VENKATESH SATYARAJ MYSORE, MUMBAI V. D.C.I.T. 26(1), MUMBAI

ITA 2573/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2988 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: F
• Next Hearing Date: 21-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 17-04-2012
• Court: TRIBUNAL
• Keywords: Business income; Initiation of penalty proceedings
• Section: 143(3); 6; 144

Judgement Text

1 I.T.A. NO.2573/MUM/2012 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACOUNTANT MEMBER) I.T.A. NO. 2573/MUM/2012 (ASSESSMENT YEAR: 2008-09) & I.T.A. NO. 6309/MUM/2014 (ASSESSMENT YEAR : 2010-11) VENKATESH SATYARAJ MYSORE THE IMPERIAL, NORTH TOWER APRT 4305, B.B. NAKASHE MARG TARDEO, MUMBAI-34 VS DY.CIT 26(1), MUMBAI PAN : ADWPM0517B (APPELLANT) (RESPONDENT) APPELLANT BY SHRI NISHANT THAKKAR RESPONDENT BY SHRI RAJESH OJHA DATE OF HEARING : 21-07-2016 DATE OF PRONOUNCEMENT : 16-09-2016 O R D E R PER ASHWANI TANEJA, AM: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) [HEREINAFTER C ALLED CIT(A)] DT 31-01-2012 PASSED AGAINST THE ASSESSMENT ORDER OF T HE AO U/S 144 DT 30-12-2010 FOR A.Y. 2008-09 ON THE FOLLOWING GRO UNDS: 2 I.T.A. NO.2573/MUM/2012 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED COM MISSIONER OF INCOME-TAX APPEALS 'CIT (A)'] HAS: GENERAL GROUND 1. ERRED IN DETERMINING THE TOTAL INCOME OF THE APPELL ANT AT RS 3,92,13,559 AND THEREBY DETERMINING THE TAX LIAB ILITY OF THE APPELLANT AT RS 1,32,36,916; INTEREST EARNED ON NON-RESIDENT EXTERNAL RUPEE ACCO UNTS ('NRE ACCOUNTS') 2. ERRED IN HOLDING THAT THE APPELLANT DOES NOT QUALIF Y AS 'A PERSON RESIDENT OUTSIDE INDIA' AS PER SECTION 2(W) OF THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (IE ERSTWHILE SECTION 2(Q) OF THE FOREIGN EXCHANGE REGULATION ACT, 1973) WITHOUT APPRECIATING THE FACTS OF THE CASE; 3. ERRED IN DENYING THE EXEMPTION CLAIMED BY THE APPEL LANT UNDER SECTION 10(4)(II) OF THE INCOME-TAX ACT, 1961 ('ACT') AND ADDING THE INTEREST EARNED ON THE NRE ACCOUNTS TO T HE TOTAL INCOME OF THE APPELLANT; CAPITAL GAINS ON SALE OF SHARES AND MUTUAL FUNDS UN DER PORTFOLIO MANAGEMENT SCHEME ('PMS') 4. ERRED IN TREATING THE INVESTMENT IN SHARES AND MUTU AL FUNDS MADE BY THE APPELLANT THROUGH A PMS AS AN 'AD VENTURE IN THE NATURE OF TRADE', THEREBY HOLDING IT TO BE BUSI NESS INCOME; 5. ERRED IN NOT APPRECIATING THE FACT THAT THE APPELLA NT WAS IN FULL TIME EMPLOYMENT FIRST WITH SUN LIFE ASSURAN CE COMPANY OF CANADA AND LATER ON WITH METROPOLIAN LIFE INSURA NCE COMPANY OF USA DURING THE FINANCIAL YEAR 2007-08, A ND THEREFORE THE