TMI Blog2018 (6) TMI 1275X X X X Extracts X X X X X X X X Extracts X X X X ..... nting the value of securities and the same are shown under the head ‘Capital Gains’. The pattern of investment is one and the same in this year also. Assessing Officer disturbed the assessee’s claim by treating the said income as taxable under the head ‘Profits and Gains from Business or Profession’. On similar facts, relying on the Pune Bench decision in the case of Shri Apoorva Patni Vs. Addl.CIT [2012 (9) TMI 828 - ITAT, PUNE], the CIT(A) granted relief to the assessee by holding that when the income earned by the assessee out of investments in securities using specialized professional services of PMS – Kotak Securities Ltd., such income becomes taxable under the head ‘Capital Gains’ and the same should not be construed as ‘Business Income’. - Decided against revenue - ITA Nos.1296 to 1300/PUN/2017 - - - Dated:- 20-6-2018 - SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri C.H. Naniwadekar For The Revenue : Shri Ajay Modi ORDER PER BENCH : There are 5 appeals filed by the Revenue under consideration for the A.Yrs. 2008-09 to 2012-13. They are filed against the consolidated order of CIT(A)-3, Pune, dated 16-01-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT Vs. Gopal Purohit in ITA No.1121 of 2009, dated 06.01.2010. Further, the learned Counsel for assessee submitted the issue stands covered in favour of assessee by the order of Pune Bench of Tribunal in the case of Shri Apoorva Patni Vs. Addl.CIT in ITA No.239/PN/2011, relating to assessment year 2006-07, order dated 21.06.2012. 7. We have heard both the parties on the issue whether the gains earned by assessee in sale of shares and securities involving Port Folio Management Services under the head Business Income and we also perused the order of Pune Bench of Tribunal in the case of Shri Apoorva Patni Vs. Addl.CIT (supra). For the sake of completeness, we proceed to extract the relevant paragraphs of the order of CIT(A) as well as from the order of Tribunal. 8. The relevant paragraphs of CIT(A) are as under:- 5. GROUND NOs. 1 to 4 :- The contention raised in these grounds revolve around single issue of treatment of capital gains as business income. 5.1 OBSERVATION OF THE AO:- During the assessment proceedings the cases for A.Ys. 2008-09 to 2011-12 were reopened by the AO as it was observed that the assessee had transacted in shares mutual funds thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om F.Y.10.11 onwards the shares were held for a considerable period of time as the assessee was interested in long term growth of her funds. From F.Y.10.11, the short-term dealings were reduced considerably. It may be appreciated that most of the shares sold in F.Y. 2007-08 i.e. A.Y.2008-09 were held since 1981. It was in F.Y.2008-09 i.e. A.Y.2009-10, the assessee, for the first time, engaged the services of PMS Manager. It is worthwhile to note that in that year, the assessment was made u/s 143(3) and the Assessing Officer has accepted the income as Capital Gains. As held by Hon. Bombay High Court in Gopal Purohit's case (copy enclosed), there has to be consistency in these matters. Applying the ratio of the aforesaid decisions, the aforesaid income has to be treated under Capital Gains. During the year, the assessee has shown long term capital gain of which is claimed as set off against and up to the amount of loss carried forward from earlier years. The assessee also shown the exempt capital gains from transfer of equity shares in a company. The assessee submitted chart with the return indicating that not all the shares are held for less than 1 year. As such, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income from capital gains of ₹ 91,733/- and ₹ 2,56,280/- on account of long term capital gains and short term capital gains respectively as business income, denying appellant's claim of the same as capital gains income. The AO found that the appellant had investment in shares/ units / mutual funds through Kotak Securities Ltd., Bangalore, a Port Folio Management Services (PMS). The chart relating to such investment revealed that the appellant had transacted heavily in shares and mutual fund through PMS, which according to the AO, was made with an intention to maximize the profit by resorting to frequent trading rather than to whole shares for a long duration. On query raise as to why the same should not be treated as business income, the appellant vide letter dated 01/03/2016 submitted that the appellant is a single lady (divorcee) and has one daughter and was a salaried person and never engaged any sort of business to bring up her daughter, in order to maximize the wealth, she invested certain funds with a PMS as she was ignorant in investments. The appellant also contended before the AO that the funds were invested by the PMS Manager in equity shares initially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and quantity of article purchased, nature of the operation involved. The AO, accordingly, taxed the income of ₹ 37,54,943/- from sale of shares as business income in detailed in para 8 of the assessment order. (underline provided for emphasis) 5.3.1 The appellant, during assessment proceedings, in the submission dated 10/01/2017, the appellant more or less made identical submission. It was contended that most of the shares sold in F.Y. 2007-08 i.e. A.Y.2008-09 were held since 1981. It was in F.Y.2008-09 i.e. A.Y.2009-10, the assessee, for the first time, engaged the services of PMS Manager. It is worthwhile to note that in that year, the assessment was made u/s 143(3) and the Assessing Officer has accepted the income as Capital Gains. The appellant referred to the decision of Hon. Bombay High Court in the case of Commissioner of Income Tax-25, Mumbai Vs. Gopal Purohit, ITA No. 1121 of 2009 dated 06/01/2010, wherein it was held that there has to be a consistency in these matters and submitted that on the ratio of the aforesaid decisions, the aforesaid income has to be treated under Capital Gains. It was further contended that, the assessee has shown long term capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erences of the cases cited before him