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TMI Blog2013 (12) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 2006-07, the AO treated the surplus on account of investment in shares as 'business income' instead of 'capital gains' as claimed by the assessee. Aggrieved, the assessee took up the issue before the then CIT (A) who decided the issue in favour of the assessee vide his order in ITA No.103/AC-11(5)/CIT(A)-I/08-09 dated 18.12.2009. Aggrieved, the Revenue had appealed before the Tribunal. The earlier Bench of this Tribunal in its findings in ITA No.390/BANG/2010 dated 23.9.2010 remitted back the issue to the file of the CIT (A) for disposal of the issue de novo. Accordingly, the issue came for adjudication before the present CIT (A). During the course of hearing, the assessee justified the transactions as investments and, accordingly, contended that the surplus was rightly treated as capital gains in its return of income. The issue is decided by the CIT (A) in favour of the assessee for the following reasons, namely: "3.3. The issue in question has to be decided taking into account the overall circumstances of the case. The AR of the appellant cited various decisions in support of the client but it is very difficult to find anything as a general rule. The exact nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee from making investments in capital assets using the borrowed funds. It is a common practice that people borrow funds for making investments for getting higher rate of return. As rightly pointed out by the appellant in its submissions, even interest is allowed as a part of the cost of acquisition while computing capital gains. Therefore, the borrowals by the appellant cannot be viewed negatively. (vii) Consistency: The appellant has been consistently following the same method showing these transactions as an investment in its books of accounts and the same were accepted by the Department. It is argued by the appellant that there are no new facts in the present assessment year based on which the treatment can be disturbed. The argument of the appellant cannot be ignored. (viii) Income from Derivatives: One of the reasons given in the assessment order by the AO is that the appellant treated the derivative transactions as business income/loss. In the case of derivative transactions, there is no delivery of shares because of the absence of any underlying asset. As per the principles of accountancy and the provisions of the I.T. Act, such transactions are to be treated as bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not change the characterization of income/interest of the assessee. It was, further, contended that the CIT (A) erred in allowing the relief on the basis that the assessee did not have any separate business infrastructure to carry out its share transactions for the purpose of business and the assessee had invested funds through M/s. Kotak Securities Limited under Portfolio Management Scheme, without appreciating the fact that the assessee had entrusted the business of purchase and sale of shares to M/s. Kotak Securities Limited who had traded in shares on behalf of the assessee. The learned DR also found fault with the CIT (A) in holding that the use of borrowed funds for the purchase of shares cannot be viewed negatively. In conclusion, it was pointed out that the CIT (A) had failed to appreciate the fact that the assessee had earned partly dividend income of Rs.4,89,178/- and Rs. 7,23,363/- when compared to the surplus income of Rs.1,72,29,025/- and Rs.82,82,927/- earned on sale of shares for the AYs 2006-07 and 2008-09 respectively. It was, therefore, pleaded that the order of the CIT (A) requires to be reversed in so far as the issue under dispute for both the AYs and that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nager. Therefore, these transactions were clearly in the nature of transactions meant for maximization of wealth rather encashing the profits on appreciation in value of shares. The very nature of Portfolio Management Scheme is such that the investment made by an assessee is protected and enhanced and in such a circumstance, it cannot be said that it is scheme of trading in shares and stock. Whether, an assessee is engaged in the business of dealing in shares or investment in shares is essentially a question of fact and it has to be determined with regard to the entirety of the circumstances. In circumstance, in which the assessee was engaged in a systematic activities of holding portfolio through the PMS Manager, it could not by any stretch of imagination, be said that the main object of holding the portfolio was to make profit by sale of shares during the course of maintaining the portfolio investment over the period. Therefore, the Commissioner (Appeals) was justified in accepting the gain on sale of shares as short-term capital gain as claimed by the assessee." (ii) Yet another finding, the Hon'ble 'H' Bench of Mumbai Tribunal in the case of Mahendra C Shah v. Addl. CIT report ..... X X X X Extracts X X X X X X X X Extracts X X X X
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