APPELLANT CAN NEVER BE SAID TO BE ENG AGED IN THE BUSINESS OF DEALING IN SHARES; 6. ERRED IN NOT TAKING INTO CONSIDERATION THAT THE APP ELLANT LIKE ANY OTHER SALARIED INDIVIDUAL, HAD INVESTED HI S SURPLUS FROM SALARY IN SHARES AND SECURITIES THROUGH A PORTFOLIO MANAGEMENT COMPANY ('PMS') ONLY WITH AN INTENTION TO MAXIMIZE HIS WEALTH; 3 I.T.A. NO.2573/MUM/2012 7. ERRED IN NOT APPRECIATING THAT IT IS THE PMS WHICH IS ENGAGED IN THE BUSINESS ACTIVITY AND NOT THE APPELL ANT, IE PMS (AND NOT THE APPELLANT) DECIDES THE FREQUENCY OF TR ANSACTIONS, EXTENT OF INVESTMENT, PERIOD OF HOLDING AND SIZE OF TRANSACTIONS; INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT 8. ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTI ON 271(1)(C) OF THE ACT. 2. GROUND 1 IS GENERAL AND, THEREFORE, DISMISSED. 3. GROUNDS 2 & 3 DEAL WITH THE ACTION OF LOWER AUTHORI TIES IN BRINGING TO TAX THE AMOUNT OF INTEREST INCOME EARNE D BY THE ASSESSEE UPON ITS NON RESIDENT EXTERNAL RUPEE ACCOUNTS (NRE ACCOUNTS) BY DENYING THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 1 0(4)(II) OF THE ACT. 4. THE BRIEF FACTS ARE THAT DURING THE YEAR, THE ASSESSEE WAS AN EMPLOYEE OF METROPOLITAN INSURANCE CORPORATION, USA AND FILED HIS RETURN OF INCOME IN INDIA DISCLOSING INCOME FROM SA LARY, HOUSE PROPERTY AND CAPITAL GAINS. THE AO MADE EX-PARTE ASSESSMENT U/S 144 AGAINST WHICH ASSESSEE HAD FILED APPEAL BEFORE LD. CIT(A) ON VARIOUS ISSUES. 5. DURING THE COURSE OF FIRST APPELLATE PROCEEDINGS, L D. CIT(A) RAISED A NEW ISSUE WHEREBY INTEREST INCOME EARNED O N NRE ACCOUNT WITH ICICI BANK, HDFC AND CITI BANK AGGREGATING TO RS.28,828 WAS BROUGHT TO TAX. 6. DURING THE COURSE OF HEARING BEFORE US, IT WAS SUBM ITTED BY THE LD. COUNSEL THAT INTEREST INCOME ON NRE ACCOUNT IS EXEM PT U/S 10(4)(II) IN CASE OF THE PERSON, WHO DURING THE CONCERNED YEAR W AS RESIDENT OUTSIDE INDIA, AS DEFINED IN SECTION 2(Q) OF THE FOREIGN E XCHANGE MANAGEMENT ACT, 1999 (HEREINAFTER CALLED AS FEMA) OR IF THE ASSESS EE HAS BEEN PERMITTED TO MAINTAIN AFORESAID NRE ACCOUNT BY THE RESERVE BA NK OF INDIA (REFERRED 4 I.T.A. NO.2573/MUM/2012 TO AS RBI HEREINAFTER). IT WAS SUBMITTED THAT THE ASSESSEE WAS RESIDENT OUTSIDE INDIA UNDER THE RELEVANT PROVISIONS OF FEMA . IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER WAS SATISFIED WITH THE CONDITIONS OF THIS SECTION AND THAT IS WHY NO ADDITION WAS MADE B Y THE ASSESSING OFFICER. OUR ATTENTION WAS ALSO INVITED TO THE ORDER PASSED BY LD. CIT(A) IN THE CASE OF ASSESSEE FOR A.Y. 2009-10 WHEREIN FACTUAL FINDIN G WAS GIVEN BY LD. CIT(A) THAT ASSESSEE WAS A PERSON RESIDENT OUTSIDE INDIA AND THIS ORDER WAS ACCEPTED BY THE REVENUE AND NO APPEAL WAS FILED BEFORE THE TRIBUNAL AGAINST THIS ORDER. 