CIT v KAPUR INVESTMENTS (P) LTD [ITA NO.158/2014 & ITA NO.159/2014 dated 20.04.2015] KARNATAKA HIGH COURT Background: Assessee Company is engaged in the business of finance and films. The assessee had invested money in shares through the Portfolio Management Scheme of M/s.Kotak Securities Limited. Since there were regular transactions of sale and purchase of shares, the Assessing Officer, for the relevant assessment years, held the same to be ‘business income’. Commissioner of Income-tax (Appeals) granted relief to the assessee and held the profit to be taxed as capital gains. Against the orders of theCIT(A), the tax authorities filed appeals before the ITAT. In the first round, the Tribunal remanded the matter to the CIT(A), which again held in favour of the assessee. Thereafter, the Tribunal dismissed the appeals of the Tax Authorities.
PMS
Apoorva Patni v ACIT IT APPEAL NOS. 192, 193, 239 & 273 TO 276 (PN) OF 2011 (Pune ITAT) Background: The assessee filed her return of income for the assessment year 2006-07 declaring a total income of Rs 13,95,40,653/- under various heads of income, viz. income from house property, business income, capital gains and income from other sources. The income declared under the head capital gains included short term as well as long term capital gain on investments made through the PMS providers. Besides, the assessee has also declared capital gains, both long term and short term, from direct dealing in mutual funds, investments also. Apart from the aforesaid dealings in shares and securities, the assessee also had a portfolio wherein income from share and securities transactions was declared as business income. In this factual background, the Assessing Officer treated the short term as well as long term capital gain earned through the investments made through PMS providers amounting to Rs 3,86,38,849 as income which was liable to be assessed as ‘business income’ and not under the head ‘Capital gains’. The Commissioner of Income-tax (Appeals) has, however, upheld the contentions of the assessee that the gain from investments made through the PMS provider was assessable under the head capital gains.
Income from PMS is capital gains and not business income – Pune ITAT
DCIT v KRA Holding & Trading Pvt. Ltd. (ITA NO. 240/PN/2011) [ITAT Pune] Background: The assessee during the year under consideration had claimed an amount of Rs. 2,11,95,334 as portfolio management fees paid to the portfolio managers. The same was made in terms of investment management agreement made on 01-01-2005. During the course of assessment proceedings, the AO was not convinced with the explanation given by the assessee and noted that similar issue was decided against the assessee for assessment year 2004-05 to 2006-07 wherein the payments has been disallowed and added back to the business income of the assessee. Therefore, he disallowed the payment treating the same as termination fees computed on profit sharing basis and not specifically provided in the agreement and not as per SEBI rules and regulations. The CIT(A) observed that the assessee has not shown the fees paid to the portfolio managers as an expenditure in the P&L account. The same has been loaded on the purchase price of shares, which are either sold or carried forward to next year and concluded that these expenses are not allowable under either of the heads for the reason that they are against the guidelines of the SEBI and are also not allowable under the head ‘capital gains’.