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Shri Vijay Damodarakurup Chandran Versus CIT (A) XIX, Mumbai.

2016 (2) TMI 694 - ITAT MUMBAI

Treatment of income of Portfolio Management Fees (PMS) - STCG or business income - Held that:- Finding of AO for treating the income from PMS is income from business and not STGC, are erroneous and the same is set-aside, and we direct the AO to treat the income from PMS as income on account of STGC.

Disallowance of STCL u/s 94(7) - Held that:- As we have noticed that the assessee purchased mutual fund of three different companies on 12.04.2004 and sold on 14.12.2004 on a total loss of .....

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he cases and the same are in respect of Assessment Year (AY) 2005-06 & 2006-07 against the order of CIT(A)-30, Mumbai dated 29.08.2008 & 23.01.2009 respectively, the grounds of appeal raised in ITA No. 6546/Mum/2010 are as under: On the basis of the facts and circumstances of the case and in law the learned CIT(Appeals) has erred in confirming that - 1. The income from short-term capital gains of ₹ 7,31,715/- is income from business. 2. In concluding that I have carried out share t .....

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7) of the income tax by applying dividend stripping provisions without ascertaining the motive as to tax avoidance. 7. In not allowing loss of ₹ 3489 from Mutual fund to be set off against the Income. With the permission of your honor, the appellant may plead any additional ground /grounds during the course of appeal. 2. First we shall take up appeal No. 6546/2010. The brief fact of the case are that assessee who is an individual, filed his return of income for AY-2005-06 on 25.08.2005 dec .....

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apital Gain (STCG) as claimed by assessee and initiated penalty proceeding in the assessment order dated 14.12.2007 against which the appeal was filed before the CIT(A). 3. The ld. CIT(A) while disposing of the appeal of the assessee, confirmed the addition by treating it as Business Income and further confirmed the addition of ₹ 41,131/-, however, the ground of dividend of ₹ 3914/- received from co-operative bank was restored to the file of AO for verification, if the same is includ .....

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9.2004 on the sale of share in securities of ₹ 7,31,715/- and remaining ₹ 3,51,032/- for the remainder of financial year at 10% u/s 111A and thus claimed exemption u/s 10(36) for ₹ 3,48,117/-, the assessee further disclosed LTCG of ₹ 2,24,591/- prior to 01.10.2004 and capital loss of ₹ 26,672/- for the period from 01.10.2004 to 31.03.2005 and the AO asked the assessee on the issue of taxability of capital gain as Business Income for which the assessee made response .....

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,58,260/- and sold for ₹ 93,34,115/- to accrue STCG of ₹ 7,31,715/- and after deducting Portfolio Management Fees (PMS) the total transaction entered into for occurring STCG are 448/- out of which the period of holding into 266 instances is less than 4 month and 97 instances is within a period of 1 month in another 188 instances it is within the period of 3 months and that selling of share by assessee was to maximise profit on the amount of money kept at the disposal of institution. .....

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which was disallowed u/s 94(7) of the Act. 8. The ld. CIT(A) while dealing with the ground has observed that the assessee is carried out share trading activity through PMS and invested with ASK Raymond James Securities Pvt. Ltd. and Fortis Securities Ltd. and the CIT(A) observed that STCG disclosing the return of income pertains to the buying and selling of share under PMS scheme. The PMS expert professional are involved who are continuously engaged in the trading of share to maximise profits o .....

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,25,00,00/- in the form of share with Fortis Securities Ltd. is concerned is purely investment under PMS with the objective to best return in the form of dividend or capital appreciation and having no expertise and the investment is handled by PMS operators and further argued that AO do not raised the issue of treating STCG as business income during the assessment proceedings. The AR of the assessee placed on record the copy of order of CIT(A) in respect of AY-2007-08 wherein the CIT(A) dealing .....

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igh Court in Redial International Vs Asst. CIT, reported viz (2014) 367 ITR 1, held : Investment of share under portfolio management agreement and share held for long time , profit from such sale of shares are not assessable as business income. 12. Coordinate bench of ITAT Mumbai in ITA No. 5382/M/2009, titled as ITO Vs Radha Birju Patel also taken a similar view by treating the same as STGC instead if business income, hence we are also of the opinion that the finding of AO for treating the inco .....

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operative bank and the income does not fall under the purview of section 10(33) and the same subject to tax, further, the assessee purchased a mutual fund of Birla MIP on 12.04.2004 for ₹ 5,00,000/- and sold the same on 14.12.2004 for ₹ 4,86,702/- and claimed loss of ₹ 16,298/- under the head Capital Gain . On the other hand, the assessee received a dividend of ₹ 24,350/- and the loss which was not allowed as dividend income was more than the loss occurred. The AO further .....

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ed dividend of ₹ 17,827/- and on the same ratio not allowed the loss of ₹ 11,059/-, thus a total of ₹ 41,431/- was added to the total income of the assessee under the head STCG. 14. The CIT(A) while dealing with this issue has observed that AO applied the provision correctly on dividend stripping by discussing all the issues in detail and confirmed the addition. 15. AR of the assessee argued that assessee had invested an amount of ₹ 5,00,000/- each in three mutual fund wi .....

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scheme, the dividend is declared by the fund management and is not known at the time of investment. 16. The CIT(A) while dealing with this ground observed as under: This issue has been dealt by AO in para-4 of assessment order which is reproduced as under: i) On verification of the records, it is found that the assessee has purchased mutual funds of Birla MIP on 12.04.2004 for Ps.5,00,000/- and has sold the same on 14.12.2004 for ₹ 4,86,702/- The assessee has claimed the loss of Ps. 16,29 .....

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in 12-04-2004 for ₹ 5,00,000/- and has sold the same on 14-12-2004 for ₹ 4,85,926/- The assessee has claimed the loss of Ps. 14,074/- on sale of mutual funds under the head "Capital Gains". But it is found that assessee has received dividend of ₹ 21,455/- As per provisions of section 94(7) this loss is not allowed as the dividend earned is more than the loss incurred oi l of mutual fund units. Hence the loss claimed of ₹ 14,074/- is disallowed and added back to .....

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s more than the loss incurred on sale of mutual fund units. Hence the loss claimed of ₹ 11,059/- is disallowed and added back to the income of the assessee under the head "Capital Gains". 17. We have carefully examined the order of AO and the CIT(A) and we have to see if section 94(7) of I.T. Act is applicable or not, we have noticed that the assessee purchased mutual fund of three different companies on 12.04.2004 and sold on 14.12.2004 on a total loss of ₹ 41,431/-, thus, .....

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