7. PER CONTRA, THE LD. DR COULD NOT CONTROVERT THE FAC TUAL SUBMISSIONS OF THE ASSESSEE AND COULD NOT CONTROVERT THAT THE O RDER OF LD. CIT(A) OF A.Y. 2009-10 WAS ACCEPTED BY REVENUE AND NO APPEAL WAS FILED AGAINST THE SAID ORDER BEFORE THE TRIBUNAL. 8. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES AND GONE THROUGH THE ORDERS PASSED BY LOWER AUTHORITIES . IT IS NOTED THAT SECTION 10(4)(II) PROVIDES THAT INTEREST INCOME EAR NED ON NRE ACCOUNT SHALL BE EXEMPT UNDER CERTAIN SITUATIONS. THE RELEVANT P ART OF PROVISIONS IS REPRODUCED BELOW: 10. IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YE AR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOW ING CLAUSES SHALL NOT BE INCLUDED (1) TO (3) XXXXXXXXXXXXXXXXXXXXXX (4) (I) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXX (II) IN THE CASE OF AN INDIVIDUAL, ANY I NCOME BY WAY OF INTEREST ON MONEYS STANDING TO HIS CREDIT IN A NON-RESIDENT (EXTERNAL) ACCOUNT IN ANY BANK IN INDIA IN ACCORDANCE WITH (TH E FOREIGN EXCHANGE MANA G EMEN T ACT, 1999], AND THE RULES MADE THEREUNDER: PROVIDED THAT SUCH INDIVIDUAL IS A PERSON RESIDENT OUTSIDE I NDIA AS DEFINED IN CLAUSE (Q) OF SECTION 2 OF THE SAID A CT OR IS A PERSON WHO HAS BEEN PERMITTED BY THE RESERVE BANK O F INDIA TO MAINTAIN THE AFORESAID ACCOUNT... 5 I.T.A. NO.2573/MUM/2012 IT IS THUS NOTED THAT THE ESSENTIAL CONDITION REQUI RED IS THAT THE ASSESSEE SHOULD BE A PERSON RESIDENT OUTSIDE INDIA IN THE RE LEVANT YEAR IN VIEW OF RELEVANT PROVISIONS OF FEMA, 1999. IN THIS REGARD, IT IS NOTED BY US THAT THOUGH AO DID NOT MAKE ANY ADDITION BUT LD. CIT(A) RAISED THIS ISSUE AND MADE THE ADDITION BY WAY OF ENHANCEMENT. IN THIS R EGARD IT IS NOTED BY US THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE LD. CIT( A) IN ASSESSEES OWN CASE FOR A.Y. 2009-10 VIDE HIS ORDER DT 20-02-2013 WHEREIN HE HAS ANALYZED COMPLETE FACTS OF THE ASSESSEE AND RELEVAN T LAW CONTAINED IN FEMA AND THEREAFTER FOLLOWING FACTUAL FINDINGS WERE RECORDED BY HIM: 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE. IT APPEARS THAT DURING THE RELEVANT PERIOD, THE ASSESS EE WAS ON DEPUTATION TO INDIA TO A SUBSIDIARY OF SUN LIFE ASS URANCE COMPANY OF CANADA AND THEREFORE, HE WAS NOT IN INDI A FOR45 EMPLOYMENT PURPOSES BUT WAS TO RETURN BACK TO CANAD A AFTER COMPLETION OF HIS DEPUTATION PERIOD. THEREFORE, HE WAS A PERSON NOT RESIDENT IN INDIA AS PER SECTION 