ASST CIT 19(3), MUMBAI V. THE AZAVEDO FAMILY TRUST, MUMBAI

ITA 2240/MUM/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3552 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 03-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: E SANKARAN
• Keywords: Business income; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI G.S.PANNU (AM) AND SHRI RAM LAL NEGI (J M) ITA NO.2240/MUM/2014 ASSESSMENT YEAR: 2010-11 THE ACIT 19(3), ROOM NO. 305, 3 RD FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI- 400 012 VS. THE AZAVEDO FAMILY TRUST PLOT NO. C-22, G- BLOCK, IL &FS FINANCIAL CENTRE, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI- 400050. PAN : AABTT5440N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. E. SANKARAN RESPONDENT BY : SHRI. PRAKASH JOTWANI DATE OF HEARING: 24/09/2015 DATE OF PRONOUNCEMENT: 13/01/2016 O R D E R PER RAM LAL NEGI, JM THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGAINST ORDER DATED 18/02/2013 PASSED BY THE LD. CIT(APPEALS)-30, MUMBAI FOR THE ASSESSMENT YEAR 2010-11. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE DISCRETIONARY TRUST SETTLED VIDE TRUST DEED DATED 0 3/06/2008. THE MAIN OBJECTIVE OF THE TRUST IS TO ENSURE EFFECTIVE SUCCESSION PLANNING MECHANISM AND TRANSFER OF FUNDS FROM GENERATION TO GENERATION FOR THE BENEFIT OF THE FAMILY MEMBERS INCLUDING CHILDREN AN D GRAND CHILDREN OF THE SETTLER AND PROTECTION THE FAMILY WEALTH. 2 ITA NO.2240/MUM/2014 ASSESSMENT YEAR: 2010-11 2.1. THE SETTLER IN THE YEAR 1978 PURCHASED 500 SHA RES OF GLENMARK PHARMACEUTICALS OF RS. 100 EACH. BONUS SHARES WERE ISSUED FROM TIME TO TIME AND IN THE MONTH OF NOV., 1999 MR. LOYOLA A ZAVEDO, THE SETTLER BECAME ENTITLED FOR 1,50,000 SHARES OF THE FACE VAL UE OF RS. 10 EACH. THE SHARES WERE SPLIT INTO 15,00,000 EQUITY SHARES OF THE FACE VALUE OF RS.1/- EACH, OUT OF WHICH 9,96,000 EQUITY SHARES OF THE FACE VALUE OF RS. 1 EACH WERE CONTRIBUTED TO THE TRUST ON 01/10/2008. 2.2. THUS, THE CORPUS OF THE APPELLANT TRUST CONSIS TED OF; CONTRIBUTION IN CASH RS. 1,90,932/- 9,96,000 EQUITY SHARES OF GLENMARK PHARMACEUTICALS( TRANSFERRED TO THE DE-MAT A/C ON 01/10/2008) 2.3. THE SETTLER HELD THE SHARES OF GLENMARK PHARMA CEUTICALS LTD. FOR A PERIOD OF ABOUT 30 YEARS. WITH CHANGING MARKET CO NDITIONS, THE VALUE OF SHARE DROPPED FROM RS. 503.50/-TO RS. 120.85/-. WITH A VIEW TO DIVERSIFY ITS RISK THE TRUST SOLD THE SHARES IN QUE STION. THE TRUSTEES ALSO APPOINTED IIFL WEALTH MANAGEMENT LTD. ON 06/04/2009 AS PORTFOLIO MANAGERS FOR PROVIDING SYSTEMATIC MANAGEMENT SERVIC ES IN RESPECT OF THE SHARE TRANSACTIONS ON BEHALF OF THE TRUST. THE PORTFOLIO MANAGERS WERE ENTRUSTED WITH THE FUNDS WITH THE OBJECTIVE OF MAKING INVESTMENT AND TO PRESERVE THE CAPITAL AND ACHIEVE GROWTH IN C APITAL. 