2011 (8) TMI 1201 - AT - Income Tax

Excess amount realized on the investment in shares made through Kotak Mahindra Portfolio Management System - Nature of income - Held that - Income declared by the assessee be assessed under the head Capital gain and not as Business income.

Summary

Issues:
1. Classification of income from investment in Portfolio Management Scheme (PMS) as business income or capital gain.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved a dispute regarding the tax treatment of the excess amount realized on investments made through Kotak Mahindra Portfolio Management System (PMS). The primary contention was whether the income should be considered as business income or capital gain for the assessment year 2006-2007. The Assessing Officer had categorized the investments made through PMS as a business venture due to the involvement of professional assistance from Kotak Securities Limited (KSL) and lack of direct knowledge of the scrips by the assessee. Consequently, the income declared as short term and long term capital gain was deemed liable to be assessed as business income. The Commissioner of Income-tax (Appeals) upheld this assessment.

Upon hearing the arguments and examining the relevant material, the Tribunal referred to a recent decision in ITO Vs. Radha Birju Patel, where it was established that transactions conducted through PMS were aimed at wealth maximization rather than mere profit encashment on share value appreciation. The Tribunal noted that PMS was designed to protect and enhance investments, distinguishing it from a trading scheme. Citing this precedent and another favorable decision by the Pune Bench of the Tribunal, the Tribunal concluded that the income declared by the assessee should be assessed under the head of 'Capital gain' and not as 'Business income.' The lack of any supporting orders favoring the Revenue further strengthened the decision to overturn the impugned order and allow the appeal.

In light of the above analysis, the Appellate Tribunal ITAT Mumbai ruled in favor of the assessee, holding that the income derived from investments in PMS should be treated as 'Capital gain' rather than 'Business income.' The decision was based on the nature of transactions carried out through PMS, emphasizing wealth maximization and protection of investments, which aligned more with capital gain taxation principles than business income taxation. The appeal was consequently allowed, and the income was classified under the 'Capital gain' category for tax assessment purposes.