2(W) OF (FOREI GN EXCHANGE MANAGEMENT ACT). IF THAT BE THE CASE, THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10(4)(II) OF THE I.T. ACT. NO DO UBT THAT THE ASSESSEE IS A RESIDENT IN INDIA AS PER SECTION 6 OF THE I.T. ACT. HOWEVER, PROVISIONS OF SECTION 10(4)(II) READS AS U NDER: ......IN THE CASE OF AN INDIVIDUAL, ANY INCOME BY WAY OF INTEREST ON MONEYS (II) IN THE CASE OF AN INDIVIDUAL, ANY I NCOME BY WAY OF INTEREST ON MONEYS STANDING TO HIS CREDIT IN A NON-RESIDENT (EXTERNAL) ACCOUNT IN ANY BANK IN INDIA IN ACCORDANCE WITH (TH E FOREIGN EXCHANGE MANAGE MENT ACT, 1999], AND THE RULES MADE THEREUNDER: PROVIDED THAT SUCH INDIVIDUAL IS A PERSON RESIDENT OUTSIDE I NDIA AS DEFINED IN CLAUSE (Q) OF SECTION 2 OF THE SAID A CT ORT IS A PERSON WHO HAS BEEN PERMITTED BY THE RESERVE BANK O F INDIA TO MAINTAIN THE A FORESAID ACCOUNT; 8. APPARENTLY, THE ASSESSEE SATISFIES BOTH THE C ONDITIONS. THE ASSESSEE ALSO GETS SUPPORT FROM CBDT CIRCULAR NO. 592 DATED 04.02.1991.THEREFORE, THE INTEREST INCOME ACCRUING TO THE ASSESSEE IN NRE ACCOUNT, AMOUNTING TO RAS.4,46,520 /- IS NOT TAXABLE IN INDIA. THE AO IS ACCORDINGLY DIRECTED TO DELET E THE ADDITION. 9. PERUSAL OF THE AFORESAID FINDINGS OF LD. CIT(A) GIV EN IN A.Y. 2009-10 6 I.T.A. NO.2573/MUM/2012 REVEALS THAT ASSESSEE WAS ON DEPUTATION TO INDIA WI TH A SUBSIDIARY OF M/S SUNLIFE ASSURANCE CO OF CANADA. IT HAS BEEN FURTHE R HELD THAT ASSESSEE WAS A PERSON NOT RESIDENT IN INDIA AS PER PROVISION S OF FEMA. IT HAS BEEN FURTHER HELD BY LD. CIT(A) THAT THE ASSESSEE SATIS FIED BOTH THE CONDITIONS OF SECTION 10(4)(II) OF THE ACT. IT IS FURTHER NOT ED BY US THAT IN THE YEAR BEFORE US THE ASSESSMENT WAS DONE EX-PARTE AND ADDITION WAS MADE BY THE LD. CIT(A) BY WAY OF ENHANCEMENT. IT IS FURTHE R NOTED THAT FACTS HAVE NOT BEEN PROPERLY ANALYSED BY LD. CIT(A) IN THE IMP UGNED YEAR. ON THE OTHER HAND, IN THE ASSESSMENT YEAR 2009-10 PROPER F ACTUAL ANALYSIS WERE MADE BY LD.CIT(A) AND HIS ORDER HAS BEEN ACCEPTED B Y THE REVENUE AS PER THE FACTS NARRATED BEFORE US BY THE LD. COUNSEL. U NDER THESE CIRCUMSTANCES, WE FIND THAT THE INTEREST INCOME OF THE ASSESSEE IS EXEMPT U/S 10(4)(II) OF THE ACT AND, THEREFORE, ADDITION M ADE BY THE LD.CIT(A) WITH REGARD TO INTEREST EARNED IN NRE ACCOUNT IS DIRECTE D TO BE DELETED. THESE GROUNDS ARE ALLOWED. 10. GROUNDS 4 TO 7 DEAL WITH ACTION OF THE LD. CIT(A) IN TREATING THE CAPITAL GAIN ON SALE OF SHARES IN MUTUAL FUND UNDER PORTFOLIO MANAGEMENT SCHEME (PMS, IN SHORT) AS AN ADVENTURE IN THE NATUR E OF TRADE AND THEREBY HOLDING IT TO BE BUSINESS INCOME AS AGAINST CLAIM O F THE ASSESSEE AS CAPITAL GAINS. 