2.4. THE TRUST FILED ITS RETURN OF INCOME FOR THE A SSESSMENT YEAR 2010- 11 ON 31/07/2010 DECLARING THE TOTAL INCOME OF RS. 1,58,76,556/- I.E., SHORT TERM CAPITAL GAIN RS. 81,28,460/- AND LONG TE RM CAPITAL GAIN OF RS. 77,48,096/- SUBSEQUENTLY, THE TRUST SUBMITTE D ITS REVISED RETURN ON 02/02/2012 AFTER OBTAINING AUDITED FINANCIAL STA TEMENTS, DECLARING THE TOTAL INCOME AT RS. 68,96,296/-. DURING THE YEA R UNDER CONSIDERATION, THE TRUST EARNED TOTAL INCOME OF RS. 16,38,27,822/-, 3 ITA NO.2240/MUM/2014 ASSESSMENT YEAR: 2010-11 WHICH WAS OFFERED FOR TAX UNDER THE FOLLOWING HEADS OF INCOME IN THE REVISED RETURN. DIVIDEND INCOME : RS. 11,30,413/-(EXEMPT U/S 10( 34)/(35) LONG TERM CAPITAL GAIN : RS. 15,58,00,405/-(EXEMPT U/S 10(38) SHORT TERM CAPITAL GAIN: RS. 68, 97,010/-(TAXED @ 1 5% U/S 111A) OF THE ACT. 2.5. THE AO DETERMINED THE TOTAL INCOME OF THE ASSE SSEE AT RS. 16,89,87,950/- BY COMPUTING THE LONG TERM CAPITAL G AIN AND SHORT TERM CAPITAL GAIN AFORESAID UNDER THE HEAD BUSINE SS INCOME HOLDING THAT THE ASSESSEE HAD NEVER INTENDED TO HOLD THE SH ARES FOR INVESTMENT BUT THE MOTIVE WAS TO MAKE QUICK PROFIT, THEREFORE , THE TRANSACTION IS BUSINESS IN NATURE. 2.6. AGGRIEVED BY THE IMPUGNED ASSESSMENT ORDER, TH E ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) AFT ER HEARING THE APPELLANT/ASSESSEE RELYING UPON THE DECISIONS OF VA RIOUS BENCHES OF THE TRIBUNAL AND HONBLE HIGH COURTS, ALLOWED THE APPEAL OF THE ASSESSEE. DISSATISFIED WITH THE IMPUGNED ORDER PAS SED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THIS TRIBUN AL. 3. THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER O N THE FOLLOWING EFFECTIVE GROUND:-. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT INCOME TOTALING RS . 16,89,87,945/- ARISING FROM PURCHASES & SALE OF SHARES WAS CAPITAL GAINS AND NOT BUSINESS INCOME AS TREATED BY THE ASSESSING OFFICER WITHOUT APPRECIATING THAT THE ASSESSEE HAD ENGAGED THE SER VICES OF SEVERAL PORTFOLIO MANAGERS THROUGH WHOM IT HAD ENTERED TO M ULTIPLE, FREQUENT AND VOLUMINOUS TRANSACTIONS RESULTING INTO AFORESAID INCOME AFTER PAYING SUBSTANTIAL EXPENSES BY WAY OF MANAGEMENT FEES TO THE SAID PORTFOLIO MANAGERS AND WHICH WAS N OTHING BUT ACT OF ADVENTURE IN THE NATURE OF TRADE AND, THEREFORE, THE ASSESSING 4 ITA NO.2240/MUM/2014 ASSESSMENT YEAR: 2010-11 OFFICER HAD RIGHTLY ASSESSED THE TOTAL SUM OF RS. 16,89,87,945/- AS BUSINESS INCOME 4. BEFORE US, THE LD. DR HEAVILY RELYING ON THE ASS ESSMENT ORDER HAS SUBMITTED THAT THE AO HAS RIGHTLY ASSESSED THE TOTA L INCOME OF THE ASSESSEE BY MAKING ADDITIONS IN QUESTION IN VIEW OF THE NATURE OF THE TRANSACTIONS AS THE ASSESSEE HAS INDULGED IN BUSINE SS ACTIVITIES IN THE GUISE OF SHARE INVESTMENT. 