by the appellant during assessment proceedings contending that the cases 'are completely different from the facts of the case laws submitted by the assessee in support her claim. Even, the AO did not bother to mention the citation made by the appellant'. It is also worthwhile to mention that no discussion as to the dates of purchase, sale, profit earn and holding of shares, though submitted by the appellant during assessment proceedings, was made in of the aforesaid assessment years. Merely because of certain constrains, shares were sold through PMS Manager, the same cannot be treated as business income, when a number of decisions had set the tests for considering such transactions whether business or capital gains income. I also find that the AO had treated the sale of units in mutual funds at the same parlance as the sale in equity shares, utterly disregarding the fact that the mutual fund units were not quoted on the stock exchange and hence could not be traded for earning business income. The appellant contention in this regard is required to be subscribed to. Considering all the aforesaid facts I am inclined to accept the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apacity. Having regard to the operating mechanics of a Discretionary Portfolio Management agreement, which is in question before us, the relationship between the PMS provider and the assessee cannot be contemplated as that of a mere agent as understood in the common parlance. All decisions regarding investments, its timings etc, are made by the PMS provider and not by the investor per se, though the resultant gain/loss is on account of the assessee investor. In the present case, we may also notice that at the time of engaging the PMS provider, the assessee mandated his Investment Objective which clearly indicates the intention of the assessee behind the parking of funds with the PMS provider. The Investment Objective mandated by the assessee and which forms part of the agreement with the PMS provider has been placed in the Paper Book at page 159 in the case of agreement with DSP Merrill Lynch Fund Managers Ltd. We are tempted to reproduce the same, which is as under, The objective is to achieve reasonable returns over the long term by investing in a focused portfolio of 15-20 stocks with good growth prospects, across various sectors. We do not want exposure to any company in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made in the same scrip, which increases the frequency. It was emphasised that the total sales turnover in the investments made through PMS during the year was 19.06 crores involving 62 scrips, whereas, in the share trading business separately shown by the appellant, the sales turnover was 73.21 crores involving 76 scrips. This shows that in the share trading business activity, the turnover was almost 4 times higher even though the number of scrips were only marginally high. It was emphasized that in the trading activity even though the shares involved were proportionately much less as compared to the turnover, since the intention was to carry on business activity, the same was shown under the head Business income . It also included speculative transaction and day trading, whereas no such transactions were entered into by the PMS. The appellant has also emphasized that i was prudent investment activity of the PMS to buy a target quantity of a particular scrip in small lots for averaging purpose; and it should not be treated as frequent and repetitive transactions. The appellant then goes on to cite the decision of the ITAT, Mumbai Bench in the case of Janak S. Rangwala, 11 SOT 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares became ex-dividend. It does not necessarily follow that the dividend was already declared in this case and still the appellant sold the same before the shares becoming ex-dividend. Similarly, in the case of ACC, two particular sale dates mentioned when the scrip was transacted by DSPML, were 24.3.2005 and 16.11.05, whereas the ex-dividend date has been mentioned as 29.3.2006. It cannot therefore be said that the appellant had knowingly sold the shares after declaration of the dividend before it became ex-dividend. Again in respect of shares of Jet Airways, the ex-dividend date has been mentioned as 14.9.2005 by the AO, and the date of sale has been mentioned as 17.10.2005 and 23.1.2006 in the case of two different PMS s. This instance points out to a wrong conclusion by the AO as here the shares have been sold after those have become ex-dividend. Coming to two more instances pointed out by the AO in this chart, shares of Nalco have been sold on 30.3.2006 which was after the ex-dividend date of 23.9.2005; and the sale of ONGC shares by DSPML was made on 30.12.2005, which also is after the ex-dividend date of 1.9.2005. It is, therefore, clear that the instances pointed out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares held for a long time, even upto 18 months, by the PMS, and substantial amount of long term capital gain of ₹ 83,09,187/- was also shown. In fact, the AO has treated even this LTCG of ₹ 83,09,187/- as Business income, which cannot be justified. On the other hand, depending on the market conditions, vis-a-vis the analysis of the fundamentals of particular scrip, decision may have to be taken to exit at a particular point of time, and to re-enter after a few months on change of fundamentals. This does not mean that it was in the nature of repeated trading activities in the same commodity; in which case there could be multiple repetitions within a few days; or even during the same day. 14. In this context, we find that the Assessing Officer has treated even the gain on investments held for more than 12 months also as business income. Quite clearly as per the statement in respect of gains and investment in shares through PMS provider placed at page 73 of the Paper Book, the holding period goes upto even 18 months before the investment was liquidated. Be that as it may, the factor of period of holding cannot be ascribed to the assessee, inasmuch as it has no contr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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