11. DURING THE COURSE OF HEARING, IT WAS STATED BY THE LD. COUNSEL THAT THIS IS THE FIRST YEAR WHEN THIS INCOME HAS BEEN RE CEIVED. THE ASSESSEE IS A US CITIZEN AND IS A SALARIED EMPLOYEE. THE ASSESSE E DID NOT HAVE ANY EXPERIENCE AND SKILL IN THE SHARE-MARKET, AND THERE FORE, HE TOOK HELP OF SPECIALISTS AND MADE INVESTMENTS IN SHARES THROUGH PMS FOR MAXIMISING HIS WEALTH AND VALUE OF INVESTMENTS. IT WAS FURTHE R SUBMITTED THAT THE AO DID NOT RAISE THIS ISSUE WHEREAS ONLY LD. CIT(A) RA ISED THIS ISSUE AND MADE 7 I.T.A. NO.2573/MUM/2012 THE ADDITION BY WAY OF ENHANCEMENT OF INCOME. IT W AS FURTHER SUBMITTED THAT LD. CIT(A) TREATED THIS AMOUNT AS BUSINESS INC OME ONLY ON THE BASIS OF NUMBER AND VOLUME OF TRANSACTIONS. NONE OF THE CAS ES RELIED UPON BY LD. CIT(A) PERTAINS TO INVESTMENT THROUGH PMS. IT WAS FURTHER SUBMITTED THAT IN SUBSEQUENT YEARS ALSO THE AO HAS NOT RAISED THIS ISSUE AND ACCEPTED THE CLAIM OF THE ASSESSEE BY TREATING THE AMOUNT OF CAP ITAL UNDER PMS AS ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAIN S. THE LD. COUNSEL RELIED UPON THE FOLLOWING DECISIONS:- CIT VS KAPOOR INVESTMENTS PVT LTD 234 TAXMANN 149 ( KAR) ITO VS RADHA BIRJU PATEL ITA NO.5382/M/2009 ORDER DT 30-11-2010 ARA TRADING & INVESTMENTS (P) LTD VSA DY.CIT 47 S OT 172(PUNE) MANAN NALIN SHAH ITA 5635/MUM/2009 & ORS DT 23-01-2 013 12. IT IS THUS SUBMITTED THAT THE IMPUGNED AMOUNT IS AS SESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAINS AND, THEREFORE , ORDER OF THE LD. CIT(A) SHOULD BE REVERSED. 13. PER CONTRA, LD. CIT-DR SUBMITTED THAT THE FREQUENCY OF TRADING IN THE ACTIVITIES OF SALE / PURCHASE OF SHARES IS ACTU ALLY AN ADVENTURE IN THE NATURE OF TRADE. HE SUBMITTED THAT LD. CIT(A) HAS RIGHTLY CONSIDERED THE FACTS OF THE CASE WHEREIN NUMBER OF TRANSACTIONS WE RE DONE BY THE ASSESSEE, AND THEREFORE, THE RESULTANT INCOME HAS R IGHTLY BEEN TAXED UNDER THE HEAD INCOME FROM BUSINESS. 14. WE HAVE GONE THROUGH THE ORDERS PASSED BY LOWER AUT HORITIES AND SUBMISSIONS MADE BEFORE US BY BOTH THE SIDES. THE ADMITTED FACTS ARE THAT THE ASSESSEE IS A SALARIED EMPLOYEE OF SUNLIFE ASSURANCE COMPANY OF CANADA. IT IS FURTHER ADMITTED THAT ASSESSEE HAS S ET HIS FOOT IN THE SHARE MARKET. UNDER THESE CIRCUMSTANCES, ASSESSEE ENTERE D INTO AN AGREEMENT WITH M/S UNIFY WEALTH MANAGMENT PVT LTD FOR INVESTM ENT IN STOCK MARKET 8 I.T.A. NO.2573/MUM/2012 THROUGH PMS OFFERED BY THE PORTFOLIO MANAGER. OUR ATTENTION WAS DRAWN TO VARIOUS CLAUSES OF THE AGREEMENT TO EMPHASISE UP ON THE FACT THAT THE WHOLE INVESTMENT OBJECTIVE OF THE ASSESSEE WAS TO M AXIMISE THE VALUE OF INVESTMENTS OF THE ASSESSEE. IT WAS FURTHER SHOWN TO US THAT THE PORTFOLIO MANAGER WAS APPOINTED FOR INVESTMENT MANAGEMENT. IT IS FURTHER NOTED THAT THE ASSESSEE HAD MADE THE INVESTMENT USI NG HIS OWN FUNDS AND ADMITTEDLY NO BORROWED FUNDS WERE USED BY THE ASSES SEE FOR MAKING AFORESAID INVESTMENT. THE ONLY GROUND TAKEN BY THE LD. CIT(A) TO TREAT THIS AS AN ADVENTURE IN THE NATURE OF TRADE WAS THAT THE ASSESSEE HAD MORE THAN 400 TRANSACTIONS AND, THEREFORE, ASSESSEES DE ALINGS AMOUNTED TO ADVENTURE IN THE NATURE OF TRADE AND RESULTANT INCO ME WAS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. IN REPLY TO THE SAME, THE LD. COUNSEL HAD PRODUCED BEFORE US, VARIOUS DETAILS AND DOCUMENTARY EVIDENCE TO SHOW THAT DUE TO THE USE OF ELECTRONIC SYSTEM OF STOCK EXCHANGE THE TRANSACTION WAS DIVIDED FOR SIMILAR QU ANTITIES AND, THEREFORE, NUMBERS OF TRANSACTIONS APPEARING IN THE LIST WERE LARGER THAN THE TRANSACTION ACTUALLY ENTERED INTO BY THE ASSESSEE. THE INSTANCES WERE SHOWN WITH RESPECT TO RESPECTIVE SHARES OF DECCAN A VIATION LTD & RAYBAN SUN OPTICS INDIA LTD. IT WAS FURTHER SUBMITTED THA T IN ANY CASE, NUMBER OF TRANSACTIONS CANNOT BE THE SOLE CRITERION FOR HOLDI NG THAT THE TRANSACTION WAS PART OF BUSINESS TRANSACTION. IN THIS REGARD R EFERENCE HAS BEEN MADE BY LD. COUNSEL TO VARIOUS JUDGMENTS WHEREIN IT HAS BEEN HELD THAT A TRANSACTION CANNOT BE HELD TO BE BUSINESS TRANSACTI ON ON THE BASIS OF ITS VOLUME ONLY. 15. IT HAS BEEN FURTHER SHOWN TO US THAT AVERAGE PERIOD OF HOLDING OF SHARES IS ABOUT 3 MONTHS AND THEREFORE, IT CANNOT B E SAID THAT ASSESSEE WAS ENGAGED IN ANY SPECULATIVE TRANSACTIONS, AT ALL . IT IS FURTHER SHOWN TO 9 I.T.A. NO.2573/MUM/2012 US THAT HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS KAPUR INVESTMENTS (P) LTD (SUPRA) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE PROFITS EARNED FROM IN VESTMENT THROUGH PMS WHETHER DIRECTLY OR INDIRECTLY OR THOUGH PMS, WOU LD STILL REMAIN AS PROFITS TO BE TAXED AS CAPITAL GAINS AS THE SAME WI LL NOT CHANGE THE NATURE OF INVESTMENT I.E. IN SHARES, AND LAW PERMITS IT TO BE TAXED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. RELEVANT PORTION O TH E SAID JUDGMENT IS REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENC E: 10. AS REGARDS THE FIRST QUESTION THAT MERELY BECAU SE OF EMPLOYMENT OF PORTFOLIO MANAGEMENT SERVICE FOR INVE STMENT IN SHARES, THE SAME WOULD BECOME BUSINESS INCOME, W E ARE OF THE OPINION THAT THE SAID