Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI G.S.PANNU (AM) & SHRI RAM LAL NEGI (JM)
The present appeal has been filed by the revenue against order dated 18/02/2013 passed by the Ld. CIT(Appeals)-30, Mumbai for the assessment year 2010-11.
Brief facts of the case are that the assessee is a Private Discretionary Trust settled vide Trust Deed dated 03/06/2008. The main objective of the trust is to ensure effective succession planning mechanism and transfer of funds from generation to generation for the benefit of the family members including children and grand children of the settler and protection the family wealth.
2.1. The settler in the year 1978 purchased 500 shares of Glenmark Pharmaceuticals of Rs. 100 each. Bonus shares were issued from time to time and in the month of Nov., 1999 Mr. Loyola Azavedo, the settler became entitled for 1,50,000 shares of the face value of Rs. 10 each. The shares were split into 15,00,000 equity shares of the face value of Rs.1/- each, out of which 9,96,000 equity shares of the face value of Rs. 1 each were contributed to the trust on 01/10/2008.
2.2. Thus, the corpus of the Appellant Trust consisted of; • Contribution in cash – Rs. 1,90,932/- • 9,96,000 equity shares of Glenmark Pharmaceuticals( transferred to the De-mat A/c on 01/10/2008)
2.3. The settler held the shares of Glenmark Pharmaceuticals Ltd. for a period of about 30 years. With changing market conditions, the value of share dropped from Rs. 503.50/-to Rs. 120.85/-. With a view to diversify its risk the trust sold the shares in question. The trustees also appointed IIFL Wealth Management Ltd. on 06/04/2009 as Portfolio Managers for providing systematic management services in respect of the share transactions on behalf of the trust. The Portfolio Managers were entrusted with the funds with the objective of making investment and to preserve the capital and achieve growth in capital.
2.4. The trust filed its return of income for the assessment year 2010- 11 on 31/07/2010 declaring the total income of Rs. 1,58,76,556/- i.e., Short Term Capital Gain Rs. 81,28,460/- and Long Term Capital Gain of Rs. 77,48,096/- Subsequently, the trust submitted its revised return on 02/02/2012 after obtaining audited financial statements, declaring the total income at Rs. 68,96,296/-. During the year under consideration, the trust earned total income of Rs. 16,38,27,822/-, which was offered for tax under the following heads of income in the revised return. • Dividend Income : Rs. 11,30,413/-(exempt u/s 10(34)/(35) • Long Term Capital Gain : Rs. 15,58,00,405/-(exempt u/s 10(38) • Short Term Capital Gain: Rs. 68, 97,010/-(Taxed @ 15% u/s 111A) of the Act. 2.5. The AO determined the total income of the assessee at Rs. 16,89,87,950/- by computing the long Term Capital Gain and short Term Capital Gain aforesaid under the head “Business Income” holding that the assessee had never intended to hold the shares for investment but the motive was to make quick profit, therefore, the transaction is business in nature. 2.6. Aggrieved by the impugned assessment order, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) after hearing the appellant/assessee relying upon the decisions of various Benches of the Tribunal and Hon’ble High Courts, allowed the appeal of the assessee. Dissatisfied with the impugned order passed by the Ld. CIT(A), the revenue is in appeal before this Tribunal.
The Revenue has challenged the impugned order on the following effective ground:-.
“That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that income totaling Rs. 16,89,87,945/- arising from purchases & sale of shares was capital gains and not business income as treated by the Assessing Officer without appreciating that the assessee had engaged the services of several portfolio managers through whom it had entered to multiple, frequent and voluminous transactions resulting into aforesaid income after paying substantial expenses by way of management fees to the said portfolio managers and which was nothing but act of adventure in the nature of trade and, therefore, the Assessing
Officer had rightly assessed the total sum of Rs. 16,89,87,945/- as business income”
Before us, the Ld. DR heavily relying on the assessment order has submitted that the AO has rightly assessed the total income of the assessee by making additions in question in view of the nature of the transactions as the assessee has indulged in business activities in the guise of share investment.
4.1. On the other hand the Ld. Counsel for the appellant/assessee has reiterated the stand of the assessee, taken before the authorities below and further submitted that the value of the shares had fallen from Rs. 503 to Rs. 120 in a period of 5 months and the trust had to suffer loss of Rs. 200 approximately per share and in order to avoid further risk of loss, 6,96,000 shares of the Glenmark Pharmaceuticals Ltd. were sold by the assessee. As regards short term capital gain, the Ld. Counsel has submitted that the assessee has disclosed the short term capital gain of Rs. 68,96,296/- from the sale of shares held under the different Portfolio Management Scheme. The Ld. Counsel has also relied on the decision of ITAT Mumbai passed in Mr. Bhartan M. Ghia vs. DCIT, ITA 6319/M/10 and cross appeals filed by the Revenue and the assessee and 5709/Mum/2013 respectively for the assessment year 2010.
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 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.
In Vinod K Nevatia Vs ACIT, the Co- ordinate 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”.
In view of the facts and circumstances of the case and evidence on record to substantiate the rival contentions and in the light of the decisions of the coordinate Benches of this Tribunal discussed above, in our considered opinion the order passes by the Ld. CIT(A) is based on the evidence on record and in accordance with the provisions of the law and there is no scope for further interference in the order of the Ld. CIT(A). We therefore, uphold the order passed by the Ld. CIT(A) and dismiss the ground of the appeal of the revenue.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 13th January, 2016