Radials International Vs. ACIT (ITAT Delhi)- The assessee had made investment under PMS. The profit has not arisen directly from the deposits made, but from the securities purchased from such deposits, which were traded by the portfolio manager on behalf of the assessee. The quantity of share traded is huge as is evident from the list appended with the assessment order. The shares have been traded frequently with a motive to maximize profit and not with a view to hold them as investment. The volume of the transaction is very high. All these facts indicate that the portfolio manager had in fact done trading on behalf of the assessee.
There is no difference between similar transactions carried out by an individual in shares and the transactions carried out by portfolio manager. Such transactions can be compared with trading in commodities or real estate. If an assessee gives money to a property dealer with the instructions to purchase, get possession and sale at a reasonable profit keeping in view the market conditions. The property dealer acting as an agent enters into series of transactions of purchase and sale earns profit in some of the transactions and incurs loss in some of them. The property dealer after charging his commission and expenses will handover the amount together profit to the principal. Can the profit earned or loss incurred on such transactions be treated as capital gain or loss. The answer is no. Therefore, in our considered opinion, the profits arising on purchase and sale of shares are in the nature of business and not as investment. Merely because the purchase and sale of shares had occurred through DEMAT account on delivery based; it would not change the nature of the transaction. Since the portfolio manager in the capacity of an agent has traded in shares on behalf of the assessee, the profits arising therefrom will be in the nature of business profits. Further simply because the assessee has treated the deposits made under PMS as investments and balance shares lying in DEMAT account as on the last day of the accounting year under the head ‘investment’ would not change the character of trading done by the portfolio manager on behalf of the assessee. The shares purchased and sold during the year have not been recorded in the books of accounts as investment nor it is feasible to record as the details were not available with the assessee and the assessee has no control or say as to when and the type of shares or the period of holding of the shares. Therefore, in our considered opinion, the transactions are in the nature of business. The decision relied upon by the assessee in the case of Gopal Purohit (supra) is not applicable to the facts of the assessee’ s case.
INCOME TAX APPELLATE TRIBUNAL, DELHI
I. T. Appeal No. 1368 (Del) of 2010
Assessment year: 2006- 07
M/s. Radials International Vs. Asst. Commissioner of Income-tax,
O R D E R.
PER K. D. RANJAN, AM :
This appeal by the assessee for assessment year 2006-07 arises out of order of the ld. CIT (Appeals)-XXIV, New Delhi.
2. The grounds of appeal raised by the assessee are as follows :-
“ 1. The order passed by the ld. CIT (Appeals), New Delhi under section 250(6) dismissing the appeal against the assessment order passed under section 143(3) of the Income-tax Act, 1961 by the ld. ACIT assessing the total income for assessment year 2006- 07 at Rs.3,37,26,993/- and raising the demand of Rs. 16,36,716/- is bad in law and needs to be quashed;
2. That ld. CIT (Appeals), New Delhi has erred in facts and law in holding transactions relating to sale/ purchase of equity shares under Portfolio Management Scheme as an adventure in the nature of trade and not as a sale of investments;
3. That ld. CIT (Appeals), New Delhi has erred in facts and law in holding the Long Term and Short Term gains/ losses on sale of equity shares under Portfolio Management Scheme as business income and not under the head Capital Gains;
4. That ld. CIT (Appeals), New Delhi has erred in facts and law in holding the charging of tax on the gains/ losses on sale of equity shares under Portfolio Management Scheme as business income and not under the head Capital Gains;
5. That ld. CIT (Appeals), New Delhi has erred in facts and law in holding that the exemption under section 10(38) on long term capital gains on sale of Equity shares under Portfolio Management Scheme is not allowable;
6. That ld. CIT (Appeals), New Delhi has erred in facts and law in holding that tax at concessional rate of 10 per cent under section 111-A on short term capital gain on sale of Equity shares under Portfolio Management Scheme is not applicable;
7. That ld. CIT (Appeals), New Delhi has erred in facts and law in holding the initiation of penalty under section 271(1)(c) and alleged furnishing of inaccurate particulars of income and thereby concealing income;
