CIT v. Allu Arvind Babu - Taxpublishers.in

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The Tax Publishers2013 TaxPub(DT) 0332 (Mad-HC) : (2013) 350 ITR 0387 : (2013) 259 CTR 0545 : (2013) 212 TAXMAN 0260 : (2013) 089 DTR 0112 INCOME TAX ACT, 1961 --Business income--Adventure in nature of trade Assessee engaged in other business claimed loss on sale of mutual fund as business loss whether allowable--Assessee engaged in various other businesses purchased mutual fund units during the year and sold them to same person in six days at a loss and claimed such business loss to be set-off against other business income. Assessing officer viewed that assessee had entered into transaction not to earn profit but to adopt a machinery to set-off its income and reduce tax liability which conduct was colourable transaction and therefore, assessing officer rejected the claim. *Held:* Matter was remitted back to the Tribunal for proper enquiry into the facts of the case on the basis of instruction issued by CBDT in F. No. 178/32/2033 ITA-1, dt. 23-2-2004, that the transactions for tax avoidance or evasion could be considered only after in depth investigation and proper recording and marshaling of all relevant facts. Income Tax Act, 1961, Section 2(13) In the Madras High Court Chitra Venkataraman & K. Ravichandra babu, JJ. CIT v. Allu Arvind Babu Tax Case (Appeal) No. 2397 of 2006 8 October, 2012 Appellant by : M. Swaminathan Respondent by : C. V. Rajan JUDGMENT *Chitra Venkataraman, J.* The Revenue is on appeal as against the order of the Income Tax Appellate Tribunal relating to the assessment year 2001-02. This Court, at the time of admission, admitted this Tax Case on the following substantial question of law : 'Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee, who is not in the business of buying and selling of stocks and shares is entitled to claim loss arising on redemption of units as business loss?' 2. The assessee is engaged in various business, such as, film production, film distribution, exploitation, export of films, real estate development, dealing in properties etc. It is seen from the facts narrated herein that on 8-3-2001, the assessee purchased Blue Chip Fund Units for Rs. 7.00 crores from M/s. Kothari Pioneer Mutual Fund and sold the same for a sum of Rs. 5,62,276,853 to the same party on 12-3-2001. The source of investment in the shares came from the assessees contribution of Rs. 52.50 lakhs and the balance was arranged by M/s. Kotak Mahindra Finance Limited, Bombay. The units allotted to the assessee was given as a security for the above loan. Dividend of a sum of Rs. 1,09,60,334 was reinvested towards purchase of further units on 12-3-2001. On the very same day, all the units were transferred to M/s. Kothari Pioneer Limited by redemption for a total consideration of Rs. 5,62,27,853. In this process, the assessee incurred a loss of Rs. 1,30,57,575. After taking into account the interest element and the discount component, the assessee claimed this loss as a business loss to be set off against other business income. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0332 (Mad-HC) : (2013) 350 ITR 0387 : (2013) 259 CTR 0545 : (2013) 212 TAXMAN 0260 : (2013) 089 DTR 0112

INCOME TAX ACT, 1961

--Business income--Adventure in nature of trade Assessee engaged in other business claimed loss on sale of mutual fund as business loss whether allowable--Assessee engaged in various other businesses purchased mutual fund units during the year and sold them to same person in six days at a loss and claimed such business loss to be set-off against other business income. Assessing officer viewed that assessee had entered into transaction not to earn profit but to adopt a machinery to set-off its income and reduce tax liability which conduct was colourable transaction and therefore, assessing officer rejected the claim. Held: Matter was remitted back to the Tribunal for proper enquiry into the facts of the case on the basis of instruction issued by CBDT in F. No. 178/32/2033 ITA-1, dt. 23-2-2004, that the transactions for tax avoidance or evasion could be considered only after in depth investigation and proper recording and marshaling of all relevant facts.

Income Tax Act, 1961, Section 2(13)

In the Madras High Court

Chitra Venkataraman & K. Ravichandra babu, JJ.

CIT v. Allu Arvind Babu

Tax Case (Appeal) No. 2397 of 2006

8 October, 2012

Appellant by : M. Swaminathan

Respondent by : C. V. Rajan

JUDGMENT

Chitra Venkataraman, J.

The Revenue is on appeal as against the order of the Income Tax Appellate Tribunal relating to the assessment year 2001-02. This Court, at the time of admission, admitted this Tax Case on the following substantial question of law :

'Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee, who is not in the business of buying and selling of stocks and shares is entitled to claim loss arising on redemption of units as business loss?'

2. The assessee is engaged in various business, such as, film production, film distribution, exploitation, export of films, real estate development, dealing in properties etc. It is seen from the facts narrated herein that on 8-3-2001, the assessee purchased Blue Chip Fund Units for Rs. 7.00 crores from M/s. Kothari Pioneer Mutual Fund and sold the same for a sum of Rs. 5,62,276,853 to the same party on 12-3-2001. The source of investment in the shares came from the assessees contribution of Rs. 52.50 lakhs and the balance was arranged by M/s. Kotak Mahindra Finance Limited, Bombay. The units allotted to the assessee was given as a security for the above loan. Dividend of a sum of Rs. 1,09,60,334 was reinvested towards purchase of further units on 12-3-2001. On the very same day, all the units were transferred to M/s. Kothari Pioneer Limited by redemption for a total consideration of Rs. 5,62,27,853. In this process, the assessee incurred a loss of Rs. 1,30,57,575. After taking into account the interest element and the discount component, the assessee claimed this loss as a business loss to be set off against other business income.