Appeal details
Counselvise Citation
771319914 RSA 2011
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 10 month(s) 20 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-10-2015
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
26-03-2015
Assessment Year
2008-2009
Appeal Filed On
15-11-2011
Judgement Text
PRAVIN POPATLAL SHAH ITA NO. 7713 /M/201 1 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI . . , , BEFORE SHRI B R BASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER ITA NO. : 7713 /MUM/20 1 1 (ASSESSMENT YEAR :200 8 - 0 9 ) PRAVIN POPATLAL SHAH , FLAT NO. 95B, MEGHDOOT CHS LTD., 1 ST FLOOR, N S ROAD, MARINE DRIVE, MUMBAI - 400 021 .: PAN: AA ABZ 0019 Q VS ASST. COMMISSIONER OF INCOME - 14 ( 1 ) , 2 ND FLOOR, EARNED HOUSE, NARIMAN POINT, MUMBAI - 400 021 (APPELLANT (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI DEEP KANT PRASAD /DATE OF HEARING : 06 - 0 7 - 201 5 / DATE OF PRONOUNCEMENT : 05 - 10 - 201 5 ORDER , . . : PER AMIT SHUKLA, J M : THE A FORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE AGAINST IMPUGNED ORDER DATED 30 . 09 . 201 1 PASSED BY CIT(A) - 25 , MUMBAI , FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR 200 8 - 0 9 , ON THE FOLLOWING GROUNDS : - 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW , THE L EARNED C OMMISSIONER OF I NCOME T AX ( A PPEALS) ERRED IN CONFIRMING THE ADDITION CAPITAL GAINS (ARISING OUT OF SALE OF SHARES, UNITS AND SECURITIES THROUGH PORTFOLIO MANAGEMENT SERVICES) OF RS. 34,27,306/0 AS PROFIT AND GAINS OF BUSINESS OR PROFESSION. PRAVIN POPATLAL SHAH ITA NO. 7713 /M/201 1 2 UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) OUGHT TO HAVE ACCEPTED THAT A SUM OF RS. 3,17,699/ - AS SHORT TERM CAPITAL GAIN AND RS. 32,09,607/ - AS LONG TERM CAPITAL GAIN. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE INCOME FROM PMS OUGHT TO HAVE BEEN COMPUTED AS CAPITAL G AINS. 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING THE INTEREST CHARGED U/S 234B & 234C OF THE I.T. ACT. 2. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE, SHRI NITSH JOSHI, SUBMITTED THAT THE MAIN ISSUE INVOLVED HERE IN THIS APPEAL IS , WHETHER THE GAIN/PROFIT ARISING OUT OF TRANSACTION OF SALE OF SHARES CARRIED OUT BY PORTFOLIO MANAGEMENT SERVICES (PMS) IS TO BE TREATED AS BUSINESS INCOME OR CAPITAL GAIN. THIS PRECISE ISS UE HAD COME - UP FOR CONSIDERATION IN THE CASE OF THE ASSESSEE AND H IS FAMILY MEMBERS IN THE EARLIER YEARS BEFORE THE TRIBUNAL, WHEREIN, THIS ISSUE AFTER DETAILED DISCUSSION HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE , BY INTER ALIA HOLDING THAT THE GAIN ARIS ING OUT OF TRANSACTIONS OF SHARES MADE THROUGH PMS IS TO BE TAXED UNDER THE HEAD CAPITAL GAIN AND NOT AS BUSINESS INCOME. IN SUPPORT, HE FILED THE ITAT DECISION IN THE CASE OF MANAN NALIN SHAH VS DCIT PASSED IN VIDE ITA NO. 6166, 2125 & 4126/MUM/2008 FOR THE ASSESSMENT YEARS 2003 - 04 TO 2005 - 06 , VIDE ORDER DATED 06.07.2012 AND ITAT ORDER DATED 11.07.2012 PASSED IN ASSESSEES OWN CASE FOR THE AYS 2005 - 06 TO 2007 - 08. THUS HE SUBMITTED THAT , THE POINT IN ISSUE IS SQUARELY COVERED BY THE EARLIER YEARS PREC EDENCE. 3. ON THE OTHER HAND, THE LD. DR HAS STRONGLY RELIED UPON THE ORDER OF THE CIT(A), WHEREIN AFTER DETAILS ANALYSIS, THE LD. CIT(A) PRAVIN POPATLAL SHAH ITA NO. 7713 /M/201 1 3 HELD THAT THE TRANSACTION OF SHARES THROUGH PMS IS TO BE TREATED AS BUSINESS INCOME. 4. WE HAVE HEARD THE RIVAL CONT ENTION AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AND MATERIAL ON RECORD. DURING THE YEAR, THE ASSESSEE HAD INVESTED A PORTION OF HIS CAPITAL IN PORTFOLIO MANAGEMENT SCHEME OF KOTAK SECURITIES , WHO WERE APPOINTED AS PORTFOLIO MANAG ERS PMS BY THE ASSESSEE. DURING THE YEAR, THE ASSESSEE HAS EARNED FOLLOWING GAIN FROM THE INVESTMENT MADE THROUGH PMS : - (RS.) I) STCG ON KOTAK (PMS) ON SHARES 3,17,699.00 II) LTCG ON KOTAK SECURITIES (PMS) 31,09,607.00 TOTAL 64,10,608.00 THE ASSESSEE HAD ALSO EARNED SIMILAR TYPE OF GAIN ON SALE OF SHARES WHICH WAS INVESTED BY HIMSELF, THAT IS, NOT THOUGH PMS AND HAD SHOWN UNDER THE HEAD LONG - TERM - CAPITAL - GAIN (LTCG) OF RS. 60,85,747/ - AND SHORT - TERM - CAPITAL - GAIN (STCG) OF RS. 3,84,861/ - . THIS INCOME SHOWN AS CAPITAL GAIN HAS BEEN ACCEPTED BY THE AO INASMUCH AS IT HAS HELD TO BE TAXABLE UNDER THE HEAD CAPITAL GAIN . HERE ONLY CONTROVERSY IS WITH REGARD TO INVE STMENT MADE THROUGH PMS. THE LD. AO AFTER DISCUSSING THE LETTER OF AGREEMENT BETWEEN THE ASSESSEE AND KOTAK SECURITIES, NOTED VARIOUS S A L I ENT FEATURES AND HELD THAT THE DEALING THROUGH PMS ARE TO BE CLASSIFIED AS ADVENTURE IN THE NATURE OF TRADE. HE FURTHE R OBSERVED THAT, IN THE AY 2005 - 06 AND 2006 - 07, THE CIT(A) HAS UPHELD THIS VIEW OF THE AO. ACCORDINGLY, HE TREATED THE GAIN AMOUNTING TO RS. 34,37,306/ - AS TAXABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 5 . THE LD. CIT(A) AFTER DETAI LED DISCUSSION AND ANALYZING VARIOUS ACTIVITIES CARRIED OUT BY THE PMS AND ALSO THE NATURE OF SHARE TRANSACTION CARRIED BY PMS ON BEHALF OF THE ASSESSEE, CAME TO THE CONCLUSION THAT ACTION OF THE AO TO TREAT ALL THE PURCHASES AND SALES EFFECTED IN SECURITI ES MARKET AND MUTUAL FUNDS BY PMS PRAVIN POPATLAL SHAH ITA NO. 7713 /M/201 1 4 AS BUSINESS ACTIVITY IS CORRECT AND HAS BEEN RIGHTL Y TAXED AS BUSINESS INCOME. 6 . WE FIND THAT, EXACTLY SIMILAR ISSUE HAD COME - UP FOR CONSIDERATION IN THE CASE OF MANAN NALIN SHAH AND ALSO IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2005 - 06 TO 2007 - 08 , WHEREIN THE TRIBUNAL AFTER DETAILED DISCUSSION CAME TO THE CONCLUSION THAT THE INVESTMENTS MADE THROUGH PMS AND GAIN ARISING OUT OF SUCH TRANSACTION S OF SHARES AND STOCKS AND MUTUAL FUNDS IS TO BE ASSESSED UNDER HEAD CAPITAL GAINS AND NOT AS BUSINESS INCOME. IN THE CASE OF THE ASSESSEE, THE TRIBUNAL HAS RELIED UPON THE DECISION OF MANAN NALIN SHAH ( SUPRA ). THE RELEVANT OBSERVATION OF THE TRIBUNAL IN THE CASE OF MANAN NALIN SHAH, WHEREIN PM S ITSELF WAS KOTAK S ECURITIES, WERE AS UNDER : - 15. WE OBSERVE THAT THE ONLY DISPUTE IS AS TO WHETHER THE PROFIT ARISING TO THE ASSESSEE THROUGH THE TRANSACTIONS CARRIED OUT FOR PURCHASE AND SALE OF SHARES AS WELL AS UNITS OF MUTUAL FUND THROUGH PMS IS TO BE ASSESSED UNDER T HE HEAD BUSINESS INCOME OR CAPITAL GAINS. WE OBSERVE THAT IN THE ASSESSMENT YEAR 2003 - 04, ASSESSEE PLACED A PART OF FUND OF RS.50 LAKHS WITH KOTAK SECURITIES AS PMS AND ENTERED INTO AGREEMENT, COPY PLACED AT PAGES 30 & 31 OF PB. IN A.Y. 2003 - 04, THERE IS A PROFIT OF RS.52,127. WE OBSERVE THAT ASSESSEE WHILE FILING THE RETURN, HAS SHOWN THE SAID INCOME AS BUSINESS INCOME. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE FILED A LETTER DATED 25.11.2005 AND STATED THAT THE SAID INCOME IS TO B E ASSESSED UNDER THE HEAD CAPITAL GAINS. THE AUTHORITIES BELOW DID NOT ACCEPT THE SAID CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT FILE A REVISE RETURN AND CLAIM MADE BY WAY OF A LETTER COULD NOT BE ACCEPTED. WE ARE OF THE CONSIDER ED VIEW THAT MERELY BECAUSE ASSESSEE CLAIMED AN INCOME UNDER THE HEAD BUSINESS INCOME BUT IS TO BE ASSESSED UNDER THE LAW UNDER ANOTHER HEAD CANNOT BE REJECTED ONLY ON THE GROUND THAT NO REVISED PRAVIN POPATLAL SHAH ITA NO. 7713 /M/201 1 5 RETURN HAS BEEN FILED. THE AO HAS TO DECIDE THE ASSESSABILI TY OF INCOME UNDER CORRECT HEAD ON THE BASIS OF THE FACTS AND AS PER PROVISIONS OF I.T. ACT. MOREOVER, WHEN THE ASSESSEE HAS TAKEN THE SAID GROUND BEFORE LD CIT(A), LD CITA) COULD NOT REJECT THE CLAIM OF THE ASSESSEE MERELY ON THE GROUND THAT THE ASSESSEE HAS SHOWN PARTICULAR INCOME UNDER A PARTICULAR HEAD. IT IS A LEGAL GROUND AND THE SAME COULD BE CONSIDERED BY LD CIT(A) ON THE BASIS OF THE FACTS AND AS PER PROVISIONS OF LAW. THE HONBLE P&H HIGH COURT IN THE CASE OF RAMCO INTERNATIONAL(SUPRA) HAS HELD TH AT NON - FILING OF THE REVISED RETURN OF INCOME SHOULD NOT COME IN THE WAY IF ALL THE RELEVANT FACTS ARE AVAILABLE ON RECORD. CONSIDERING THE ABOVE DECISION, WE DECIDE THE ISSUE BEFORE US ON MERITS ON THE BASIS OF FACTS PLACED BEFORE US. 16. WE OBSERVE THA T ASSESSEE ENTERED INTO A PMS AGREEMENT WITH KOTAK SECURITIES IN A.Y. 2003 - 04 AND AS PER CLAUSE 2, PMS IS AUTHORIZED TO PURCHASE, ACQUIRE, OBTAIN, TAKE, HOLD, SELL, TRANSFER, SUBSTITUTE OR CHANGE ALL OR ANY OF THE INVESTMENTS MADE ON BEHALF OF THE ASSESSEE . FURTHER CLAUSE 3 OF THE AGREEMENT FURTHER AUTHORIZES TO HOLD ALL OR ANY OF SUCH INVESTMENTS IN ITS NAME OR AT ITS DISCRETION ON BEHALF OF THE ASSESSEE. FURTHER AS PER CLAUSE 6 OF THE AGREEMENT, IT IS STATED THAT THE PORTFOLIO MANGER WILL MAKE EVERY EFFOR T TO MAXIMIZE THE VALUE OF INVESTMENT. CLAUSE 9 OF THE SAID AGREEMENT STIPULATES THAT PORTFOLIO MANGER WILL PROVIDE THE ASSESSEE WITH QUARTERLY STATEMENT OF THE INVESTMENTS. ON PERUSAL OF THE CONTENTS OF THE AGREEMENT, WE OBSERVE THAT ASSESSEE HAS PLACED F UNDS WITH PMS TO MAKE INVESTMENT IN SHARES/MUTUAL FUNDS AND NOT WITH A VIEW TO DO TRADE. WE ALSO OBSERVE THAT ASSESSEE AS ON 31.3.2003 HAD A TOTAL CAPITAL OF RS.17.97 CRORES(APPROX) AND OUT OF WHICH, A SUM OF RS.50 LAKHS WAS PLACED FOR THE FIRST TIME WITH PMS. WE OBSERVE THAT ASSESSEE ALSO MADE DIRECT INVESTMENTS IN SHARES PRAVIN POPATLAL SHAH ITA NO. 7713 /M/201 1 6 AND THERE WAS SHORT TERM CAPITAL GAIN OF RS.9,53,215 AND LONG TERM CAPITAL GAIN OF RS.2,13,519. THE DEPARTMENT HAS ACCEPTED THE LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM CAPITAL GAIN S HOWN BY ASSESSEE WHICH HAS ARISEN BY MAKING DIRECTLY PURCHASE & SALES OF SHARES/UNITS. DURING THE COURSE OF HEARING, LD D.R. SUBMITTED THAT WHEN THE PORTFOLIO MANAGER IS APPOINTED, HE ACTS AS AN AGENT ON BEHALF OF THE ASSESSEE TO DO TRADE. HOWEVER, SIMILAR ISSUE HAS BEEN CONSIDERED BY PUNE BENCH OF TRIBUNAL IN THE CASE OF ARA TRADING & INVESTMENT PVT LTD (SUPRA). THE RELEVANT EXTRACTS FROM PARAS 22 TO 27 HAVE BEEN PRODUCED HEREINABOVE. WE OBSERVE THAT PORTFOLIO MANAGER IS APPOINTED IN PURSUANCE OF AN AGREEM ENT, THEREFORE, THE MANAGEMENT OF PORTFOLIO IS AN INDEPENDENT ACTIVITY AND NOT GOVERNED BY CLIENT I.E. ASSESSEE. THE RELEVANT CLAUSES OF THE AGREEMENT, EXTRACT OF WHICH WE HAVE MENTIONED ABOVE, CLEARLY ESTABLISH THAT THE PURPOSE IS TO TAKE DECISION TO MAKE INVESTMENT AND TO PROVIDE STATEMENT TO THE ASSESSEE ON QUARTERLY BASIS. IN THE PMS, THERE IS NO ASSURED GUARANTEE AGAINST LOSS OR DEGENERATION OF CAPITAL. AS PER SEBI GUIDELINES, THE PORTFOLIO MANAGER IS AUTHORIZED TO PURCHASE AND SALE OF SHARES ON BEHALF OF THE CLIENT AGAINST SECURITIES AFTER OBTAINING WRITTEN PERMISSION. THEY ARE NOT AUTHORIZED TO UNDERTAKE PURCHASE AND SALE OF SECURITIES WHICH ARE SETTLED OTHERWISE THAN BY ACTUALLY DELIVERY OR TRANSFER OF SECURITIES. THE PORTFOLIO MANAGER AT THEIR OWN D ISCRETION CAN MAKE INVESTMENTS. CONSIDERING THE ABOVE SCHEME OF PORTFOLIO MANAGEMENT, WE ARE OF THE CONSIDERED VIEW THAT THE INVESTMENTS MADE BY THE ASSESSEE THROUGH PMS IS MEANT FOR MAXIMIZATION OF WEALTH AND NOT WITH A VIEW TO DO TRADE IN PURCHASE AND SA LE OF SHARES. FURTHER, WE OBSERVE THAT THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT THE PORTFOLIO MANAGER HAVE THE SOLE AND ABSOLUTE DISCRETION TO MAKE THE INVESTMENTS FOR AND ON BEHALF OF THE ASSESSEE AND THE PRAVIN POPATLAL SHAH ITA NO. 7713 /M/201 1 7 ASSESSEE HAS NO ROLE TO PLAY ON THE SAME. THE ASSESSEE HAS NOT TAKEN ANY BORROWING FOR MAKING INVESTMENTS FOR PLACING ITS FUNDS WITH PORTFOLIO MANAGER. WE AGREE WITH LD A.R. THAT THE DECISION OF ITAT DELHI BENCH IN THE CASE OF RADIALS INTERNATIONAL(SUPRA) RELIED UPON BY LD D.R. IS NOT APPLICABLE TO THE FACTS OF THE CASE AS IN THAT CASE, THE TRIBUNAL OBSERVED THAT HOLDING PERIOD OF SHARES BY PORTFOLIO MANAGER RANGES FROM 2 DAYS TO FEW MONTHS AT THE MOST AND THE NUMBER OF TRANSACTIONS WERE HUGE. THEREFORE, THE TRANSACTIONS WERE FOUND TO BE NOT INVESTMENT BUT AN ADVENTURE IN THE NATURE OF TRADE. HOWEVER, IN THE CASE BEFORE U S, LD A.R. HAS STATED THE RELEVANT FACTS, WHICH WE HAVE DISCUSSED HEREINABOVE, AND ON THAT BASIS, WE AGREE WITH LD A.R. THAT SAID DECISION OF DELHI BENCH OF THE TRIBUNAL IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. SIMILARLY, THE CASE OF HONBLE A.P. HIG H COURT IN THE CASE OF PVS RAJU VS ACIT(SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE AS IN THAT CASE, THE HONBLE HIGH COURT CONSIDERED THE RELEVANT FACTORS, WHICH ARE MENTIONED IN PARA 15 OF THE SAID ORDER AND ON THAT BASIS, THE HONB LE HIGH COURT CONFIRMED THE ORDER OF THE TRIBUNAL THAT THE VOLUME OF SHARE TRANSACTIONS WERE IN THE ORDINARY LINE OF BUSINESS OF PURCHASE AND SALE OF SHARES AND NOT FOR THE PURPOSE OF INVESTMENTS. IN THE CASE BEFORE US, THE SAID FACTS ARE NOT BORNE OUT AS THE AVERAGE PERIOD OF HOLDING WAS VARYING FOR MORE THAN TWO MONTHS. SIMILARLY, WE AGREE THAT THE DECISION OF ITAT MUMBAI IN THE CASE OF MAFATLAL HOLDINGS LTD (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE AS IN THAT CASE, THE BOARD OF D IRECTORS SPECIFICALLY PASSED A RESOLUTION TO PLACE RS.100 CRORES FOR PURCHASE AND SALE OF SHARES WITH AN ASSET MANAGEMENT COMPANY AS ITS PORTFOLIO MANAGER. THEREFORE, THE INTENTION WAS TO DO TRADE IN PURCHASE AND SALE OF SHARES, WHICH IS NOT THE CASE OF TH E ASSESSEE. WE MAY ALSO STATE THAT AT THE TIME OF HEARING, LD D.R. REFERRED THE PRAVIN POPATLAL SHAH ITA NO. 7713 /M/201 1 8 DECISION OF ITAT MUMBAI IN THE CASE OF IMMORTAL FINANCIAL SERVICES PVT LTD. VS DCIT, 44 SOT 88 (MUMBAI). IN THE SAID CASE, THE TRIBUNAL CONFIRMED THE ACTION OF LD CIT(A) THAT PROFIT FROM PURCHASE AND SALE OF SHARES IS BUSINESS INCOME CONSIDERING THE FREQUENCY OF BUYING AND SELLING OF SHARES OVER A SHORT SPAN OF PERIOD AND ALSO THE FACT THAT THE ASSESSEE IN THE BOOKS OF ACCOUNT HAS ALSO TREATED THE INCOME AS BUSINESS INCOME AND NOT AS CAPITAL GAINS. THEREFORE, THE SAID CASE COULD NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. CONSIDERING ABOVE SUBMISSIONS AND CASES CITED BEFORE US, WE HOLD THAT THE VERY NATURE OF PMS IS SUCH THAT INVESTMENTS MADE BY THE ASSESSEE CANNOT BE SAID TO BE SCHEME OF TRADING OF SHARES AND STOCKS AND, ACCORDINGLY, THE PROFIT IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS. THEREFORE, GROUNDS OF APPEAL TAKEN BY ASSESSEE ARE ALLOWED IN PART AS INDICATED HEREINABOVE . 7 . THUS, FOLLOWING THE EARLIER YEARS PRECEDENCE IN ASSESSEES OWN CASE , RIGHT FROM ASSESSMENT YEAR 2005 - 06 TO 2007 - 08, WE HOLD THAT THE TRANSACTION MADE THROUGH PMS IS TO BE TAXED UNDER THE HEAD CAPITAL GAINS AND NOT BUSINESS IN COME. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOWED. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH OCTOBER , 2015. SD/ - SD/ - ( . . ) ( ) (B R BASKARAN ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 5 TH OCTOBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. PRAVIN POPATLAL SHAH ITA NO. 7713 /M/201 1 9 3) THE CIT (A) - 25 , MUMBAI. 4 ) THE CIT - 14 , MUMBAI. 5 ) , , / THE D.R. C BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS
Mehul