HITEN PRAVINCHANDRA DALAL,MUMBAI vs. DCIT CIR 14(2), MUMBAI

This appeal has been filed by the assessee against the order dated 31.01.2012 passed by CIT(A)-25, Mumbai and it pertains to A.Y. 2008-09.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has without understanding the facts of the case have erred in assessing income under the head Income from House Property in respect of rented property at Rs.3,77,545/- instead of Loss from Other sources of Rs.428150. The Loss of the Appellant may please be accepted.”

Assessee is an individual and engaged in the business of export and of retail stores. Assessee has in respect of its own surplus funds utilized the services of Portfolio Management Services (PMS). The capital gain consists only of gains or losses of transaction for PMS only. The income derived from Portfolio Management Services Agencies was offered by the assessee under capital gain both short term capital gain and long term capital gain. After examining the submission of the assessee, the Assessing Officer was of the view that the assessee had invested huge fund with the Portfolio Management Services agencies with sole intention to remain invested in shares to make profit at the earliest opportunity depending upon the decisions of Portfolio Management Services agencies, who are nothing but act as an agent of the assessee to deal in shares/securities on his behalf. Having regard to the nature and quantity as well as frequency of transactions carried out by PMS agencies and in particular the fact that assessee has no control or say in activities carried out by the Portfolio Management Services agencies, Assessing Officer held that the profit earned/received from PMS agencies is business profit and cannot be termed as short term capital gain and long term capital gain as claimed by the assessee. Accordingly, the profit of `1,87,15,072/- realized from four PMS agencies was treated as profits and gains of business or profession. In appeal the same was confirmed by the CIT(A). Before us the learned A.R. for the assessee submitted that the CIT(A) erred in assessing the capital gains under the head business

In our opinion, investment through Portfolio management Service, which may deal with the shares of the assessee so as to Shri Hiten Pravinchandra Dalal 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 not as business income.

As regards the second question of the assessee having taken loan and having invested borrowed funds in purchase of shares, we are of the view that the Income Tax Act does not prohibit the assessee from making investments in capital assets after using borrowed funds. The Tribunal has also considered this aspect of the matter and decided in favour of the assessee and we see no reason to differ with such opinion of the Tribunal.

We have also gone through the Circular of the CBDT dated 15.06.2007 and are of the opinion that the findings arrived at by the Tribunal are in conformity with the guidelines issued by the said Circular.

In view of the aforesaid, we are of the opinion that no substantial question of law arises for determination of this Court.” In this background it was submitted that the order of the CIT(A) be set aside and the Assessing Officer is to be directed to assess the gain in question under the head capital gain instead of business income. On the other hand, the learned D.R. supported the order of the CIT(A).

Second issue is with regard to treatment of income from house property in respect of rented property. During the course of assessment proceedings the Assessing Officer found that assessee has shown rental income from Priyadarshini property amounting to `5,39,350/- against which assessee had claimed repairs and collection charges of `9,67,500/- and claimed loss of `4,28,150/- This loss was set of against salary income earned during the year. According to Assessing Officer, as per provision of section 24(a) assessee was entitled for deduction @30% on annual letting value. Since the claim of the assessee was excessive, Assessing Officer allowed deduction under section 24(a) @30% which amounts to `1,61,805/-. In result, income from house property was computed at `3,77,545/-. The matter was carried before the first Appellate Authority. The CIT(A) was of the opinion that only statutory deduction @30% is allowable (alongwith interest expenses), which covers all type of expenses. The CIT(A) directed the Assessing Officer to verify the return of preceding years as well as succeeding years and ensure that excessive deduction is not claimed by assessee. If the assessee had claimed excessive deduction apart from section 24(a), Assessing Officer should take necessary remedial action with a view to safeguard the interest of Revenue.

In the result, appeal filed by the assessee is partly allowed as indicated above. प�रणामतः िनधा�रती क� अपील आंिशक �वीकृत क� जाती है । Order pronounced in the open court on 30th October, 2015. आदेश क� घोषणा खुले �यायालय म� �दनांकः 30.10.2015 को क� गई । Sd/- Sd/- (RAMIT KOCHAR) (SHAILENDRA KUMAR YADAV) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER मुंबई Mumbai, �दनांक Dated 30th October, 2015