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2016 (4) TMI 903

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..... - - Dated:- 8-4-2016 - Shri Anil Chaturvedi, A. M. And Shri Kul Bharat, J.M. For the Appellant : Shri S. N. Soparkar, A.R. For the Respondent : Smt. Sonia Kumar, Sr. D.R. ORDER Per Anil Chaturvedi, Accountant Member This appeal filed by assessee is against the order of CIT(A)-III, Baroda, dated 03.02.2012 for the assessment year 2008-09. 2. The relevant facts as culled out from the materials on record are as under: 3. The assessee is an investment company. The assessee filed its return of income for A.Y. 2008-09 on 30.09.2008 declaring total income at ₹ 61,63,130/-. The case was selected for scrutiny and thereafter assessment was framed u/s.143(3) vide order dated 20.12.2010 and the total income was determined at ₹ 60,23,364/- by treating the income from sale of shares as business income as against short term capital gains considered by the assessee. Aggrieved by the order of Assessing Officer, Assessee carried the matter before the ld. CIT(A) who vide order dated 03.02.2012 (in Appeal No. CAB/III-188/10-11) dismissed the appeal of the assessee. Aggrieved by the order of ld. CIT(A), assessee is now in the appeal before us and has raised .....

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..... f ₹ 57,76,622/-. The assessee was asked to show cause as to why the profits earned, which have been considered as capital gains, not be considered as business income. The submissions of the assessee for considering the income as capital gain was not found acceptable to the A.O., he therefore considered the profit earned as business income of the assessee. 6. Aggrieved by the order of A.O., assessee carried the matter before the ld. CIT(A) who dismissed the appeal of the assessee by holding as under: 4.3 I have considered the facts of the case, the observations of the AO and the submission made by the Id. Counsel, The AO has not made any analysis of the volume and frequency of transactions relating to shares and securities made by the appellant. Hence during the course of appellant proceedings, the appellants AR was asked to file the complete details of share transactions. So far as shares held as investment on sale of which short term capital gain has been shown by the appellant, are concerned, all these shares has been purchased in the months of February March 2007 and have been sold starting from April 2007 to December 2007. Besides this, the assessee has used 3 s .....

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..... at since the purchase and sale of shares are done by the PMS, hence the resultant profit should be taxed as short term capital gain in its hand. This contention is not acceptable in view of the facts of this case. In Para 1.6.2 of its submission, the appellant has itself stated that PMS investor uses the Port folio Manager as a agent to buy or sale shares. Thus, only because a business is being conducted through an agent, the resultant profit will not lose its character of business profit. In such circumstances, what is to be seen is the nature of activity being conducted by the agent. If the activities of the agent can be classified as investment activity then the profit will be in the nature of capital gain. But, if the nature of activity of the agent is of a business or trade, then the resultant profit has to be treated business income. In the case of the appellant the transactions being conducted by PMS are in the nature of business, hence the AO has rightly taxed the resultant profit as business income. 4.3.4 The appellant has placed reliance on the decisions of Pune and Mumbai bench of ITAT to claim that the gain resulting from PMS must be taxed as short term capital ga .....

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..... n view of the facts of this case. 4.3.6 The facts of the decisions mentioned above are similar to the facts of the appellant's case. Hence, relying upon these decisions it is held that the income earned by the appellant from PMS activities is business income. 4.3.7 So far as short term capital gain from share transactions are concerned, it is seen that the purchase of shares took place at around the same in time FY 2006-07, at which the PMS activities in HSBC assets management were started by the appellant. These shares have been purchased during the months of February and March 2007 and sold starting from April 2007. Moreover, the shares purchased during the financial year 2007-08 and sold have been treated as stock in trade by the appellant and the resultant income has been offered as business income. Under such circumstances, it is clear that these shares were also purchased with profit motive only and not to earn dividend income by making investments. Hence, the short term capital gain shown by the appellant from share trading is also held to be business income only and action of AO is upheld. 7. Aggrieved by the order of ld. CIT(A), assessee is now in app .....

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..... judgment with which we concur. Even otherwise, it is admittedly not a case where the assessee had engaged its own persons or had a separate business infrastructure to carry out its share transactions for the purpose of business. It is merely a case where the assessee has invested funds through the Portfolio Management Service. 11. In our opinion, investment through Portfolio Management Service, which may deal with the shares of the assessee so as to derive maximum profits cannot be termed as business of the assessee but would only be a case of a more careful and prudent mode of investment, which has been done by the assessee. Funds which lie with the assessee can always be invested (for earning higher returns) in the shares either directly or through professionally managed Portfolio Management Scheme and by doing so, it would not mean that the assessee is carrying on the business of investment in shares. Profits from such investment, either directly or through professionally managed firm, would still remain as profits to be taxed as capital gains as the same will not change the nature of investment, which is in shares, and the law permits it to be taxed as capital gains and .....

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