The ITO, Ward-8(2), Ahmedabad V. M/s. Sonalank Investment & Trading Pvt. Ltd., Ahmedabad

ITA 2146/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9389 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 19-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Question of law
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 2146/AHD/2013 (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER, WARD- 8 (2), AHMEDABAD V/S M/S.SONALANK INVESTMENT & TRADING PVT. LTD. 1 ST FLOOR, AKSHAY, 53, SHRIMALI SOCIETY, NAVRANGPURA, AHMEDABAD-380009 (APPELLANT) (RESPONDENT) PAN: AACCS7614J APPELLANT BY : SHRI K. MADHUSUDAN, SR. D. R. RESPONDENT BY : MS. URVASHI SHODHAN, A.R. ( )/ ORDER DATE OF HEARING : 17 -01-201 7 DATE OF PRONOUNCEMENT : 19 -01-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-XIV, AHMEDABAD DATED 18.16.2013 PERTAINING TO A.Y. 2006- 07. ITA NO. 2146 /AHD/2013 . A.Y.2006-07 2 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD. C IT(A) ERRED IN TREATING THE SHORT TERM CAPITAL GAIN AS SUCH INSTEAD OF INCOME FROM BUSINESS OR PROFESSION. 3. THE ASSESSEE IS A FINANCE AND INVESTMENT COMPANY. T HE ASSESSEE FILED ITS RETURN OF INCOME ELECTRONICALLY ON 27.12.2006 DECLA RING TOTAL INCOME AT RS. 50,66,788/- WHICH WAS REVISED ON 13.09.20078 SHOWIN G TOTAL INCOME AT RS. 63,55,225/-. THE ASSESSEE WAS MADE U/S. 143(3) OF T HE ACT DETERMINING TOTAL INCOME AT RS. 63,55,225/- WHICH INCLUDED AN A MOUNT OF RS. 55,10,721/- ASSESSED UNDER THE HEAD CAPITAL GAIN. THE ASSESSMENT SO MADE WAS SUBJECTED TO THE REVISIONARY PROCEEDINGS U /S. 263 OF THE ACT BY THE LD. PRINCIPAL COMMISSIONER WHO SET ASIDE THE AS SESSMENT FOR VERIFICATION OF THE SHORT TERM CAPITAL GAINS. 4. IN PURSUANCE TO THE DIRECTIONS OF THE LD. PRINCIPAL COMMISSIONER, THE A.O. INITIATED FRESH ASSESSMENT PROCEEDINGS AND CALLED F OR NECESSARY DETAILS FROM THE ASSESSEE. AFTER PERUSING THE DETAILS, THE A.O. FOUND THAT THE INCOME OF RS. 55,10,721/- DERIVED FROM PURCHASE AND SALE OF SHARES/MUTUAL FUND HAS TO BE TREATED UNDER THE HEAD BUSINESS INC OME AS THE ASSESSEE COMPANY HAS CARRIED OUT TRADING ACTIVITY UNDER PORT FOLIO MANAGEMENT SCHEME. 5. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE FIRST APPELLATE AUTHORITY AND VEHEMENTLY QUESTIONED THE A CTION OF THE A.O. ITA NO. 2146 /AHD/2013 . A.Y.2006-07 3 6. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS IN THE LIGHT OF CERTAIN JUDICIAL DECISIONS, THE LD CIT(A) OBSERVED THAT THE TRANSACTIONS ARE UNDISPUTEDLY CARRIED OUT BY THE PORTFOLIO MANAGER A ND, THEREFORE, THESE ITEMS ARE CLEARLY IN THE NATURE OF TRANSACTIONS MEA NT FOR MAXIMIZATION OF WEALTH RATHER EN-CASHING THE PROFITS ON APPRECIATIO N IN VALUE OF SHARES. THE LD. CIT(A) FURTHER OBSERVED THAT THE VERY NATURE OF PORTFOLIO MANAGEMENT SCHEME IS SUCH THAT THE INVESTMENTS MADE BY THE ASS ESSEE ARE PROTECTED AND ENHANCED AND IN SUCH A CIRCUMSTANCE, IT CANNOT BE SAID THAT PORTFOLIO MANAGEMENT IS SCHEME OF TRADING IN SHARES AND STOCK . THE LD. CIT(A) ACCORDINGLY DIRECTED THE A.O. TO TREAT THE INCOME U NDER THE HEAD CAPITAL GAINS. 7. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 8. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE STATED THIS ISSUE HAS BEEN DECIDED BY THE HONBLE HIGH COURT OF DELHI AND KARNATAKA IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN 367 ITR 1 AND 61 TAXMANN.COM 91 RESPECTI VELY. THE LD. COUNSEL BROUGHT TO OUR NOTICE THE DECISION OF THE CO-ORDINA TE BENCH IN THE CASE OF UDAYAN FINSTOCK PVT. LTD. IN ITA NO. 849/AHD/2012 A ND MAS CHEMICALS INDUSTRIES PVT. LTD. 1699/AHD/2011 AND 1918/AHD/201 3. 9. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW. WE HAVE ALSO GONE THROUGH THE RELEVANT JUDICIAL DECISION RE LIED UPON BY THE LD. COUNSEL. THERE IS NO DISPUTE THAT THE ASSESSEE HAS AVAILED THE SERVICES OF ITA NO. 2146 /AHD/2013 . A.Y.2006-07 4 PORTFOLIO MANAGER TO LOOK AFTER THE INVESTMENT IN S HARES/MUTUAL FUNDS. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS PAID PORT FOLIO MANAGEMENT SERVICES FEES. THE HONBLE HIGH COURT OF DELHI IN T HE CASE OF RADIALS INTERNATIONAL 367 ITR 1 WAS SEIZED WITH THE FOLLOWI NG QUESTION OF LAW:- WHETHER THE SHARES INVESTED THROUGH A PORTFOLIO MA NAGEMENT SCHEME, IN THE CIRCUMSTANCES OF THE CASE RESULTED IN GAINS TAXABLE AS CAPITAL GAINS OR AS BUSINESS INCOME? 10. AND THE HONBLE HIGH COURT OF DELHI DECIDED THIS IS SUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. A SIMILAR ISSUE W AS CONSIDERED BY THE CO- ORDINATE BENCH IN THE CASE OF UDAYAN FINSTOCK PVT. LTD. (SUPRA) AND THE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH READS AS UNDER:- 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOUT THE TREATMENT OF PROFITS EARNED ON SALE OF SHARES. WE FIND THAT LD. CIT(A) H AS HELD THAT THE PROFITS EARNED BY ASSESSEE THROUGH PMS SCHEME TO BE BUSINES S INCOME AND FOR THIS HE MAINLY RELIED ON THE DECISION OF TRIBUNAL I N THE CASE OF RADIALS INTERNATIONAL (SUPRA). WE FIND THAT THE ABOVE DECIS ION HAS BEEN REVERSED BY HON'BLE DELHI HIGH COURT IN 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 MANAGEME NT SERVICES (PMS) CANNOT BE TERMED AS BUSINESS OF THE ASSESSEE. THE R ELEVANT OBSERVATIONS OF HON'BLE KARNATAKA HIGH COURT ARE AS UNDER: '10. AS REGARDS THE FIRST QUESTION THAT MERELY BECA USE OF EMPLOYMENT OF PORTFOLIO MANAGEMENT SERVICE FOR INVESTMENT IN SHAR ES, THE SAME WOULD BECOME BUSINESS INCOME, WE ARE OF THE OPINION THAT THE SAID ISSUE HAS BEEN ITA NO. 2146 /AHD/2013 . A.Y.2006-07 5 DEALT WITH AT LENGTH BY THE DELHI HIGH COURT IN THE CASE OF RADIALS INTERNATIONAL (SUPRA), WHEREIN, IN SIMILAR FACTS, T HE QUESTION HAS BEEN ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. DETAILED REASONS FOR THE SAME HAVE BEEN GIVEN IN THE SAID JU DGMENT WITH WHICH WE CONCUR. EVEN OTHERWISE, IT IS ADMITTEDLY NOT A CASE WHERE THE ASSESSEE HAD ENGAGED ITS OWN PERSONS OR HAD A SEPARATE BUSINESS INFRASTRUCTURE TO CARRY OUT ITS SHARE TRANSACTIONS FOR THE PURPOSE OF BUSIN ESS. IT IS MERELY A CASE WHERE THE ASSESSEE HAS INVESTED FUNDS THROUGH THE P ORTFOLIO MANAGEMENT SERVICE. 11. IN OUR OPINION, INVESTMENT THROUGH PORTFOLIO MANAGEMENT SERVICE, WHICH MAY DEAL WITH THE SHARES OF THE ASSESSEE SO A S TO DERIVE MAXIMUM PROFITS CANNOT BE TERMED AS BUSINESS OF THE ASSESSE E BUT WOULD ONLY BE A CASE OF A MORE CAREFUL AND PRUDENT MODE OF INVESTME NT, WHICH HAS BEEN DONE BY THE ASSESSEE. FUNDS WHICH LIE WITH THE ASSE SSEE CAN ALWAYS BE INVESTED (FOR EARNING HIGHER RETURNS) IN THE SHARES EITHER DIRECTLY OR THROUGH PROFESSIONALLY MANAGED PORTFOLIO MANAGEMENT SCHEME AND BY DOING SO, IT WOULD NOT MEAN THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF INVESTMENT IN SHARES. PROFITS FROM SUCH INVESTMENT, EITHER DIR ECTLY OR THROUGH PROFESSIONALLY MANAGED FIRM, WOULD STILL REMAIN AS PROFITS TO BE TAXED AS CAPITAL GAINS AS THE SAME WILL NOT CHANGE THE NATUR E OF INVESTMENT, WHICH IS IN SHARES, AND THE LAW PERMITS IT TO BE TAXED AS CA PITAL GAINS AND NOT AS BUSINESS INCOME.' 9.1 BEFORE US, REVENUE HAS NOT PLACED ANY CONTRARY B INDING DECISION IN ITS SUPPORT NOR COULD POINT OUT ANY DISTINGUISHING FEATURE IN THOSE CASES AND THE IMPUGNED CASE. IN VIEW OF THE AFORESAID FACT S AND RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF HON'BLE HIGH C OURTS, WE ARE OF THE VIEW THAT THE PROFIT EARNED BY THE ASSESSEE ON SALE OF SHARES IS TO BE TREATED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME . THUS, THIS GROUND OF ASSESSEE IS ALLOWED. 11. SINCE NO DISTINGUISHING DECISION HAS BEEN BROUGHT O N RECORD BY THE REVENUE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE HIGH COURTS OF DELHI AND KARNATAKA (SUPRA), WE DO NOT FI ND ANY ERROR OR INFIRMITY IN THE FINDING OF THE LD. CIT(A). ITA NO. 2146 /AHD/2013 . A.Y.2006-07 6 12. APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 19- 01- 20 17 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 19 /01/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD