ASST CIT 23(3), MUMBAI V. THE AZAVEDO FAMILY TRUST, MUMBAI

ITA 3679/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4145 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 19-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARKAMAL SOHI
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR , HON'BLE ACCOUNTANT MEMBER ITA NO. 3679 /MUM/201 7 (A.Y: 2012 - 13) A .C.I.T CIRCLE 23 ( 3 ) ROOM NO. 104 , 1 ST FLOOR, MATRU MANDIR, TARDEV ROAD, MUMBAI 400 007 V. THE AZAVEDO FAMILY TRUST PLOT NO . C - 22, G BLOCK, IL & FS FINANCIAL CENTRE, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051 PAN: AABTT 5440 N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRAKASH K. JOTWANI DEPARTMENT BY : SHRI HARKAMAL SOHI DATE OF HEARING : 11 .10.2018 DATE OF PRONOUNCEMENT : 30 . 10 .2018 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 34, MUMBAI [HEREINAFTER IN SHORT LD. CIT(A)] DATED 23.02.2017 F OR THE ASSESSMENT YEAR 2012 - 13. 2. THE REVENUE HAS RAISED THE FOLLOWING G ROUNDS OF APP EAL IN ITS APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) 34, MUMBAI ERRED IN HOLDING THAT THE INCOME EARNED BY THE 2 ITA NO.3679/MUM/2017 (A.Y: 2012 - 13) THE AZAVEDO FAMILY TRUST ASSESSEE ON PURCHASE AND SALE OF SHARES / SECURITIES THROUGH PORTFOLIO MANAGEMENT SERVICES (PMS) WAS LIABLE TO ASSESS UNDER THE HEAR CAPITAL GAINS INSTEAD OF BEING ASSESSED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD.CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O BE RESTORED. 3. AT THE OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE SU BMITTED THAT IDENTICAL ISSUE HAS COME UP BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEAR 2010 - 11 I.E. WHETHER THE PURCHASE AND SALE OF SHARES BY THE ASSESSEE TRUST IS LIABLE TO BE ASSESSED UNDER T HE HEAD CAPITAL GAINS OR BUSINESS INCOME AND TH E TRIBUNAL IN ITA.NO. 2240/MUM/2014 DATED 13.01.2016 SUSTAINED THE ORDER OF THE LD.CIT(A) IN HOLDING THAT T HE PURCHASE AND SALE OF SHARES BY THE ASSESSEE SHALL BE ASSESSED UNDER THE HEAD CAPITAL GAINS AN D NOT UNDER THE HEAD BUSINESS INCOME . COPY OF THE ORDER IS PLACED ON RECORD. LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT IN THE PRESENT APPEAL THE LD.CIT(A) FOLLOWED THE ORDER OF THE TRIBUNAL AND HELD THAT THE ASSESSMENT OF CAPITAL GAINS / LOSS BY THE ASSESSING OFFICER AS BUSINESS INCOME IS NOT CORRECT. 4. LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE OF THE ORDER OF THE C OORDINATE BENCH OF THIS TRIBUNAL , WE FIND THAT THE IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEAR 2010 - 11 IN ASSESSEES OWN CASE AND 3 ITA NO.3679/MUM/2017 (A.Y: 2012 - 13) THE AZAVEDO FAMILY TRUST THE TRIBUNAL HELD THAT THE PURCHASE AND SALE OF SHARES BY THE ASSESSEE IS TO BE COMPUTED UNDER THE HEA D AS CAPITAL GAINS NOT AS BUSINESS INCOME . THIS DECISION OF THE TRIBUNAL WAS FOLLOWED BY THE LD.CIT(A) IN THE CURRENT ASSESSMENT YEAR AND THE COMPUTING OF BUSINESS I NCOME BY THE ASSESSING OFFICER WAS CANCELLED OBSERVING AS UNDER: - 4.3. I HAVE CONSID ERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BY THE APPELLANT. IT IS SEEN THAT SIMILAR ISSUE WAS CONSIDERED BY MY LD. PREDECESSOR IN THE APPEAL FOR A.Y. 2010 - 11 AND THE ISSUE WAS DECIDED IN FAVOUR OF THE APPELLANT. I ALSO FIND THAT THE HON'BLE HAD AFF IRMED THE DECISION OF THE CIT(A) IN ITS ORDER DATED 13.01.2016 IN ITA.NO. 2240/MUM/2014 BY OBSERVING AND HOLDING AS UNDER: - 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED 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? 4.3. IN ORDER TO DETERMINE THE ISSUE IN QUESTION, IT IS ESSENTIAL TO ASCERTAIN SOME OF THE MATERIAL FACTS I.E., WHETHER THE ASSESSEE HAD PURCHASED/SOLD THE SHARES IN QUESTION AS AN INVESTOR OR AS A SHARE TRADER; WHETHER ANY BORROWED FUNDS WERE UTILIZED OR THE ASSESSEE HAS INVESTED ITS OWN FUNDS AND WHETHER THE SHARES IN QUESTION WERE PURCHASED/SOLD UNDER A PORTFOLIO MANAGEMENT SCHEME OR THE ASSESSEE HAS MADE THE TRANSACTION AS A SHARE TRADER? 4.4. ADMITT EDLY, THE OBJECTIVE OF THE APPELLANT TRUST IS TO ENSURE EFFECTIVE SUCCESSION PLANNING MECHANISM AND TRANSFER OF FUNDS FROM GENERATION TO GENERATION FOR THE BENEFIT OF THE FAMILY MEMBERS OF THE SETTLER AND PROTECTING THE FAMILY WEALTH AS THE TRUST BENEFICIA RIES ARE ONLY FAMILY MEMBERS I.E., PURELY BLOOD RELATIVES INCLUDING CHILDREN AND GRAND CHILDREN. THE SHARES IN QUESTION WERE ACQUIRED AND TRANSFERRED THROUGH PORTFOLIO MANAGERS ENGAGED BY THE ASSESSEE. THE ENTIRE INVESTMENTS HAVE COME OUT OF THE CORPUS FUN D OF THE ASSESSEE AND NO BORROWED FUNDS WERE UTILIZED FOR PURCHASE OF THE SHARES IN QUESTION. IN VIEW OF THE AFORESAID FACTS THE CONTENTION OF THE REVENUE THAT THE ASSESSEE HAS INDULGED IN BUSINESS ACTIVITIES IN THE GUISE OF SHARE INVESTMENT HAS NO MERIT. IT IS QUITE CLEAR THAT THE 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 MANAGERS. THEREFORE THE CIT(A) HAS RIGHTLY HELD THE INCOME IN QUESTION AS CAPITAL GAINS AND NOT THE BUSINESS INCOME. FROM THE AFORESAID FACTS AND IN VIEW OF THE SETTLED PRINCIPLES OF LAW IT CAN BE CONCLUDED THAT THE ASSESSEE HAD PURCHASED/SOLD THE SHARES IN QUESTION IN THE CAPACITY OF AN INVESTOR AND NOT IN THE CAPACITY OF A SHARE TRADER AND 4 ITA NO.3679/MUM/2017 (A.Y: 2012 - 13) THE AZAVEDO FAMILY TRUST THEREFORE, 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. 5. IN VINOD K NEVATIA VS ACIT, ITA NO 6656/M/2009, THE COORDINATE 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 ACCOUNT OF ENHANCEMENT IN THE VALUE OF SHARE OVER A PERIOD THEN MERELY BECAUSE THE ASSESSEE LIQUIDATES ITS INVES TMENT WITHIN SIX MONTHS OR EIGHT MONTHS WOULD NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAD NO INTENTION TO KEEP THE FUNDS AS INVESTED IN EQUITY SHARES AND BUT WAS ACTUALLY INTENDED TO TRADE IN SHARES. IN SALIL SHAH FAMILY PVT. TRUST VS. ACIT, ITA NO 24 46/M/2012, THE SOLE GRIEVANCE OF THE ASSESSEE WAS THAT THE LD. CIT(A) HAS ERRED IN HOLDING SHORT TERM CAPITAL GAIN OF RS. 5,97,26,574/ - AND LONG TERM CAPITAL GAIN OF RS. 8,91,000/ - ON THE SALE INVESTMENTS THROUGH A PORTFOLIO MANAGER, IS BUSINESS INCOME A ND NOT CAPITAL GAINS. THE CO - ORDINATE BENCH OF MUMBAI 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 FAVOUR 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 TH E LD.CIT(A) WE HAVE NO HESITATION TO HOLD THAT CONSIDERING THE NATURE OF TRANSACTION THROUGH PORTFOLIO MANAGEMENT SERVICES PROVIDERS IN THE LIGHT OF THE JUDICIAL PRONOUNCEMENT DISCUSSED HEREIN ABOVE, THE TRANSACTION HAVE RESULTED INTO CAPITAL GAINS, STCG A ND LTCG AS RETURNED BY THE ASSESSEE. THEREFORE, THE AO IS DIRECTED TO ACCEPT THE CAPITAL GAINS AS RETURNED BY THE ASSESSEE. 6. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND EVIDENCE ON RECORD TO SUBSTANTIATE THE RIVAL CONTENTIONS AND IN THE LIGH T OF THE DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUNAL 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 AND THERE IS NO SCOPE FOR FURTHE R INTERFERENCE IN THE ORDER OF THE LD. CIT(A). WE THEREFORE, UPHOLD THE ORDER PASSED BY THE LD. CIT(A) AND DISMISS THE GROUND OF THE APPEAL OF THE REVENUE. 4.4. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HON'BLE ITAT, THE ASSESSMENT OF CAPITAL GAINS / LOSS BY THE ASSESSING OFFICER AS BUSINESS INCOME / LOSS IS CANCELLED. THE APPELLANTS GROUND OF APPEAL IS ALLOWED. 6. SINCE THE TRIBUNAL ALREADY DECIDED THE ISSUE ON MERITS FOR THE ASSESSMENT YEAR 2010 - 11 WHICH WAS FOLLOWED BY THE LD.CIT(A) FOR THIS ASSES SMENT YEAR AND NO CHANGE IN FACTS AND CIRCUMSTANCES WAS BROUGHT 5 ITA NO.3679/MUM/2017 (A.Y: 2012 - 13) THE AZAVEDO FAMILY TRUST ON RECORD , F OLLOWING THE SAID ORDER, WE UPHOLD THE ORDER OF THE LD.CIT(A) IN CANCELLING THE COMPUTATION OF BUSINESS INCOME AS MADE BY THE ASSESSING OFFICER. 7. IN THE RESULT, APPEAL OF THE REVENU E IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH OCTOBER, 2018 SD/ - SD/ - ( RAJESH KUMAR ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 30 / 10 / 2018 GIRIDHAR , SR . PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM