PRAVIN SHAH TRUST, MUMBAI V. ASST. C.I.T.,14(1), MUMBAI

ITA 2127/MUM/2008

• Counselvise Citation: 212719914 RSA 2008
• Duration Of Justice: 4 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 01-06-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 28-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: NITESH JOSHI
• Keywords: Business income
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J BENCH BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER) ITA NO.2127/M/2008: ASSESSMENT YEAR: 2004 -05 ITA NO.4124/M/2008: ASSESSMENT YEAR: 2005 -06 PRAVIN SHAH TRUST, FLAT NO.95B, MEGTHDOOT CHS LTD., 1 ST FLOOR, N.S.ROAD, MARINE DRIVE, MUMBAI-02 PA NO.AAATP0068P VS. DCIT 14(1), 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI-21 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY: SHRI D.S.SUNDER SINGH/SMT. KUSU M INGALE DATE OF HEARING: 10.5.2012 DATE OF PRONOUNCEMENT: 11.7.2012 ORDER PER BENCH: THE ASSESSEE-TRUST TRUST HAS FILED THESE TWO APPEAL S FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 AGAINST ORDER OF LD CIT(A) DATED 28.1.2008 & 28.4.2008, RESPECTIVELY. 2. SINCE IN BOTH APPEALS, EFFECTIVE GROUNDS OF APPE AL ARE IDENTICAL AND HAVE IDENTICAL FACTS, WE HEARD THESE APPEALS TOGETHER AND DECIDE THE SAME BY A COMMON ORDER AS HEREUNDER. 3. WE TAKE UP APPEAL FOR A.Y. 2004-05 I.E. ITA NO.2 127/M/2008 AS A LEAD APPEAL AND, THEREFORE, DISCUSS THE FACTS AND SAME WILL APPLY MU TATIS-MUTANDIS FOR THE APPEAL FOR THE NEXT AY AS FAR AS APPLICABILITY OF THE PROPOSITION AND LAW ARE CONCERNED. 2 ITA NO. 2127/MUM/2008 ITA NO. 4124/MUM/2008 PRAVIN SHAH TRUST, 4. IN THE APPEAL FOR THE ASSESSMENT YEAR 2004-05, M AIN ISSUE INVOLVED IS AS TO WHETHER CAPITAL GAIN OF RS.33,45,480/- ARISING OUT OF SALE OF SHARES, UNITS AND SECURITIES THROUGH PORTFOLIO MANAGEMENT SERVICES(PMS)IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS OR BUSINESS INCOME. THE GROUND OF APPEAL TAKEN BY A SSESSEE-TRUST READS AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITI ON CAPITAL GAINS ARISING OUT OF SALE OF SHARES, UNITS AND SECURITIES THROUGH PORTFOLIO M ANAGEMENT SERVICES OF RS.33,45,480/- AS PROFIT AND GAINS OF BUSINESS OR PROFESSION. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE ACCEPTED THAT A SUM OF RS. 33,45,480/- AS SHORT TERM CAPITAL GAIN, RS. 2,37,330/- AS SPECULATION INCOME AND RS. 1,73,845/- FOR DIVIDEND AS EXEMPT AS DISCLOSED BY THE APPELLANT IN THE RETU RN OF INCOME. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE I NCOME FROM PMS OUGHT TO HAVE BEEN COMPUTED AS CAPITAL GAINS AND DIVIDEND. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE LONG TERM CAP ITAL LOSS OF RS. 4,61,24,853/- ON TRANSFER OF UNITS OF US-64 ON THE GROUND THAT THE I NCOME FROM US-64 IS EXEMPT U/S. 10(33) AND THE LOSS CLAIMED IS NOTIONAL. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING THE INTER EST CHARGED U/S. 234C OF THE I.T. ACT. THE ASSESSEE FURTHER PRAYS THAT INTEREST CHARGED U/ S. 234C BE DELETED. 