ISSUE HAS BEEN DEALT W ITH AT LENGTH BY THE DELHI HIGH COURT IN THE CASE OF RADIALS INTE RNATIONAL (SUPRA), WHEREIN, IN SIMILAR FACTS, THE QUESTION HA S BEEN ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. DETAILED REASONS FOR THE SAME HAVE BEEN GIVEN IN TH E SAID JUDGMENT WITH WHICH WE CONCUR. EVEN OTHERWISE, IT I S ADMITTEDLY NOT A CASE WHERE THE ASSESSEE HAD ENGAGE D ITS OWN PERSONS OR HAD A SEPARATE BUSINESS INFRASTRUCTURE T O CARRY OUT ITS SHARE TRANSACTIONS FOR THE PURPOSE OF BUSINESS. IT IS MERELY A CASE WHERE THE ASSESSEE HAS INVESTED FUNDS THROUGH THE PORTFOLIO MANAGEMENT SERVICE. 11. IN OUR OPINION, INVESTMENT THROUGH PORTFOLIO MANAGE MENT SERVICE, WHICH MAY DEAL WITH THE SHARES OF THE ASSE SSEE SO AS TO DERIVE MAXIMUM PROFITS CANNOT BE TERMED AS BUSIN ESS OF THE ASSESSEE BUT WOULD ONLY BE A CASE OF A MORE CAREFUL AND PRUDENT MODE OF INVESTMENT, WHICH HAS BEEN DONE BY THE ASSESSEE. FUNDS WHICH LIE WITH THE ASSESSEE CAN ALW AYS BE INVESTED (FOR EARNING HIGHER RETURNS) IN THE SHARES EITHER DIRECTLY OR THROUGH PROFESSIONALLY MANAGED PORTFOLIO MANAGEM ENT 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 DIRECTLY OR THROUGH PROFESSIONALLY MANAGED FIRM, WOULD STILL REMAIN AS PROFITS TO BE TAXED AS CAPITAL GAINS AS THE SAME WILL NOT CHANGE THE NATURE OF INVESTMENT, WHICH IS IN SHARES, AND THE LAW PERM ITS IT TO BE TAXED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. 16. IT IS FURTHER NOTED BY US THAT IN THE CASE OF RADIALS INTERNATIONAL VS ACIT 367 ITR 1 (DEL) , HONBLE DELHI HIGH COURT HELD THAT PMS AGREEMENT IS MERELY AN AGREEMENT FOR AGENCY AND COULD NOT BE USE D TO INFER ANY 10 I.T.A. NO.2573/MUM/2012 INTENTION TO MAKE PROFITS; AN INTENTION OF THE ASSE SSEE SHOULD BE INFERRED HOLISTICALLY FROM CONDUCT OF THE ASSESSEE AND CIRCU MSTANCES OF THE TRANSACTIONS. SIMILARLY IN THE CASE OF RADHA BIRJI PATEL (SUPRA), THE CO- ORDINATE BENCH HAD TAKEN A SIMILAR VIEW WHEREIN IT WAS HELD THAT THE TRANSACTIONS CARRIED OUT UNDER PMS ARE IN THE NATUR E OF TRANSACTIONS MEANT FOR MAXIMISATION OF WEALTH RATHER THAN NEGOTI ATING THE PROFITS ON APPRECIATION IN VALUE OF SHARES. IT WAS FURTHER HE LD THAT REAL NATURE OF PMS IS SUCH THAT THE INVESTMENTS MADE BY THE ASSESS EE ARE PROTECTED AND ENHANCED AND IN SUCH CIRCUMSTANCES, IT CANNOT BE SA ID THAT PMS IS A SCHEME OF TRADING IN SHARES AND STOCK. SIMILARLY I N THE CASE OF ARA TRADING & INVESTMENTS (P) LTD VS DCIT (SUPRA), THE ITAT HELD THAT INVESTMENT MADE THROUGH PMS IS AN ACTIVITY OF WEALT H MAXIMISATION RATHER THAN PROFIT MAXIMISATION AND, THEREFORE, RES