TMI Blog2012 (10) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... d been maintained for each of the mutual fund investments. In these facts, there was no justification in holding, merely due to the frequency of the transactions, that the assessee had been carrying on business activity which was not incidental to its charitable activities and that such business activity was being carried on with the sole objective of earning profits. It was also erroneous to hold that the units were held by the assessee as stock in trade and not investment. Hence, CIT(A) righly allowed the exemption - Decided in favor of assessee - ITA no.2377/Del/2012 - - - Dated:- 19-7-2012 - SHRI U.B.S. BEDI , SHRI A.N. PAHUJA, JJ. Assessee by Shri K.V.S.R. Krishna, AR Revenue by Shri D.K. Mishra, DR O R D E R A.N.Pahuja:- This appeal filed on 18.05.2012 by the Revenue against an order dated 24th February, 2012 of the ld. CIT(A)-XII, New Delhi,raises the following grounds:- 1) On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in allowing benefits of section 11 and 12 of the Income Tax Act. 2) On the facts and in the circumstances of the case and in law, the ld. CIT(A) has failed to appreciate the fact that the AO d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are covered U/S 10(23D) of Income Tax Act, 1961 and are covered also as the prescribed modes of investments u/s 11 (5) of the Income Tax Act 1961 more particularly under clause (xii) of Section 11 (5) read with rule 17C of I.T Rules, 1962. This factual aspect has also been accepted by the AO. The proceeds of the mutual funds are duly applied by the assessee for charitable purposes duly complying with the provisions of Sec 11 12 of the IT Act, 1961. The assessee has been making such investments in the past and maintaining separate identifiable accounts for each of the mutual fund. The chart which the AO has relied upon to allege that the assessee is carrying on frequent purchases and sales and is annexed as part of the order is without understanding the nature of transactions. Assessee is enclosing the ledger copy of each of the mutual fund account maintained separately for investments made out of Nonforeign contribution (NFC) funds and foreign contribution (FC) funds. From the copy of the ledger account it will be noticed that there is hardly any new purchase. In respect of sale, there is only one redemption i.e. of Tata liquid super high appropriation fund made on 11.12.2007. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. 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 appreciation/dividend. Similar issue arose for AY 200607, the CIT (Appeals) has allowed the appeal of the assessee and the order of CIT (A) has been upheld by the Honorable ITAT by dismissing the Departmental Appeal. Therefore, following the consistency principle, since the facts are the same, the appeal for this assessment year should also be allowed. Consequently, the benefit of Section 11 12 should be allowed. Without prejudice to the above contention that the assessee is carrying on only charitable activity even assuming that the purchase and sale of mutual fund is considered as business activity the profits are again applied for charitable purposes and therefore the business is incidental to the attainment of the objectives of the society. Please note that the case of the assessee is fully supported by the Supreme Court decision in the case of Assistant Commissioner of Income Tax v. Thanthi Trust 247 ITR 785 (SC) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents 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 17 C of the I.T. Rules. Rule 17 C(1) of the I.T. 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 AO, 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 outside third party. 7. The AO went against the assessee only for the reason that the frequency of the investment made by the assessee was; according to the AO, huge, inasmuch as the assessee had invested in fifty three different schemes of the mutual f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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)read with the 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 11(5) of the Act. 14. Thus, it is the aforesaid relevant provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 AO, it is seen, did not consider 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 funds, particularly when most of the income of the assessee from the investments in the mutual funds was from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was incidental to the attainment of the objects of the trust: It was not a separate books of account, identifying each of the mutual funds separately. The bank account for purchase and sale of mutual fund was also separately maintained by the assessee. Copies of separate books of account as well as the mutual funds ledger were placed before the AO. None of these were considered by the AO. The assessee was able to identify each transaction, fundwise. 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 ld. 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 unjustified and is rejected as such. 6. In the light of view taken in their aforesaid decision by a co-ordinate bench, especially when the Revenue have not placed before us any material, controverting the aforesaid findings recorded by the ld. CIT(A) so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we are not inclin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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