate is placed at the assessee s paper book, page 1 .....

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us, it is evident that the shares were contributed by the Settlor of the Trust, towards the corpus of the Trust. 11. It is in the above factual background that it is to be seen whether the transfer or sale of shares by the assessee was in the nature of business/adventure in the nature of trade. As seen hereinabove, the six lacs shares of M/s Tech Mahindra Ltd. were contributed towards the corpus of the Trust. These shares were sold and exemption u/s 10(38) of the Act was claimed on the sale proc .....

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allotted to Shri Vineet Nayyar, Settlor of the Trust under the Employee Stock Option Plan (ESOP for short). The remaining 26,000 shares were purchased by the said Settlor, That is to say, that i.e., only about 4% shares were bought by the Settlor. Then, whereas under the ESOP, the shares were allotted on 26-3-2007, they were settled on the Trust only on 24-3-2010, which shows that it was not the intention of the Settlor to resell the shares immediately and thereby to make quick profit. Likewise, .....

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the corpus of the Trust, correctly noted by the ld. CIT(A), has never been doubted. Apropos the activity of sale of shares, in the facts, as discussed, we do not find it to be a business activity. The shares were treated as an investment all through and not as stock-in-trade. The balance sheet says so. No funds were borrowed for the activity. Only one sale/transfer took place during the year under consideration. The sales were affected for diversification of portfolio, so as to secure the inves .....

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ness activity, nor an adventure in the nature of trade. It has also been taken note of, correctly, by the ld. CIT(A) and not refuted by the Department, that the Trust is expressly prohibited from undertaking any business activity. Moreover, the avowed intention of the Trust as discussed hereinabove, has never been disproved and it is only that the alleged intention of carrying on business has been superimposed thereon. This has rightly been rectified by the ld. CIT(A) by making detailed observat .....

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