long term capital income from potfolio management account

Gains from PMS can be treated as business income or capital gains. If shown as business income, one can claim deduction of PMS fees under the business expenses head. Since business income is taxed at a higher rate, investors prefer gains from PMS to be declared as capital gains.

Recently, the Delhi High Court (High Court) in the case of Radials International (the taxpayer)  held that income from sale of shares invested through a discretionary Portfolio Management Scheme (PMS) is taxable as capital gains and not as  business income under the Income-tax Act, 1961 (the Act).

Refer:::   2014/05/Radials-International.

Sir,

If ithe income from PMS can not be treatedas abusiness come , what about the management fee.set up fee charged by PMS agencies/. Can we include  these in the cost of acquiisition of shares and claim these fees as expenditure on procurement.?

The problem will be if therea re no taxable gains in a particular year , we can not claim the expenditure on fees paid.

Can we set of this expenditure with  INCOME FROM OTHER SOURCES  INTEREST INCOME ON DEPOSTS ?

Under PMS, a person appoints a professional portfolio manager to carry out his securities transactions, for which he pays the specified fees to the portfolio manager. Unlike an MF, which has a specific exemption for its income under section 10(23D), the Act has not conferred any such tax benefit on a PMS. In such a situation, the PMS functions merely as a pass-through vehicle and the actual liability of tax emanating from the securities transactions carried out by the PMS is that of the individual owning the securities.

Under these circumstances, a question arises whether the transactions carried out by the PMS on behalf of its clients result in capital gains or business profits for such clients.

 As per Circular No.6/2016 dated 29.02.2016  cbdt-clarifies-law-on-whether-surplus-on-sale-of-shares-is-taxable-as-capital-gains-or-business-profits which is as follows.

a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income,

b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years;

c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.

Thank you very much for enlightening and clarification.

This means that the Management fee collected  on PMS  by various agencies  agencies  from their clients who are in  lakhs of  investors , will be at  great dis advantage  as they cannot treat this fees  as deductable,expenditure from thir income.

These so called reputed  finance agencies simply put the investors in dark in this reagrd and advise their clients m  to consult their auditors.  

But if assessee and of course his CA had adopted to treat the income under head 'PGBP'...  than as per sec. 28 of IT act, eligible to deduct all the expenses to earn the income, including the fees charged........ but not under head 'CG' .......

Thank you very much ,sir

Most Welcome, Dear .....

My Pleasure........