ULTANT INCOME SHOULD BE CHARGED UNDER THE HEAD INCOME FROM CAPITAL GAIN S. FURTHER, HONBLE MUMBAI BENCH F OF THE TRIBUNAL IN THE CASE OF MANAN NALIN SHAH (SUPRA), WHEREIN ONE OF US I.E. HONBLE JM WAS A PA RTY, ALSO TOOK A SIMILAR VIEW. 17. IT HAS BEEN FURTHER NOTED BY US THAT A VITAL FACT T O BE NOTED HERE IS THAT THIS DISPUTE HAS BEEN RAISED IN THIS YEAR ONLY AND THAT TOO, BY LD. CIT(A) ALONE. THE AO HAD ACCEPTED AND ASSESSED THI S INCOME UNDER THE HEAD INCOME FROM CAPITAL GAINS. FURTHER IMPORTAN T FACT TO BE NOTED HERE IS THAT IN ALL THE SUBSEQUENT YEARS, THE CLAIM OF THE ASSESSEE HAS BEEN ACCEPTED. IN A.Y. 2009-10, 2010-11 AND 2012-13 THE ASSESSMENTS WERE FRAMED U/A 143(3) WHEREIN INCOME FROM PMS HAS BEEN ASSESSED UNDER THE HEAD INCOME FROM CAPITAL GAINS. IN A.Y. 2011 -12, THE ASSESSMENT WAS DONE U/S 143(3), ACCEPTING THE CLAIM OF THE ASS ESSEE. THESE FACTS WERE NARRATED BY THE LD. COUNSEL AND WERE NOT CONTR OVERTED BY THE LD. DR 11 I.T.A. NO.2573/MUM/2012 AND, THEREFORE, THEY ARE TAKEN AS CORRECT BY US. 18. THUS, TAKING INTO ACCOUNT THE FACTS OF THIS CASE AN D LEGAL POSITION AS IS BROUGHT BEFORE US AND ALSO THE FACT THAT THE CLA IM OF THE ASSESSEE HAS BEEN ACCEPTED BY THE AO AS WELL AS THE LD. CIT(A) C ONSISTENTLY IN ALL SUBSEQUENT YEARS, WE HOLD THAT THE ACTION OF LD.CIT (A) IN TREATING THE INCOME FROM PMS AS BUSINESS INCOME IS CONTRARY TO L AW AND FACTS. THE AO IS DIRECTED TO TREAT THE SAID INCOME AS INCOME ASSE SSABLE UNDER THE HEAD INCOME FROM CAPITAL GAINS. THE ADDITION PROPOSED BY THE LD. CIT(A) IN THIS REGARD IS DIRECTED TO BE DELETED. GROUNDS 4 T O 7 ARE ALLOWED. 19. GROUND 8 IS WITH REGARD TO INITIATION OF PENALTY. THE GROUND IS DISMISSED AS PREMATURE. 20. NOW WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.6309/MUM/2014 FOR A.Y. 2010-11. THE SOLITARY GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO TAXABILITY OF INTEREST I NCOME EARNED ON NRE ACCOUNT. THIS GROUND IS IDENTICAL TO GROUNDS 2 & 3 OF A.Y. 2008-09; NO DISTINCTION HAS BEEN MADE BY THE LD. DR ON LAW OR F ACTS AND, THEREFORE, FOLLOWING OUR ORDER FOR A.Y. 2008-09, THIS GROUND I S ALLOWED AND ADDITION MADE BY THE AO IS DIRECTED TO BE DELETED. 20. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE AL LOWED. ORDER PRONOUNCED IN THE COURT ON THIS 16 TH DAY OF SEPTEMBER, 2016. SD/- SD/- (AMIT SHUKLA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 16 TH SEPTEMBER, 2016 PK/- 12 I.T.A. NO.2573/MUM/2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , F-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES