TaxTMI 
TaxTMI 
2012 (10) TMI 668
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....f mutual funds to another was not a business activity with the sole objective of earning profits and that since units were held as stock in trade, the same were of the nature of investment. 4) The appellant craves leave to add, alter, amend any of the grounds of appeal at the time of hearing. 2. Facts, in brief, as per relevant orders are that return declaring nil income filed on 29.09.2008 by the assessee, a charitable society registered u/s 12A of the Act on 2nd November, 1979, after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act), was selected for scrutiny with the service of a notice u/s 143(2) of the Act on 22.09.2009. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee earned interest/investment income of `Rs. 6,72,16,586/- during the year from its investments in mutual funds. Due to frequent transactions in various schemes of mutual funds and buying/selling of units by the assessee with the objective of earning profit, the AO concluded that the society carried on business activities. Accordingly, while referring to provisions of section 11 (4A) of the Act and Circular n....
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.... The purchase, sale, switch in switch out is done with the mutual funds only for better yield and dividend income. The funds of the assessee have always remained invested in the mutual funds prescribed u/s 11 (5) of the IT Act, 1961. Further we would like to submit that similar issue arose in the case of assessee for the A. Y 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 Department's Appeal in ITA No. 1791(Del)/2010 vide order dated 10.03.2010 (copy of the order of I[TAT dismissing the Department's appeal is already enclosed in appeal papers at page 1925). The finding is at page no. 9 para number 16 which is reproduced as under:" It is on the anvil of the above ratio laid down by the Hon'ble Supreme Court, that the fact of the present case are needed to be tested. The Assessing Officer, it is seen, did not consider the attending factors. He merely went by the high frequency of the transactions in purchase and sale of the 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.....
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....iew of the above facts, the benefit of Section 11 & 12 is allowed. The addition made by the Assessing office on account of Excess of Income over expenditure at Rs.3,90,41,769/- is hereby deleted. The appeal is allowed on these grounds." 4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).At the out set, both the parties agreed that the issue is squarely covered by the decision dated 10th March, 2010 of the ITAT in the assessee's own case in I.T.A. no.179/D/2010 for the AY 2006-07. 5. We have heard both the parties and gone through the facts of the case as also the aforesaid decision relied upon by the ld. AR. Indisputably, the assessee is a society registered u/s 12A of the Act w.e.f. 2nd November, 1979. The AO treated the transactions in mutual funds as business activity and accordingly, denied the benefit of provisions of sec.11 & 12 of the Act. On appeal, the ld. CIT(A) allowed the claim in the light of aforesaid decision of the ITAT,adjudicating an identical issue in the AY 2006-07, holding as under:- "6 We have heard the parties and have perused the material on record. The AO treated the assessee's sale and purchase of mutual ....
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....transaction in many of these funds, the number of transactions came to around -two hundred. 8. However, as rightly held by the ld. CIT(A), the action of the AO was not in accordance with law. 9. Section 11(1) of the Act provides for income not to be included in the total income of the previous year, of the person in respect of the income, subject to the provisions of sections 60 to 63. 10. According to Section 11(1)(a) such income means income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India and where such income is accumulated or set apart for application to such purposes in India to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property. 11. According to section 11 (1)(b), such income is income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of the Income Tax Act, 1961, to the extent to which such income is applied to such purposes in India where any such income is finally set apart for application to such purposes....
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.... 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 & 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 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. 15, As per "G. Venkataswamy Naidu & Co.v. CIT", 35 ITR 594(SC), if a person invests money in lands indenting to hold it, enjoys its income for sometime and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. The Hon'ble Supreme Court has held that cases of r....
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....ion 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 appreciation/dividend. Moreover, section 11(5) of the Act envisages investment in the prescribed modes. It does not make any qualifications as to capital investment or trade investment. In accordance therewith also, it is immaterial whether the transaction was one or there were numerous transactions. The pertinent point is that the investment was made in accordance with the modes of investment qualifying for exemption, as prescribed thereunder. That being so, there was no reason to treat the same as business income of the assessee. There has not been shown any violation of the provisions of section 11 (5) of the Act as having been committed by the assessee. This was the mandate of the provisions of this section that was carried out in letter and spirit by the assessee, though for the purpose of getting a better yield than th....