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Udayan Finstock Pvt. Ltd. Versus ACIT, Circle-4, Baroda

Sale of shares as “business income” as against “short term capital gains” - Held that:- Investment through Portfolio Management Service, which may deal with the shares of the assessee so as to derive maximum profits cannot be termed as business of the assessee but would only be a case of a more careful and prudent mode of investment, which has been done by the assessee. Funds which lie with the assessee can always be invested (for earning higher returns) in the shares either directly or through .....

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5 (5) TMI 616 - KARNATAKA HIGH COURT ] - Decided in favour of assessee. - ITA No. 849/Ahd/2012 - Dated:- 8-4-2016 - Shri Anil Chaturvedi, A. M. And Shri Kul Bharat, J.M. For the Appellant : Shri S. N. Soparkar, A.R. For the Respondent : Smt. Sonia Kumar, Sr. D.R. ORDER Per Anil Chaturvedi, Accountant Member This appeal filed by assessee is against the order of CIT(A)-III, Baroda, dated 03.02.2012 for the assessment year 2008-09. 2. The relevant facts as culled out from the materials on record ar .....

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ing Officer, Assessee carried the matter before the ld. CIT(A) who vide order dated 03.02.2012 (in Appeal No. CAB/III-188/10-11) dismissed the appeal of the assessee. Aggrieved by the order of ld. CIT(A), assessee is now in the appeal before us and has raised the following grounds: 1. Ld. CIT (A) erred in law and on facts in confirming action of AO in treating short term capital gain on sale of mutual funds / shares as business income of the appellant. Both the lower authorities failed to apprec .....

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s business income but also in presuming that the investment activity of the appellant was with a motive to earn profit and not dividend. Ld. CIT (A) thus erred in confirming action of AO in treating short term capital gain on investment in shares by the appellant as business income. Ld. CIT (A) ought to have allowed short term gain on sale of shares as claimed. 3. Ld. CIT (A) has grossly violated principles of Natural Justice in dismissing the claim of the appellant without considering material .....

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ant since short term capital gain through Portfolio Management Services (PMS) is treated as business income. 4. Before us, at the outset, ld. A.R. submitted that though the assessee has raised various grounds, but the solitary issue is as to whether the income earned by the assessee on sale of shares is to be considered as business income or capital gains. 5. During the course of assessment proceedings, A.O. noticed that assessee has earned short term capital gain on mutual fund of ₹ 51,03 .....

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by the order of A.O., assessee carried the matter before the ld. CIT(A) who dismissed the appeal of the assessee by holding as under: 4.3 I have considered the facts of the case, the observations of the AO and the submission made by the Id. Counsel, The AO has not made any analysis of the volume and frequency of transactions relating to shares and securities made by the appellant. Hence during the course of appellant proceedings, the appellants AR was asked to file the complete details of share .....

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S - HSBC Assets Management PMS Scheme 4.3.1 The appellant was asked to submit its accounts in the books of these PMS during the course of appellate proceedings, which has been submitted. So far as details relating to Kotak Securities are concerned, the activity in one scheme has started from 21.3.2007 and in the other scheme from 19.9.2007. But the breakup of equities in which the Investments have been made on different dates has not been provided. The details give only consolidated amounts on a .....

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the holding period of securities is not ascertainable. Thus, the appellant has failed to establish that the holding periods of securities are such that the profits on account of these transactions should be treated as capital gain. 4.3.2 In the case of HSBC Assets Management PMS scheme, the security wise details are available. The activity has started from 20.3.2007. From these details it is seen that frequent purchase and sale of shares are being done throughout the year on almost daily basis. .....

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idend and also to have easy liquidity. This activity is nothing but a business activity as no ingredient of investment activity is seen in this. 4.3.3 The only contention of the appellant is that since the purchase and sale of shares are done by the PMS, hence the resultant profit should be taxed as short term capital gain in its hand. This contention is not acceptable in view of the facts of this case. In Para 1.6.2 of its submission, the appellant has itself stated that PMS investor uses the P .....

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nt profit has to be treated business income. In the case of the appellant the transactions being conducted by PMS are in the nature of business, hence the AO has rightly taxed the resultant profit as business income. 4.3.4 The appellant has placed reliance on the decisions of Pune and Mumbai bench of ITAT to claim that the gain resulting from PMS must be taxed as short term capital gain only. But the latest decisions of other benches of ITAT have deferred from the decisions relied upon by the ap .....

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count of transactions done through PMS, have been held to be business income: i) [2012] 18 taxmann.com 20 (Delhi.), IN THE ITAT DELHI BENCH F , Radials International v. Assistant Commissioner of Income-tax, Circle 27(1), New Delhi. In this decision it has been held as follows: - ii) [2012] 17 taxmann.com 50 (Mum.), IN THE ITAT MUMBAI BENCH B , Mafatlal Fabrics (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle 1(2). - 4.3.5 In the present appeal, the appellant has claimed to have made invest .....

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vities have started at the same time and also the nature of transactions in volume and frequency is the same. The only logic being advanced by the appellant is that since the trading through PMS is not being done by it, hence the income from this is in the nature of capital gain. As already discussed, this logic is flawed and is not acceptable in view of the facts of this case. 4.3.6 The facts of the decisions mentioned above are similar to the facts of the appellant's case. Hence, relying u .....

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rchased during the financial year 2007-08 and sold have been treated as stock in trade by the appellant and the resultant income has been offered as business income. Under such circumstances, it is clear that these shares were also purchased with profit motive only and not to earn dividend income by making investments. Hence, the short term capital gain shown by the appellant from share trading is also held to be business income only and action of AO is upheld. 7. Aggrieved by the order of ld. C .....

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014] 367 ITR 1 (Del). He further submitted that on similar issue, Hon ble Karnataka High Court in the case of CIT vs. Kapur Investments (P.) Ltd. (2015) 61 taxmann.com 91 (Karnataka) has also followed the aforesaid decision of Hon ble Delhi High Court. He, therefore, submitted that in view of the aforesaid decisions of Hon ble High Courts, the investment made by the assessee through Portfolio Management Services (PMS) cannot be termed as business of the assessee. Ld. D.R. on the other hand suppo .....

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the case of Radials International (supra). We further find that the aforesaid decision of Hon ble Delhi High Court has been relied upon by the Hon ble Karnataka High Court in case of CIT vs. Kapur Investments (P.) Ltd. (supra) wherein the Hon ble High Court has held that investment through Portfolio Management Services (PMS) cannot be termed as business of the assessee. The relevant observations of Hon ble Karnataka High Court are as under: 10. As regards the first question that merely because o .....

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