9911796707
TMI Blog2010 (3) TMI 776X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the impugned order, the learned CIT(A) directed the Assessing Officer to allow benefits of sections 11 and 12 of the Income-tax Act. 4. Impugning the order under appeal, the learned Departmental Representative has contended that while wrongly directing the Assessing Officer to allow the assessee benefits of sections 11 and 12 of the IT Act, the learned CIT(A) has failed to take into consideration the fact that the assessee was carrying on business activity which was distinctly separate from its charitable activities; that the learned CIT(A) has erred in holding that frequent transactions relating to purchase, sale and switch in from one scheme of mutual fund to another, was not a business activity of the assessee; that the learned CIT(A) also failed to consider that such business activity was carried on by the assessee with the sole objective of earning profits; and that the units hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tch 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 outside third party. 7. The Assessing Officer went against the assessee only for the reason that the frequency of the investment made by the assessee was, according to the Assessing Officer, huge, in as much as the assessee had invested in fifty-three different schemes of the mutual fund in the general funds category and it had invested in 27 different schemes for foreign contributions, total amounting to investment in eighty different schemes during the year and that in all these schemes, but for in six of them, there were both purchases and sales during the year. The Assessing Officer held that considering that there were more than one transaction in many of these funds, the number of transactions came to around two hundred. 8. However, as rightly held by the learned CIT(A), the action of the Assessing Officer was not in accordance with law. 9. Section 11(1) of the Act provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 11(5) of the Act. 14. Thus, it is the aforesaid relevant provisions of the Act which govern the case of the assessee. It is seen that undeniably, the investments made by the assessee in units of mutual funds were covered under section 10(23D) of the Act. These investments are within the prescribed modes of investment under section 11(5)(xii) r/w rule 17C of the Income-tax Rules. The investments were made with the intention of getting a better yield upon appreciation/dividends from such mutual funds, in order to augment the resources of the trust. The proceeds of the mutual funds were applied by the assessee for charitable purposes, in compliance of the provisions of sections 11 and 12 of the Act. The assessee had been making such investments in the past. Separate identifiable accounts had been maintained for each of the mutual fund investments. In these facts, there was no justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 funds, particularly when the essential ingredients of such business are conspicuously absent in the assessee's case. Most of the income of the assessee from the investments in the mutual funds was from the switch in/switch out operations exercised by the assessee from one scheme to the other, for getting a better yield. Pertinently, this option is only with the respective mutual fund company. There was no transaction with any outride third party when the money stayed with the mutual fund company. In most of the cases, the growth option was exercised by the assessee in order to enable the assessee to realize income after a period of time. The purchases were all actual purchases. The sales were all actual sales. These showed the investment to be the assessee's own investment. This demonstrated that the intention of the buyer was to hold the units as investments for realization of capital ..... X X X X Extracts X X X X X X X X Extracts X X X X
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