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TMI Blog2013 (10) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... s not hold any water - Considering the nature of transaction through Portfolio Management Services providers, the transactions have resulted into capital gains, STCG and LTCG as returned by the assessee – Decided in favor of Assessee. - I.T.A. No. 2446/Mum/2012 - - - Dated:- 1-2-2013 - Shri I. P. Bansal, JM And Shri N. K. Billaiya, AM,JJ. For the Appellant : Shri Mayur Kisnadwala For the Respondent Shri Chaturbhuj Das ORDER Per N. K. Billaiya, AM:- This appeal by the assessee is directed against the order of the Ld. CIT(A)-30, Mumbai dt.19.1.2012 pertaining to A.Y. 2008-09. 2. The sole grievance of the assessee is that the Ld. CIT(A) erred in holding that the Short Term Capital Gains (STCG) of Rs. 5,97,26,574/- and Long Term Capital Gain (LTCG) of Rs. 8,91,000/- on sale of the investments through a Portfolio Manager, is "Business Income" and not "Capital Gains". 3. The assessee is a private family trust. For the year under consideration, the assessee has shown LTCG at Rs. 8,91,000/- and STCG at Rs. 5,97,26,574 and income from other sources at Rs. 180/-. During the course of the scrutiny assessment proceedings, the Assessing Officer found enor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate the facts and the circumstances in coming to the finding that the assessee is not into investment in shares but a trader in shares/securities. It was explained to the Ld. CIT(A) that the portfolio managers were entrusted with the funds with the sole objective of making investment and their objective is to preserve the capital and achieve growth in the capital. It was also explained that there was a tacit agreement between the assessee and the portfolio manager that portfolio manager will not trade or indulge in any speculation transaction on behalf of the assessee. It was also explained that the trustees have not carried on the activity but the portfolio managers who were handed over the funds for wealth creation have carried out the activity of investment for wealth creation. Whenever the funds are given to portfolio managers, the assessee could not be construed as carrying on the business activity. It was also pointed out to the Ld. CIT(A) that during the year under consideration, certain shares are sold which were purchased in earlier assessment years and the treatment of the same was "capital asset". The shares whose character is accepted as 'capital asset" in earlier asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he enhancement of the wealth of the assessee. The Ld. Counsel relied upon the decision of the Pune Bench in the case of Apoorva Patni Vs ACIT 24 Taxmann.com 223 (pune), Manan Nalin Shah Vs DCIT in ITA Nos 6166, 2125 and 4125/Mum/2008, ACIT Vs Smt. Kamala Venkat Ramani in ITA No. 149/M/2010. It is the say of the Counsel that in all these cases, on identical facts the Tribunal has held that investment through portfolio manager cannot, ipso-facto, result into business income. 7. Rebutting the submissions made by the Ld. Counsel for the assessee, the Ld. Departmental Representative placed strong reliance on the orders of the lower authorities and submitted that the Ld. CIT(A) has rightly considered the decision of the ITAT Delhi Bench. 8. We have considered the rival submissions and carefully considered the orders of the lower authorities and the paper book submitted by the assessee and the decisions relied upon by the rival parties. The assessee is a private family trust. It is not in dispute that the assessee has invested its corpus fund in purchase of shares/securities through four Portfolio Management Services namely (1) Reliance Capital Asset Management Ltd. (2) DSP Merri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a mere agent as understood in the common parlance." 12 In this background, the finding of the Ld. CIT(A) that the PMS are nothing but agents working for and on behalf of the assessee is not correct. All decisions regarding investments, its timings etc. are made by the PMS provider and not by the assessee per se, though the resultant gain/loss is on account of the assessee's investment. The contention of the Revenue authorities that in respect of certain scrips, the holding period was very less cannot be held against the assessee inasmuch as it had no control on such decision making in a discretionary PMS arrangement because such decisions were taken by the PMS provider. 13. In so far as other objections of the revenue authorities that there was volume and frequency of transactions were large so as to constitute business activity. We find that the assessee has engaged 4 PMS provider, has transacted in 7 shares and the total number of transaction is 110. In a Stock Exchange, where more than 5000 shares are traded every day , the observations of the lower authorities do not carry much weight . 14 The Ld.CIT(A) has heavily relied upon the decision of the Delhi Bench in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ak Securities in A.Y. 2003-04 and as per clause 2, PMS is authorized to purchase, acquire, obtain, take, hold, sell, transfer, substitute or change all or any of the investments made on behalf of the assessee. Further clause 3 of the agreement further authorizes to hold all or any of such investments in its name or at its discretion on behalf of the assessee. Further as per clause 6 of the agreement, it is stated that the portfolio manager will make every effort to maximize the value of investment. Clause 9 of the said agreement stipulates that Portfolio Manger will provide the assessee with quarterly statement of the investments. On perusal of the contents of the agreement, we observe that assessee has placed funds with PMS to make investment in shares/mutual funds and not with a view to do trade. We also observe that assessee as on 31.3.2003 had a total capital of Rs.17.97 crores (approx) and out of which, a sum of Rs.50 lakhs was placed for the first time with PMS. We observe that assessee also made direct investments in shares and there was short term capital gain of Rs.9,53,215 and long term capital gain of Rs.2,13,519. The department has accepted the Long term capital gain as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e before us, ld A.R. has stated the relevant facts, which we have discussed hereinabove, and on that basis, we agree with ld A.R. that said decision of Delhi Bench of the Tribunal is not applicable to the case of the assessee. Similarly, the case of Hon'ble A.P. High Court in the case of PVS Raju vs ACIT(supra) is not applicable to the facts of the case of the assessee as in that case, the Hon'ble High Court considered the relevant factors, which are mentioned in para 15 of the said order and on that basis, the Hon'ble High Court confirmed the order of the Tribunal that the volume of share transactions were in the ordinary line of business of purchase and sale of shares and not for the purpose of investments. In the case before us, the said facts are not borne out as the average period of holding was varying for more than two months. Similarly, we agree that the decision of ITAT Mumbai in the case of Mafatlal Holdings Ltd (supra) is not applicable to the facts of the case of the assessee as in that case, the Board of Directors specifically passed a resolution to place Rs.100 crores for purchase and sale of shares with an Asset Management Company as its Portfolio Manager. Therefore, ..... 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