2013 (11) TMI 119 - AT - Income Tax

Capital Gain to be assessed under the head capital gains or business income sale of Shares, Units and Securities through Portfolio Management Services(PMS) - Held that - Following Manan Nalin Shah Versus DCIT 14(1), Mumbai 2012 (9) TMI 793 - ITAT MUMBAI - Income earned by the assessee-trust through PMS has to be assessed under the head capital gains and not under the head income from business or profession Decided in favour of assesse.

Summary

Issues:
1. Classification of income from sale of Shares, Units, and Securities through Portfolio Management Services as capital gains or business income for assessment years 2004-05 and 2005-06.
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.

Analysis:
Issue 1:
For the assessment year 2004-05, the main issue revolved around whether the capital gain of Rs.33,45,480 arising from the sale of Shares, Units, and Securities through Portfolio Management Services should be assessed as "capital gains" or "business income." The appellant contended that the income should be treated as short-term capital gain, speculation income, and dividend income, which should be exempt. The Assessing Officer (AO) treated the income as profits from business. The appellant argued that the income should be classified as capital gains and dividend income. The Tribunal decided in favor of the appellant, stating that the income earned through Portfolio Management Services should be assessed as capital gains, not business income.

Issue 2:
Regarding the long-term capital loss of Rs.4,61,24,853 on the transfer of units of US-64, the appellant claimed that the loss was notional as the income from US-64 was exempt under section 10(33). The Tribunal did not provide specific adjudication on this issue, as it was considered consequential and did not require detailed examination.

Issue 3:
The third issue pertained to the confirmation of interest charged under section 234C of the Income Tax Act. The Tribunal mentioned that this issue was also consequential and did not require specific adjudication. The interest charged under section 234C was confirmed without further elaboration.

The judgment highlighted the importance of correctly classifying income from Portfolio Management Services as capital gains rather than business income. It emphasized the need for consistency in treatment and classification of different types of income for assessment purposes. The Tribunal's decision favored the appellant in part, allowing the appeals concerning the classification of income from Portfolio Management Services as capital gains.