4.1. ON THE OTHER HAND THE LD. COUNSEL FOR THE APPE LLANT/ASSESSEE HAS REITERATED THE STAND OF THE ASSESSEE, TAKEN BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE VALUE OF THE SHARES HAD FALLEN FROM RS. 503 TO RS. 120 IN A PERIOD OF 5 MONTHS AND THE TRUS T HAD TO SUFFER LOSS OF RS. 200 APPROXIMATELY PER SHARE AND IN ORDER TO AVOID FURTHER RISK OF LOSS, 6,96,000 SHARES OF THE GLENMARK PHARMACEUTIC ALS LTD. WERE SOLD BY THE ASSESSEE. AS REGARDS SHORT TERM CAPITAL GAIN , THE LD. COUNSEL HAS SUBMITTED THAT THE ASSESSEE HAS DISCLOSED THE SHORT TERM CAPITAL GAIN OF RS. 68,96,296/- FROM THE SALE OF SHARES HELD UNDER THE DIFFERENT PORTFOLIO MANAGEMENT SCHEME. THE LD. COUNSEL HAS AL SO RELIED ON THE DECISION OF ITAT MUMBAI PASSED IN MR. BHARTAN M. GH IA VS. DCIT, ITA 6319/M/10 AND CROSS APPEALS FILED BY THE REVENUE AN D THE ASSESSEE ITA NO 5397/M/2013 AND 5709/MUM/2013 RESPECTIVELY F OR THE ASSESSMENT YEAR 2010. 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO P ERUSED THE DOCUMENTS ON RECORD IN THE LIGHT OF THE RESPECTIVE CONTENTIONS OF THE PARTIES. THE CORE CONTROVERSY TO BE ADJUDICATED BY THIS TRIBUNAL IS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AMOUNT OF RS. 16,89,87,945/- ARISING FROM PURCHASE AND SALE OF SHARES BY THE ASSESSEE IS TO BE COMPUTED AS CAPITAL GAINS OR THE SAME IS TO BE TREATED AS BUSINESS INCOME? 5 ITA NO.2240/MUM/2014 ASSESSMENT YEAR: 2010-11 4.3. IN ORDER TO DETERMINE THE ISSUE IN QUESTION, I T IS ESSENTIAL TO ASCERTAIN SOME OF THE MATERIAL FACTS I.E., WHETHER THE ASSESSEE HAD PURCHASED/SOLD THE SHARES IN QUESTION AS AN INVESTO R OR AS A SHARE TRADER; WHETHER ANY BORROWED FUNDS WERE UTILIZED OR THE ASSESSEE HAS INVESTED ITS OWN FUNDS AND WHETHER THE SHARES IN QU ESTION WERE PURCHASED/SOLD UNDER A PORTFOLIO MANAGEMENT SCHEME OR THE ASSESSEE HAS MADE THE TRANSACTION AS A SHARE TRADER? 4.4. ADMITTEDLY, THE OBJECTIVE OF THE APPELLANT TRU ST IS TO ENSURE EFFECTIVE SUCCESSION PLANNING MECHANISM AND TRANSFE R OF FUNDS FROM GENERATION TO GENERATION FOR THE BENEFIT OF THE FAM ILY MEMBERS OF THE SETTLER AND PROTECTING THE FAMILY WEALTH AS THE TRU ST BENEFICIARIES ARE ONLY FAMILY MEMBERS I.E., PURELY BLOOD RELATIVES IN CLUDING CHILDREN AND GRAND CHILDREN. THE SHARES IN QUESTION WERE ACQUIRE D AND TRANSFERRED THROUGH PORTFOLIO MANAGERS ENGAGED BY THE ASSESSEE. THE ENTIRE INVESTMENTS HAVE COME OUT OF THE CORPUS FUND OF THE ASSESSEE AND NO BORROWED FUNDS WERE UTILIZED FOR PURCHASE OF THE SH ARES IN QUESTION. IN VIEW OF THE AFORESAID FACTS THE CONTENTION OF THE R EVENUE THAT THE ASSESSEE HAS INDULGED IN BUSINESS ACTIVITIES IN THE GUISE OF SHARE INVESTMENT HAS NO MERIT. IT IS QUITE CLEAR THAT TH E OVER-RIDING INTENTION OF THE ASSESSEE IS NOT TO TRADE IN SHARES EVEN WHEN THE PURCHASE AND SALE OF SHARES WAS MADE THROUGH VARIOUS PORTFOLIO M ANAGERS. THEREFORE THE CIT(A) HAS RIGHTLY HELD THE INCOME IN QUESTION AS CAPITAL GAINS AND NOT THE BUSINESS INCOME. FROM THE AFORESAID F ACTS AND IN VIEW OF THE SETTLED PRINCIPLES OF LAW IT CAN BE CONCLUDED T HAT THE ASSESSEE HAD PURCHASED/SOLD THE SHARES IN QUESTION IN THE CAPACI TY OF AN INVESTOR AND NOT IN THE CAPACITY OF A SHARE TRADER AND THERE FORE, IN THE PRESENT CASE THE INCOME ACCRUED FROM SALE OF THE SHARES IN QUESTION IS REQUIRED TO BE COMPUTED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. 