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Shri Kamal Shiv Kumar and Smt. Lea Ann Kumar Versus The Dy. D.I.T., New Delhi

Income accrued to the assessee from sale of shares - Short term capital gains or business income - Held that:- The AO and the ld. DR have not controverted this fact that the assessee made investments in shares/securities in ING Vyasa Bank to act as portfolio investment banker and no investment has been made directly by the assessee in the nature of business adventure in the nature of trade. We may also point out that as per the ratio of the decision of the Hon'ble High Court of Delhi in the case .....

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rade. - Lastly, their Lordships held that the block of transactions entered into 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 capi .....

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dent : 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 04.10.2012 respectively for AY 2008-09. Since the appeals pertain to same group of assessees and were heard together, we are disposing them off by this common order for the sake of convenience and brevity. 2. Both the assessees have raised similar solitary .....

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3/- as business income by completely ignoring the facts and documents placed on record. 4. The ld. AR drew our attention towards pages 24 and 25 and submitted that the average holding period of shares for the entire portfolio is 6.86 months, i.e. 205 days and, therefore, the intention of the assessee was to make investment and to earn capital gains and there was no element of business income therefrom. The ld. AR, elaborating the facts of the case, submitted that the total numbers of transaction .....

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rect Taxes and submitted that where the assessee itself, irrespective of the period of holding the listed shares and securities opts to treat them as stock in trade, the income arising from transfer from such shares/securities would be treated as its business income. The ld. AR placing reliance on the decision of the ITAT, Special Bench, Delhi in the case of Suraj Overseas (P) Ltd dated 14.10.2015 submitted that referring to the decision of the Hon'ble Jurisdictional High Court of Delhi in t .....

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n. 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 .....

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26,63,803/- as short term capital gain from investment in shares /mutual funds. The CIT(A) further noted that the appellant is a citizen of USA and a person of Indian origin working as IT consultant in USA and for making investment in shares in India, the assessee gave power of attorney to ING Vyasa Bank to act as portfolio investment banker. The ld. AR contended that therefore, in view of the proposition laid down by the Hon'ble High Court of Delhi in the case of Radials International [sup .....

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curities are stock in trade or investments, irrespective of the period of holding of shares/securities. As per para 3 of this Circular, it is prerogative of the assessee to treat the listed shares and securities as stock in trade as investment and if the assessee is treating the same as stock in trade, then the income arising from transfer from such shares/securities has to be treated as long term or short term capital gains. In the present case, admittedly, and undisputedly, the assessee is a n .....

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funds and investment of shares has been made under portfolio management agreement and agreement is not disclosing intention of investor to make profit and shares have been held for long time, then profit from sale of shares 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 a .....

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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 the portfolio manager provides no warranty as to the appreciation of the .....

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any guarantee that the securities invested in will appreciate nor is the portfolio manager responsible to the client for any loss from the deficiency of value of the securities. Thus, the PMS agreement at best, embodies the intention to appoint an agent with limited liability, who will invest on behalf of the investor and nothing more. 10. The Ld. ITAT reasons that "at the time of deposit of amount, the intention of the assessee was to maximize the profit" because first, while the asse .....

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o manager enters into transactions on behalf of his clients to maximize profits. From this, the ITAT infers that "it cannot be said that the assessee had invested money under PMS with intention to hold shares as investment". The reasoning of the Ld. ITAT does not find favour with this Court for three reasons. 11. First, the three reasons provided by the ITAT merely convey that intention to hold shares as investment cannot be inferred from the agreement. However, the fact that no infere .....

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urchase 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 tran .....

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not be ascertained at the time of depositing the money in the investment, because the actual sale and purchase of securities happens at the hands of the portfolio manager, a mere agent. 9. Reverting to the facts of the case in hand, it is not contested by the AO or the ld. DR that the source of the funds of the assessee were its own surplus funds and thus we may safely presume that the assessee made investments from his own surplus funds. The AO and the ld. DR have not controverted this fact tha .....

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