2012 (7) TMI 960 - AT - Income Tax

Additional Capital Gains (arising out of sale of Shares Units and Securities through Portfolio Management Services) - Held that - Income earned by the assessee-HUF through PMS has to be assessed under the head capital gains and not under the head income from business or profession

Summary

Issues:
1. Assessment of capital gain from sale of shares, units, and securities through Portfolio Management Services (PMS) under 'capital gains' or 'business income'.
2. Treatment of long-term capital loss on transfer of units of US-64.
3. Confirmation of interest charged under section 234C of the Income Tax Act.

Issue 1: Assessment of Capital Gain:
The main issue in the appeal for the assessment year 2004-05 was whether the capital gain of Rs. 1.04 Crores arising from the sale of shares, units, and securities through PMS should be assessed under the head 'capital gains' or 'business income.' The assessee argued that the income should be treated as short-term capital gain, speculation income, and dividend income. The Assessing Officer (AO) treated the PMS receipts as business income. The assessee had initially offered the income from PMS under 'business and profession' but later claimed it under 'capital gains.' The Commissioner of Income Tax (Appeals) upheld the AO's decision. However, the ITAT, considering similar cases, decided that income from PMS should be assessed under 'capital gains,' partially in favor of the assessee.

Issue 2: Treatment of Long-term Capital Loss:
Another issue was the treatment of long-term capital loss of Rs. 1,62,52,991 on the transfer of units of US-64. The AO disallowed the loss, stating that the income from US-64 was exempt under section 10(33) and the claimed loss was notional. The assessee contended that the loss should be computed and carried forward. This issue was not specifically addressed in the judgment.

Issue 3: Confirmation of Interest Charged:
The third issue involved the confirmation of interest charged under section 234C of the Income Tax Act. The assessee prayed for the deletion of interest charged under this section. The judgment considered this interest as consequential and did not require specific adjudication.

In the appeal for the assessment year 2005-06, similar issues were raised regarding the treatment of additional capital gains from PMS and the confirmation of interest charged under sections 234B and 234C of the Income Tax Act. The ITAT, following its previous decisions, held that the profit from transactions through PMS should be assessed as 'capital gains.' The interest charged under sections 234B and 234C was considered consequential and did not require specific adjudication.

In conclusion, both appeals of the assessee were allowed in part concerning the assessment of capital gains from transactions through PMS, based on the principles established in previous judgments. The judgment emphasized the correct determination of income arising from PMS based on the evidence provided by the assessee.