TMI Blog2010 (3) TMI 776X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent. ORDER A.D. Jain, Judicial Member. This is Department's appeal for the assessment year 2006-07, taking the following grounds : "(1) On the facts and in the circumstances of the case, the learned CIT(A) has erred in directing the Assessing Officer to allow benefits of sections 11 and 12 of the Income-tax Act, notwithstanding the facts that the assessee was found to have been carrying on a business activity which was distinctly separate from its charitable activities. (2) On the facts and in the circumstances of the case, the learned CIT(A) has erred in law by holding that frequent transactions related to purchase, sale, switchover from one scheme of mutual fund to another was not a business activity with the sole objective of earning profits and that since the units were held as stock-in-trade, the learned CIT(A) has erred in holding that the same were of the nature of investment." 2. The assessee filed return of income at rupees nil. The assessment was completed at a total income of Rs. 1,38,50,640. The assessee's sale and purchase of mutual funds was treated as business activity not incidental to the objectives of the assessee society. 3. By virtue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apart, shall not be included in the total income of the previous year of the person in respect of the income, subject to the compliance of the conditions laid down in section 11(2). The case of the assessee is that the investments made by it were within the mode prescribed by section 11(5)(xii) of the Act. As per section 11(5)(xii), the investment should be in any form or mode of investment or deposit, other than those prescribed in section 11(5)(i) to (xi), as may be prescribed. Such prescription is contained in rule 17C of the Income-tax Rules. Rule 17C(1) of the Income-tax Rules specifies as a prescribed mode, investment in units issued under any scheme or mutual fund referred to in section 10(23D). The assessee made investment in such mutual funds. Before the Assessing Officer, the assessee filed details of investment in mutual funds along with purchases, switch in, switch out and redemption particulars to show that most of the income was from the switch in and switch out option exercised by the assessee from one scheme to another, for getting a better yield and to show that the option was only with the respective mutual fund company and there was no transaction with any outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he previous year immediately following the previous year in which the income was derived as does not exceed the said amount, made, at the option of the person in respect of the income, be deemed to be income applied to such purposes during the previous year in which the income was derived and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes during the previous year immediately following the previous year in which the income was derived. 13. Section 11(2) of the Act provides that where eighty-five per cent onwards of the income referred to in section 11(1)(a) or section 11(1)(b) r/w Explanation thereto is not applied, or is not deemed to have been applied to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in respect of the income, provided, inter alia, that the money so accumulated or set apart is invested or deposited in the forms or modes specified in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade or business, the repetition of the transaction, the element of pride or possession, etc.; that the presence of all these relevant factors may help the Court to draw an inference that the transaction is in the nature of trade; that however, it is not a matter of merely counting the number of facts and circumstances pro and con; that what is important to consider is their distinctive character; and that in each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction. 16. It is on the anvil of the above ratio laid down by the Hon'ble Supreme Court, that the facts of the present case are needed to be tested. The Assessing Officer, it is seen, did not consider of the attending factors. He merely went by the high frequency of the transactions in purchase and sale of mutual funds by the assessee. He overlooked the fact that the investments were made as prescribed by section 11(5) of the Act, as discussed hereinabove. He remained oblivious of the fact that such frequency of transactions cannot be the sole factor for determining as to whether the assessee was or was not carrying on a business activity of trade in mutual f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental to the attainment of the objectives of the trust and separate books of account are maintained in respect of such business. Undeniably, in view of what has been discussed herein above, the activity of the assessee in making investments in mutual funds, was incidental to the attainment of the objects of the trust. It was not a separate business activity. Then again, undeniably, the assessee was maintaining separate books of account, identifying each of the mutual funds separately. The bank account for purchase and sale of mutual funds was also separately maintained by the assessee. Copies of separate books of account as well as the mutual funds ledger were placed before the Assessing Officer. None of these was considered by the Assessing Officer. The assessee was able to identify each transaction, fund-wise. The prescription of section 11(4A) of the Act was thus duly met with. 18. In view of the above also, it is the case of the assessee which gets buttressed. 19. Therefore, all considered, the order of the learned CIT(A) is well versed. It cannot be said to be erroneous in any manner whatsoever. The grievance of the Department by way of grounds raised before us is unjustif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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