2013 (1) TMI 834 - AT - Income Tax

Nature of income earned by the assessees from purchase and sale of shares through Portfolio Management Scheme - Held that - Assessees have been making investments in shares and units of mutual funds for several years which had been declared as investment in the books and income from which was being declared as capital gain and accepted by the department - with AY 2003-04 assessee started making investment through PMS - PMS Manager was authorized to purchase, acquire, obtain, take, hold, sell, transfer, substitute or change all or any of the investments made on behalf of the assessee - average holding period of the shares was more than two months - accordingly the income earned from PMS has to be assessed as capital gain - Decided as per assessees own case for the earlier years - Decided in favor of assessee

Summary

Issues involved:
Whether income earned from purchases and sale of shares through Portfolio Management Scheme (PMS) operations should be assessed as business income or as capital gain.

Analysis:

Issue 1: Nature of income earned from PMS
The appeals were filed by the assessee against different orders of CIT(A) for assessment years 2006-07 and 2005-06, questioning the assessment of income earned from purchases and sales of shares through Portfolio Management Scheme (PMS) as business income instead of capital gain. The assessee had historically treated income from sale of shares/units as capital gain, but income from PMS was assessed as business income by the Assessing Officer (AO) for the assessment year 2003-04. CIT(A) concurred with the AO's view for subsequent years as well. However, the Tribunal, in previous cases involving similar issues, had held that income earned from PMS should be assessed as capital gain. The Tribunal noted that the PMS Manager had sole discretion over investments, the assessee did not use borrowed funds, and the average holding period of shares was more than two months. As no distinguishing features were presented for the current years, the Tribunal decided in favor of the assessee, setting aside the CIT(A) orders and allowing the appeals.

Conclusion:
The Tribunal ruled in favor of the assessee, holding that income earned from purchases and sale of shares through Portfolio Management Scheme (PMS) operations should be assessed as capital gain based on previous decisions in similar cases. The Tribunal found no distinguishing features to warrant a different decision for the current assessment years, leading to the allowance of the appeals.