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2016 (10) TMI 422

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..... o 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 and if the transactions entered into by the assessee are through portfolio banker are not adventure in the nature of trade, then the same should be treated as investment and income accrued therefrom has to be taxed either as long term or short term capital gains. Accordingly, the sole ground raised by the assessee is allowed and the AO is directed to treat the income accrued to the assessee from sale of shares through portfolio manager as income from long term /short term capital gain. - ITA No. 5362/Del/2012, ITA No. 6067/Del/2012 - - - Dated:- 26-8-2016 - SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER, AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For The Appellant : Shri A.B. Dial, Sr. Adv, Ms. Ananya Datta Majumdar, Adv, Shri Kamal Anand, Adv For The Respondent : Shri Yogesh Kumar Sharma, Sr. DR ORDER PER CHANDRA MOHAN GARG, JM:- Both the above captioned appeals have been fi led by the assessee and his wife directed against the separate orders of the CIT(A)-XXIX, New Delhi, dated 03/08/2012 and 04.10.20 .....

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..... venture in the nature of trade, purchase and shares with own funds and investment of shares under portfolio management agreement is not disclosing intention to make profit and if shares are held for long time, then profit from sale of shares is not assessable as business income and the same should be termed as either long term capital gain or short term capital gain. Therefore, the ld. AR prayed that the conclusion of the authorities below may kindly be dismissed and the AO may be directed to treat the income as short term capital gain instead of business income . 6. Replying to the above, the ld. DR drew our attention towards para 2.2 of the impugned order and submitted that the action of the AO was quite correct and justified in treating the income of the assessee as business income because the intention of the assessee was to earn profit from purchase and sale of shares as adventure in the nature of trade. However, the ld. DR could not controvert this situation that the Circular No. 6/2016 dated 29th February 2016 of the Central Board of Direct Taxes supports the case of the assessee. 7. In rejoinder to the above contention of the ld. DR, the ld. AR submitted that in pa .....

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..... es is not assessable as business income. The relevant operative part of this order in paras 8 to 12 at pages 8 to 11 reads as under: 8. This Court has considered the submissions of both parties. At the outset, it would be pertinent to note some of the relevant terms of the PMS agreement. Clauses 7(b) and 7 (c) of the PMS agreement between Radial and Kotak Securities Ltd. indicate that only in a discretionary portfolio, unlike in a non-discretionary portfolio, the manager has full discretion to invest in respect of the client's account in any type of security, and make such changes in the investments as he deems fit. Clause 18 (b) of the agreement states that the manager shall not be responsible for any loss or expenses resulting to one person as client, from the insufficient or deficiency of value of or title to any property or security acquired or taken on behalf of the client . While the agreement entered into between Radial and Reliance appears to be a discretionary portfolio, as indicated in clause 9 (by which client unconditionally and irrevocably grants power of attorney to the portfolio manager to make decisions on the investments), clause 10 states that th .....

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..... is an ordinary investor realising his holding; but it would be revenue, if he deals with them as an adventure in the nature of trade. The fact that the original purchase was made with the intention to resell if an enhanced price could be obtained is by itself not enough but, in conjunction with the conduct of the assessee and other circumstances, it may point to the trading character of the transaction. For instance, an assessee may invest his capital in shares with the intention to re-sell them if in future their sale may bring in higher price. Such an investment, though motivated by a possibility of enhanced value, does not render the investment a transaction in the nature of trade. 12. As indicated here, while a transaction may be motivated by the intention to resell at an enhanced value, it would not be possible to evaluate whether the transaction was actually in the nature of trade, until the securities are actually resold. Moreover, in a discretionary PMS, it becomes all the more relevant and necessary to evaluate the intention of the assessee in conjunction with his conduct and other circumstances, since the intention of the assessee cannot be ascertained at the time .....

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