ASST CIT 23(3), MUMBAI vs. THE AZAVEDO FAMILY TRUST, MUMBAI

O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals) – 34, Mumbai [hereinafter in short “Ld. CIT(A)”] dated 23.02.2017 for the Assessment Year 2012-13.

1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) – 34, Mumbai erred in holding that the income earned by the (A.Y: 2012-13) The Azavedo Family Trust assessee on purchase and sale of shares / securities through Portfolio Management Services (PMS) was liable to assess under the hear “Capital Gains” instead of being assessed under the head “Profit and Gains of business or Profession.”

2. The appellant prays that the order of the Ld.CIT(A) on the above ground be set aside and that of the A.O be restored.”

3. At the outset the Learned Counsel for the assessee submitted that identical issue has come up before the Tribunal for the Assessment Year 2010-11 i.e. whether the purchase and sale of shares by the assessee Trust is liable to be assessed under the head “Capital Gains” or “Business Income” and the Tribunal in ITA.No. 2240/Mum/2014 dated 13.01.2016 sustained the order of the Ld.CIT(A) in holding that the purchase and sale of shares by the assessee shall be assessed under the head “Capital Gains” and not under the head “Business Income”. Copy of the order is placed on record. Ld. Counsel for the assessee further submits that in the present appeal the Ld.CIT(A) followed the order of the Tribunal and held that the assessment of Capital Gains / loss by the Assessing Officer as Business Income is not correct.

“4.3. I have considered the facts of the case and submissions made by the appellant. It is seen that similar issue was considered by my Ld. Predecessor in the appeal for A.Y. 2010-11 and the issue was decided in favour of the appellant. I also find that the Hon'ble had affirmed the decision of the CIT(A) in its order dated 13.01.2016 in ITA.No. 2240/Mum/2014 by observing and holding as under: - 4.2. We have heard the rival submissions and also perused the documents on record in the light of the respective contentions of the parties. The core controversy to be adjudicated by this Tribunal is whether in the facts and circumstances of the case and in law the amount of Rs. 16,89,87,945/- arising from purchase and sale of shares by the assessee is to be computed as “Capital Gains” or the same is to be treated as “Business Income”? 4.3. In order to determine the issue in question, it is essential to ascertain some of the material facts i.e., whether the assessee had purchased/sold the shares in question as an investor or as a share trader; whether any borrowed funds were utilized or the assessee has invested its own funds and whether the shares in question were purchased/sold under a Portfolio Management Scheme or the assessee has made the transaction as a share trader? 4.4. Admittedly, the objective of the appellant trust is to ensure effective succession planning mechanism and transfer of funds from generation to generation for the benefit of the family members of the settler and protecting the family wealth as the trust beneficiaries are only family members i.e., purely blood relatives including children and grand children. The shares in question were acquired and transferred through Portfolio Managers engaged by the assessee. The entire investments have come out of the Corpus Fund of the assessee and no borrowed funds were utilized for purchase of the shares in question. In view of the aforesaid facts the contention of the revenue that the assessee has indulged in business activities in the guise of share investment has no merit. It is quite clear that the over-riding intention of the assessee is not to trade in shares even when the purchase and sale of shares was made through various Portfolio Managers. Therefore the CIT(A) has rightly held the income in question as ‘Capital Gains’ and not the ‘Business Income’. From the aforesaid facts and in view of the settled principles of law it can be concluded that the assessee had purchased/sold the shares in question in the capacity of an investor and not in the capacity of a share trader and (A.Y: 2012-13) The Azavedo Family Trust therefore, in the present case the income accrued from sale of the shares in question is required to be computed as capital gain and not as business income.

5. In Vinod K Nevatia Vs ACIT, the Coordinate Bench of Mumbai Tribunal has held that if the assessee purchases the shares from its own funds with a view to keep the funds in equity shares to earn considerable return on account of enhancement in the value of share over a period then merely because the assessee liquidates its investment within six months or eight months would not lead to the conclusion that the assessee had no intention to keep the funds as invested in equity shares and but was actually intended to trade in shares. In Salil Shah Family Pvt. Trust vs. ACIT, ITA No 2446/M/2012, the sole grievance of the assessee was that the Ld. CIT(A) has erred in holding Short Term Capital Gain of Rs. 5,97,26,574/- and Long Term Capital Gain of Rs. 8,91,000/- on the sale investments through a portfolio manager, is ‘Business Income’ and not ‘Capital Gains’. The Co-ordinate Bench of Mumbai Tribunal relying on its decision in the case of Manan Nalin Shah in ITA Nos. 6166, 2125 & 4126/M/08, has decided the aforesaid issue in favour of the assessee holding as under: “13. Considering the facts and the submissions and the judicial decisions considered herein above, in our considerate view, the decision of the Ld. CIT(A) solely based on the findings of the Delhi Bench is erroneous, therefore, reversing the findings of the Ld.CIT(A) we have no hesitation to hold that considering the nature of transaction through Portfolio Management Services providers in the light of the judicial pronouncement discussed herein above, the transaction have resulted into capital gains, STCG and LTCG as returned by the assessee. Therefore, the AO is directed to accept the capital gains as returned by the assessee”.

is allowed.”

6. Since the Tribunal already decided the issue on merits for the Assessment Year 2010-11 which was followed by the Ld.CIT(A) for this Assessment Year and no change in facts and circumstances was brought

(A.Y: 2012-13) The Azavedo Family Trust on record, following the said order, we uphold the order of the Ld.CIT(A) in cancelling the computation of Business income as made by the Assessing Officer.

Order pronounced in the open court on the 30th October, 2018