TMI Blog2007 (10) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding the contention of the ld DR of the Revenue that entries in books are not conclusive, we would like to mention that there is no dispute on this count. It is a settled legal position by now that entries in books are not conclusive but there should be a firm basis to take a different view from entries in books of account. In the present case, the Assessing Officer has taken a different view contrary to books of account on the basis of magnitude and number of transactions without bringing anything else on record that purchases of units of mutual fund were made on account of dealing in shares and not on account of investments. We, therefore, are of the considered opinion that in the present case, the income on sale of units of mutual funds has to be assessed as capital gain as declared by assessee and set off of brought forward capital loss has to be allowed against long-term capital gain as claimed by the assessee in return of income. This ground of the assessee is allowed. Taxability of Interest income (earned on deposits) - Principle of Mutuality - HELD THAT:- We find that this issue is covered in favour of the assessee by the Tribunal judgment rendered in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,04,97,182 (Rs. 2,08,50,215 less brought forward capital loss of Rs. 1,03,53,033) are taxable under the head Long-term capital gains and gains of Rs. 2,20,201 taxable under the head Short-term capital gain . 1.1 The CIT(A) further erred in holding that above referred capital gains are taxable as business income because concept of mutuality is not applicable, having failed to appreciate that appellants have offered such gains to tax on the ground that such gains are not covered by mutuality and therefore taxable under the head Capital gain ." 3. Briefly stated, the facts are that during the present year, the assessee has sold units of mutual fund totalling Rs. 48,68,72,010 and out of this, it is claimed by the assessee in the return of income that income arising on account of sale of these units of mutual fund is taxable under the head income from capital gain. Regarding part of sales to the extent 22,52,09,532, the assessee computed short-term capital gain at Rs. 2,20,201 and for the balance amount of sale of units of mutual funds of Rs. 26,16,62,478, the assessee computed long-term capital gain of Rs. 2,08,50,215 after reducing indexed cost of acquisition of Rs. 24,08,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,425 being subscription, games, amenities and activities etc. as per income and expenditure account. It was also stated by the Assessing Officer that in view of these facts, it is clear that the main business of the assessee company is buying and selling of securities and hence it should be considered as income from business. The Assessing Officer asked why income from buying and selling of securities be not considered as income from business as against capital gains. The assessee replied vide letter dated 3-3-2006 in which, it was submitted that monies of the assessee are arising out of the amounts received from its members for entrance fee, subscription etc. and the same are primarily utilized for meeting the expenses of the Gymkhana and surplus, if any, is temporarily invested in interest/dividend-bearing securities according to the resolutions passed by the managing committee from time to time. It was also submitted that whenever there is requirement of fund for Gymkhana activities, the same is made available by liquidating the investments after getting approval of the managing committee. The amount invested in securities, therefore, has been disclosed as investment in books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d securities of any kind issued by any company, Central or State Government, municipal or other body or any other person and to lend and advance monies whether on fixed deposit or otherwise, to such persons and on such terms as the managing committee may deem expedient and to guarantee the performance of any other contract or obligation and the payment of money of or by any such person or companies etc. It was also submitted that on pp. 8 and 9 of the paper book is the complete details of the working of the long-term capital gain as well as for short-term capital gain. Copy of minutes of managing committee meeting on 19-9-2002 and 20-2-2003 were also filed as appearing on pp. 26-39 of the second paper, book. Our attention was drawn to p. 30 of this paper book which is part of minutes of managing committee meeting held on 19-9-2002 as per which, sale of units in DSP Merrill Lynch was approved to be sold for Rs. 50 lacs for making payment to the union employees. Our attention was drawn to pp. 34-36 of the paper book, which is part of the minutes of managing committee meeting held on 20-2-2003 as per which, various other purchases and sales of units of various mutual-funds were approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units of mutual fund during this year, whereas, it is noted by the Assessing Officer himself on p. 2 of the assessment order that number of transactions of sale of mutual fund units were 60 in the immediately preceding year. The Assessing Officer and the learned CIT(A) have come to the conclusion that the income arising on purchase and sale of mutual fund units in the present year is taxable under the head income from business mainly on the basis that principle of mutuality is not applicable with regard to these transactions and for the reason that magnitude and frequency of transactions suggest that these transactions were in the nature of adventure in the nature of trade and hence taxable under the head business income and not capital gain. In the light of these facts, we have to decide as to whether merely because there are 33 number of transactions of sale of mutual fund units, it can be held that income on this account is taxable under the head income from business. We first consider the judgment of the Hon ble apex Court rendered in the case of H. Hoick Larsen ( supra ), wherein it Was held by the Hon ble Apex Court that it was not in the hand of the Department as to whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... magnitude but same shall not decide the nature of transaction. It is also decided that similar transactions of sale and purchase of shares in the preceding years have been held to be income from capital gain on both long-term and short-term. And similar transactions were there in the year which was before the Tribunal and under these facts, its was held by the Tribunal that there is no basis to treat the assessee as trader in shares when his intention was to hold the shares as an investment and not as stock-in-trade. It was also held that magnitude does not change nature of transaction. Reliance was placed in that case on the judgment of the Hon ble apex Court rendered in the case of Radhasoami Satsang ( supra ) and part of the relevant para was reproduced by the Tribunal in that order which is reproduced below: "....strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried the matter in appeal before the learned CIT(A) and before the learned CIT(A), reliance was placed on the same judgment of Hon ble Delhi High Court rendered in the case of India Oriental Bank of Commerce ( supra ). Reliance was also placed on the Tribunal judgment in the case of Secunderabad Club ( supra ) and also another Tribunal judgment rendered in the case of Shivalika Co-operative Group Housing Society Ltd. v. ITO [2006] 101 ITD 391 (Delhi). The learned CIT(A) decided this issue against the assessee by holding , that the judgments relied upon by the learned counsel for the assessee are distinguishable to the case of the assessee due to the lack of mutuality and he upheld the order of the Assessing Officer and the assessee is now in further appeal before us. 13. The assessee reiterated the same arguments, which were advanced before the learned CIT(A) and reliance was placed on the judgment of Hon ble Apex Court rendered in the case of Chelmsford Club v. CIT [2000] 243 ITR 89 (SC). The learned Departmental Representative of the revenue supported the orders of the authorities below. 14. We have considered the rival submissions, perused the material on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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