2012 (7) TMI 969 - AT - Income Tax

Summary

Issues involved: Assessment of capital gain arising from sale of shares, units, and securities through Portfolio Management Services under the head "capital gains" or "business income".

The assessee, an individual deriving profit from partnership firms and holding directorship in private limited companies, filed an appeal against the order of the ld CIT(A) for the assessment year 2004-05. The primary issue was whether the capital gain of Rs. 33,32,310 arising from the sale of shares, units, and securities through Portfolio Management Services should be assessed under the head "capital gains" or "business income". The assessee contended that the income should be treated as short-term capital gain, speculation income, and exempt dividend income. Additionally, a long-term capital loss on the transfer of units of US-64 was also disputed. The assessee argued that the income from Portfolio Management Services should be considered as capital gains and dividend income. However, during the proceedings, one of the grounds raised by the assessee was not pressed and was treated as dismissed.

The assessee had invested Rs. 50,00,000 with a Portfolio Manager for the purchase and sale of shares, offering the income under the head "business and profession" in the previous assessment year. The Assessing Officer disagreed with this classification and treated the income as business income. The assessee, a partner in partnership firms and a director in private limited companies, claimed that the investment was made with the intention of earning long-term profit and wealth appreciation. Despite the assessee's request to treat the income as capital gains, the AO maintained it as business income. The CIT(A) also upheld this decision, stating that the assessee had initially claimed the receipts from investments as business income and not capital gains. However, the Tribunal decided that the income earned through Portfolio Management Services should be assessed under the head of capital gains, in line with a previous order related to a similar case.

In conclusion, the Tribunal allowed the appeal in part, directing the AO to consider the correct amount of income arising from Portfolio Management Services based on the evidence provided by the assessee. The decision was pronounced on 11th July 2012.