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2013 (8) TMI 174 - AT - Income TaxProfit on sale of shares and securities - capital gain/loss v/s business income - Held that - It is pertinent to mention that it is not disputed that the assessee has purchased the shares out of its own funds. As regards the LTCG claimed by the assessee on account of sale of shares of TCS and Infosys Tec, the perusal of the details of sale and purchase clearly indicates that the holding period of the shares is more than one year and the entire LTCG is on account of these two scripts only. The perusal of volume of trade and frequency also clearly suggests that the impugned activity of the assessee is in the nature of investor and not as a trader. As regards the STCG it is relevant to note that the assessee has made the investments through Port-folio Management Scheme (PMS). As decided in ITO Vs Radha Birju Patel 2010 (11) TMI 145 - ITAT MUMBAI the transactions carried out via Portfolio Management Scheme are clearly in the nature of transactions meant for maximization of wealth rather encashing the profits on appreciation in value of shares. Where the assessee is engaged in systematic activities of holding portfolio through a PMS Manager, it cannot, by any stretch of imagination, be said that the main object of holding the portfolio is to make profit by sale of shares during the course of maintaining the portfolio investment over the period. The high number of transactions shown in the statement is misleading because these are computer-split transactions and not independent transactions - relying on the decision of CIT Versus Gopal Purohit 2010 (1) TMI 7 - BOMBAY HIGH COURT said profits on the sale of shares necessarily qualify for the treatment as investment and consequently a STCG - appeal filed by the Revenue is dismissed.
Issues:
Revenue's appeal against CIT(A)'s order directing treatment of profit on sale of shares and securities as capital gain/loss instead of business income. Analysis: The case involved a private limited company engaged in finance services, car hire, administrative services, and trading. The company disclosed income and loss from the purchase and sale of shares, securities, and mutual funds for the year under consideration. The Revenue challenged the treatment of long-term capital gain and short-term capital loss as business income by the Assessing Officer (AO). The CIT(A) directed the AO to treat the profit on sale of shares and securities as capital gain/loss. The CIT(A) considered various factors to conclude that the company was an investor and not a trader in shares. The CIT(A) highlighted that the expenses claimed by the company did not necessarily indicate trading activity. The CIT(A) emphasized that the volume of figures of purchases and sales depended on the extent of investments made by the company. The CIT(A) also noted that the company had not engaged in speculative transactions and had not sold shares without taking delivery. The CIT(A) directed the AO to accept the long-term and short-term capital gains shown by the company and allow setting off the short-term capital loss. The Revenue appealed the CIT(A)'s decision. During the appeal, the Departmental Representative (DR) argued that the CIT(A)'s order was not focused on the relevant issue and was confusing. The DR relied on the AO's order to support the Revenue's case. The Authorized Representative (AR) reiterated arguments similar to those presented before the CIT(A). The Tribunal heard both sides and examined the material on record. It was undisputed that the company had purchased shares using its own funds. The Tribunal observed that the holding period and volume of trade indicated an investment nature rather than trading. The Tribunal noted that the company had made investments through a Portfolio Management Scheme (PMS). Referring to a precedent, the Tribunal highlighted that transactions via PMS were for wealth maximization, not mere profit encashment. The Tribunal emphasized that the high number of transactions shown was due to computer-split transactions, not independent ones. Relying on the precedent upheld by the High Court, the Tribunal upheld the CIT(A)'s order, concluding that the profits on the sale of shares qualified as investment and short-term capital gain. Consequently, the Tribunal dismissed the Revenue's appeal. In conclusion, the Tribunal upheld the CIT(A)'s decision to treat the profit on the sale of shares and securities as capital gain/loss, dismissing the Revenue's appeal. The judgment was pronounced on May 17, 2013.
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