6 ITA NO.2240/MUM/2014 ASSESSMENT YEAR: 2010-11 5. IN VINOD K NEVATIA VS ACIT, ITA NO 6656/M/2009, THE CO- ORDINATE BENCH OF MUMBAI TRIBUNAL HAS HELD THAT IF THE ASSESSEE PURCHASES THE SHARES FROM ITS OWN FUNDS WITH A VIEW TO KEEP THE FUNDS IN EQUITY SHARES TO EARN CONSIDERABLE RETURN ON ACC OUNT OF ENHANCEMENT IN THE VALUE OF SHARE OVER A PERIOD THE N MERELY BECAUSE THE ASSESSEE LIQUIDATES ITS INVESTMENT WITHIN SIX M ONTHS OR EIGHT MONTHS WOULD NOT LEAD TO THE CONCLUSION THAT THE AS SESSEE HAD NO INTENTION TO KEEP THE FUNDS AS INVESTED IN EQUITY S HARES AND BUT WAS ACTUALLY INTENDED TO TRADE IN SHARES. IN SALIL SHAH FAMILY PVT. TRUST VS. ACIT, ITA NO 2446/M/2012, THE SOLE GRIEVANCE OF THE ASSESSEE WAS THAT THE LD. CIT(A) HAS ERRED IN HOLDING SHORT TERM CAPI TAL GAIN OF RS. 5,97,26,574/- AND LONG TERM CAPITAL GAIN OF RS. 8,9 1,000/- ON THE SALE INVESTMENTS THROUGH A PORTFOLIO MANAGER, IS B USINESS INCOME AND NOT CAPITAL GAINS. THE CO-ORDINATE BENCH OF MUMB AI TRIBUNAL RELYING ON ITS DECISION IN THE CASE OF MANAN NALIN SHAH IN ITA NOS. 6166, 2125 & 4126/M/08, HAS DECIDED THE AFORESAID ISSUE IN FAV OUR OF THE ASSESSEE HOLDING AS UNDER: 13. CONSIDERING THE FACTS AND THE SUBMISSIONS AND THE JUDICIAL DECISIONS CONSIDERED HEREIN ABOVE, IN OUR CONSIDERATE VIEW, THE DECISION OF THE LD. CIT(A) SOLELY BASED ON THE FINDINGS OF THE DELHI BENCH IS ERRONEOUS, THEREFORE, REVERSING THE FINDINGS OF THE LD.CIT(A) WE HAVE NO HESITATION TO HOLD THAT CONSID ERING THE NATURE OF TRANSACTION THROUGH PORTFOLIO MANAGEMENT SERVICE S PROVIDERS IN THE LIGHT OF THE JUDICIAL PRONOUNCEMENT DISCUSSED H EREIN ABOVE, THE TRANSACTION HAVE RESULTED INTO CAPITAL GAINS, STCG AND LTCG AS RETURNED BY THE ASSESSEE. THEREFORE, THE AO IS DIR ECTED TO ACCEPT THE CAPITAL GAINS AS RETURNED BY THE ASSESSEE. 6. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CA SE AND EVIDENCE ON RECORD TO SUBSTANTIATE THE RIVAL CONTENTIONS AND IN THE LIGHT OF THE DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUNA L DISCUSSED ABOVE, IN OUR CONSIDERED OPINION THE ORDER PASSES BY THE LD. CIT(A) IS BASED ON THE EVIDENCE ON RECORD AND IN ACCORDANCE WITH THE PROVISIONS OF THE LAW 7 ITA NO.2240/MUM/2014 ASSESSMENT YEAR: 2010-11 AND THERE IS NO SCOPE FOR FURTHER INTERFERENCE IN T HE ORDER OF THE LD. CIT(A). WE THEREFORE, UPHOLD THE ORDER PASSED BY TH E LD. CIT(A) AND DISMISS THE GROUND OF THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13TH JANUARY, 2016 SD/- SD/- ( G.S.PANNU ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 13/01/2016 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !'# $ , $& , / DR, ITAT, MUMBAI 6. #'( ) / GUARD FILE. + + + + / BY ORDER, + //TRUE COPY// , ,, ,/ // /+ ++ +- . - . - . - . (DY./ASSTT. REGISTRAR) $& $& $& $&, , , , / ITAT, MUMBAI PRAMILA