INCOME TAX ACT, 1961

Section 14A

Head of income - Business income or Capital gain - Project on redemption of mutual fund units held as investment -

Assessee declared profit on redemption of Mutual Funds as short-term capital gain. AO inferred that volume of the transaction and the quantum involved showed that income earned by assessee was a business income and earning of dividend was only an activity incidental to trade.Held: It was not a case where mutual funds had been rotated again and again to purchase and sell the same which is a typical feature in a business, albeit only 15 transactions were been undertaken for redemption of mutual funds and investment in the same mutual funds had not been made and redeemed again and again. The purchase of mutual funds had been classified as 'investment' in assessee's books of account and the balance sheet and such a treatment was continuing and at no point of time, same had been treated as 'stock in trade. Thus, intention of assessee right from the day one was to make investment in mutual fund and not for trading. This was also fortified by the fact that no borrowed funds had been utilised in such an investment. The computation and the details of short-term capital showed that mutual funds were held and redeemed mainly on maturity date which again indicated that intention for purchase of mutual funds was only for the purpose of investment and profit arising on redemption of mutual funds units to be taxed as capital gains, and not as business income.

Relied:Pr. CIT v. Bhanuprasad D. Trivedi (HUF) (2017) 87 Taxmann.com 137 (Guj), CIT v. PNB Finance & Industries Ltd. (2010) 236 CTR 1 (Del) : 2010 TaxPub(DT) 2310 (Del-HC) and CIT v. Gopal Purohit (2010) 228 CTR 582 (Bom) : 2010 TaxPub(DT) 1272 (Bom-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2006-07

INCOME TAX ACT, 1961

Section 2(22)(e)

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