In Shonaben Jayesh Parikh v. ACIT, the Ahmedabad ITAT held that the income received from purchase/sale of shares through Portfolio Manager cannot be treated as business income where assessee has least role to play in day-to-day transaction of funds.
Allowing an appeal filed by the assessee, the ITAT held that the same would constitute “Short Term Capital gain” and therefore, the loss arising out of the same can be carry forward to the subsequent years.
In the instant case, assessing officer held that trading in shares through Portfolio Management Service is business activity and therefore, disallowed the claim of the assessee to set off/carry forward the loss. Assessee maintained that she has no control either on selecting the securities or the period of holding. The portfolio manager normally gives the account quarterly on the basis of which the investor comes to know about the profit earned and the securities in which the transactions were done by the portfolio manager on behalf of the assessee. The shares purchased and sold are credited and debited to the DEMAT account of the party, which remains in the control of portfolio manager. It is the portfolio manager who can only deal with the DEMAT account of a particular person. At the time of depositing the amount the assessee will definitely make entry in his books of account as investment in PMS. It was therefore, contended that the loss sin sale of shares may be treated as short term capital loss.
Assessee failed to secure relief from the first appellate authority and approached the Tribunal on second appeal.
Allowing the appeal, the Tribunal held that assessee, in the instant case, gave her funds to the PMS Manager as in investment and there is no involvement of assessee in day to day transaction of the funds. “The result of profit and loss in the end of the year from PMS Account is a capital loss. In earlier year assessee was dealing in shares from her own firm. The same activity was also carried out during the year. Along with some share transactions were considered as part of the business activities and loss of PMS Account was also considered as part of the business activity. Whereas looking the facts and circumstances of the case such income cannot be a business income where assessee has least role to play in day-to-day transaction of funds. As assessee has filed its return after due date that cannot be sole criteria for rejecting the claim of the assessee.”
Read the full text of the Order below.