5. IT IS RELEVANT TO STATE THAT THE ASSESSEE-TR UST RECEIVED RS.1,73,421/-,RS. 53,923/-RS.31,52, 342/- AND RS.47,164/- FOR THE YEAR UNDER CONSIDERAT ION UNDER THE HEADS DIVIDEND INCOME, LONG TERM CAPITAL GAINS, SHORT TERM CAPITAL GAINS AND SP ECULATIVE GAINS RESPECTIVELY.AO TREATED THE NET PMS RECEIPTS,I.E.RS.33.45 LAKHS, AS PROFITS AND GAINS OF BUSINESS AND PROFESSION. 6. THE ASSESSEE-TRUST IS A DISCRETIONARY TRUST. TH E TRUSTEES WERE PART OF THE PROMOTER/ SHAREHOLDER GROUP OF BIDDLE SAWYER GROUP WHERE IN A SSESSEE-TRUST HELD SHARES. FROM SEPT.2003 TO MAY 2004 ASSESSEE-TRUST PLACED CERTAIN FUNDS WIT H PORTFOLIO MANAGER. 3 ITA NO. 2127/MUM/2008 ITA NO. 4124/MUM/2008 PRAVIN SHAH TRUST, 7. DURING THE ASSESSMENT YEAR 2003-04, ASSESSEE-TRU ST HAD OFFERED THE INCOME DERIVED FROM PMS UNDER THE HEAD BUSINESS AND PROFESSION WHILE FILING THE RETURN. BUT, FOR THE YEAR UNDER CONSIDERATION ASSESSEE-TRUST OFFERED THE INCOME FRO M THE SAID TRANSACTIONS UNDER THE HEAD CAPITAL GAINS AND VIDE ITS LETTER DATED 15.09.2006 ADDRESSE D TO THE AO REITERATED ITS CLAIM. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE-TRUST AND TREATED THE INCOME/EARNING ON PMS ACCOUNT AS BUSINESS INCOME OF THE ASSESSEE-TRUST. THE ASSES SEE-TRUST FILED APPEAL BEFORE LD CIT(A). HOWEVER, LD CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE-TRUST AND CONFIRMED THE ACTION OF THE AO. LD CIT(A) HELD THAT THE ASSESSEE-TRUST H AD APPOINTED A PORTFOLIO MANAGER ON ITS BEHALF FOR DOING BUSINESS OF SHARES AND SECURITIES WITH AN INTENTION FOR PURCHASE AND SALE OF SHARES. HENCE, APPELLANT IS IN FURTHER APPEAL BEFOR E THE TRIBUNAL. 8. BEFORE US, AUTHORIZED REPRESENTATIVE AND THE DEP ARTMENTAL REPRESENTATIVE MADE THE SAME SUBMISSIONS THAT WERE MADE IN THE CASE OF MANA N NALIN SHAH (ITA NOS. 6166/MUM/2008, 2125/MUM/2008AND 4126/MUM/2008 AY.2003-04,2004-05,2 005-06). AT THE TIME OF HEARING LD. AR SUBMITTED THAT DIVIDEND INCOME WAS EXEMPT FROM T AX U/S.10(34) OF THE ACT, THAT, SPECULATION INCOME WAS TO BE TAXED AS INCOME FROM BUSINESS. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE MATERIAL PRODUCED BEFORE US WE HAD DECIDED IN THOSE APPEALS THAT INCOME EARNED BY THE ASSESSEE-TRUST THROUGH PMS HAS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION (PARAGRAPHS 15-16 OF THE ORDER DTD.06.07 .201).FOLLOWING THE SAID ORDER GROUND NO.1 IS DECIDED IN PART IN FAVOUR OF THE ASSESSEE. 10. AT THE TIME OF HEARING, LD COUNSEL FOR THE ASSE SSEE-TRUST SUBMITTED THAT GROUND NO.2 IS NOT PRESSED FOR, THEREFORE, THE SAME IS DISMISSED A S NOT PRESSED. 11. GROUND NO.3 OF APPEAL IS IN RESPECT OF INTEREST U/S.234C OF THE ACT, WHICH IS CONSEQUENTIAL AND DOES NOT REQUIRE ANY SPECIFIC ADJ UDICATION. 12. NOW WE TAKE UP APPEAL FOR ASSESSMENT YEAR 2005- 06 BEING I.T.A. NO.4124/M/2008. 13. GROUNDS OF APPEAL ARE AS UNDER: 4 ITA NO. 2127/MUM/2008 ITA NO. 4124/MUM/2008 PRAVIN SHAH TRUST, 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITI ONAL CAPITAL GAINS ARISING OUT OF SALE OF SHARES, UNITS AND SECURITIES THROUGH PORTFO LIO MANAGEMENT SERVICES OF RS. 54,92,711/- AS PROFIT AND GAINS OF BUSINESS OR PRO FESSION. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE ACCEPTED THAT A SUM OF RS. 45,94,955/- AS SHORT TERM CAPITAL GAIN, RS. 1,42,984/- AS SPECULATION INCOME AND RS. 5,37,020/- FOR DIVIDEND AS EXEMPT AS DISCLOSED BY THE APPELLANT IN THE RETURN OF INCO ME. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE I NCOME FROM PMS OUGHT TO HAVE BEEN COMPUTED AS CAPITAL GAINS AND DIVIDEND. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING THE INTER EST CHARGED U/S. 234B & 234C OF THE I.T. ACT. THE ASSESSEE FURTHER PRAYS THAT INTEREST CHARG ED U/S. 234B & 234C BE DELETED. 14. IN RESPECT OF GROUND NO.1 OF APPEAL, LD A.R. SU BMITTED THAT DIVIDEND INCOME OF RS.5,37,020/- IS EXEMPT IN A.Y. 2005-06 U/S.10(34) OF THE ACT. HOWEVER, SPECULATION INCOME IS TO BE ASSESSED AS BUSINESS INCOME AND IS NOT PRESSE D. IN RESPECT OF PROFITS AND GAINS FROM PMS, LD A.R. SUBMITTED THAT ASSESSEE-TRUST APPOINTED KOT AK SECURITIES AND PRUDENTIAL ICICI ASSET MANAGEMENT CO. LTD., AS ITS PORTFOLIO MANAGER AND P LACED RS.1.75 CRORES WITH THEM.A.R. FURTHER SUBMITTED THAT IN THE RETURN OF INCOME FOR A.Y. 2005-06, ASSESSEE-TRUST HAS SHOWN INCOME FROM PMS UNDER THE HEAD CAPITAL GAIN UNLIK E FOR A.Y. 2003-04. HE FURTHER SUBMITTED THAT FOR A.Y. 2005-06. ASSESSEE-TRUST ALSO MADE DIR ECT INVESTMENT FOR PURCHASE AND SALE OF SHARES/UNITS AND HAD SHORT TERM CAPITAL GAIN OF RS. 1.09 CRORES AND LONG TERM CAPITAL GAIN OF RS.1.81 CRORES AND THE DEPARTMENT ACCEPTED THE SAME AS CAPITAL GAIN AND THE DISPUTE IS ONLY IN RESPECT OF CAPITAL GAIN TO THE ASSESSEE-TRUST IN R ESPECT OF TRANSACTIONS THROUGH PORTFOLIO MANAGER. LD D.R. DID NOT DISPUTE THE ABOVE FACTS. 15. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES. FOLLOWING THE REASONING GIVEN BY US WHILE DECIDING THE APPEALS OF MANAN NALIN SHAH IN ITA NOS.6166/MUM/ 2008, 2125/ MUM/2008 AND 4126/MUM/2008 FOR THE AY 2 003-04, 2004-05 AND 2005-06, VIDE 5 ITA NO. 2127/MUM/2008 ITA NO. 4124/MUM/2008 PRAVIN SHAH TRUST, ORDER DATED 06.07.2012,WE HOLD THAT THE PROFIT TO T HE ASSESSEE-TRUST IN RESPECT OF TRANSACTIONS THROUGH PMS IS AN INVESTMENT AND IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN. HENCE, GROUND NO.1 OF THE APPEAL IS ALLOWED IN PART AS INDICATED ABOVE. 16. GROUND NO.2 OF APPEAL IS IN RESPECT OF INTEREST U/S. 234B & 234C OF THE ACT, WHICH IS CONSEQUENTIAL AND DOES NOT REQUIRE ANY SPECIFIC ADJ UDICATION. 17. BEFORE WE PART WITH, WE MAY STATE THAT AT THE T IME OF HEARING, IT WAS POINTED OUT THAT THE AMOUNT OF INCOME THROUGH PMS AS MENTIONED IN THE GR OUNDS OF APPEAL, ARE NOT CORRECTLY STATE AND, ACCORDINGLY, THE AO WHILE GIVING EFFECT TO OUR AFORESAID ORDER, WILL TAKE THE CORRECT AMOUNT OF INCOME ARISING FROM PMS AS PER EVIDENCES/DETAILS AS MAY BE FURNISHED BY THE ASSESSEE-TRUST. 18. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED IN PART AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 11 TH JULY , 2012 SD/- (B.R. MITTAL) JUDICIAL MEMBER SD/- (RAJENDRA) ACCOUNTANT MEMBER MUMBAI, DATED : 11 TH JULY, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),XIV, MUMBA I 4. COMMISSIONER OF INCOME TAX, 14 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH J MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI