TMI Blog2014 (9) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... sale and purchase is to be concerned - Intention has reference to practical and empirical side of the de facto and functional aspects – thus, the matter is to be remitted back to the Tribunal for fresh adjudication relying upon Commissioner of Income-Tax Versus Rewashanker A. Kothari [2006 (1) TMI 80 - GUJARAT High Court ] – Decided in favour of revenue. - ITA 1032/2011 - - - Dated:- 9-9-2014 - Sanjiv Khanna And V. Kameswar Rao,JJ. For the Appellant : Mr.Ruchir Bhatia, Advocate For the Respondent : None ORDER V. Kameswar Rao, J. 1. The appeal pertaining to the assessment year 2005-06, raises the following substantial question of law: Whether the transaction in question were rightly held by the Tribunal to be in the nature of investment and not in the nature of trade? (We have partly modified the substantial question of law as framed on 25th September, 2013, to correct the typographical error). 2. The brief facts of the matter as taken from the Assessment Order are that the respondent assessee, at the relevant time, was engaged in the business of retail trade in periodicals and books including subscription agents for Indian and Foreign Periodi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has shown any income under the head Business income on account of sale of units of mutual funds. The department has accepted the stand of the assessee in earlier years does not mean it has to be accepted in this year as well. It is as well laid down law that the principle of stopple does not apply to income tax proceedings. Further it is pertinent to mention that during the F.Y. 04-05, w.e.f. from 01.10.04, LTCG has been exempted from tax and STCG is to be taxed at 10% (provided the transaction are through recognized stock exchange and STT has been paid on the same). Thus there is major development during the year with regard to the taxability of sale of shares and given the CBDT Circular dated 15.06.07 (4/2007), it is very crucial to ascertain from facts circumstances of the case that the income on units of mutual funds sold bear the nature of capital gains or business income. This is to be ascertained by looking at the intention of the assessee for holding the units of mutual funds for long time for earning dividend income or selling then within a short period for short term appreciation. In this case it is clear that the assessee has indulged in trading by selli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 2005-06 the sale of units/securities was accepted under the head capital gain . The respondent assessee in the balance sheet has treated the shares and units as investments and have been valued at cost. We have also gone through the note on accounts attached to the balance sheet. The inventory have been valued at lower of cost or net releasable value. Further, the respondent assessee is not an investment company. We have also gone through the Memorandum and Articles of Association. As per Memorandum and Articles of Association the main objects of the company do not include activities relating to purchase and sale of shares. Under clause (6) of ancillary objects the respondent assessee is permitted to invest and deal with money of the company not immediately required in such a manner as may from time to time be determined. From these facts it is evident that respondent assessee had invested in shares/units of mutual fund as investment and had not held them as stock in trade . Therefore, profit arising on sale of investments will be liable to tax under the head capital gains and not under the head business or profession . The issue is covered by the decision of Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of transaction and would be a relevant circumstance to be considered in absence of any satisfactory explanation. (e) The fifth test, normally applied in cases of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorises such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequently, continuity and regularity of transactions of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is in the nature of business. 8. It has to be seen on application of tests as laid down in the case of Rewashanker A.Kothari case (supra), whether the assessee held the mutual funds as inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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