2018 (11) TMI 206 - AT - Income Tax

Income earned profit on sale of mutual funds - capital gain OR business income - Holding period - Magnitude of the investment - Held that - Holding period of the assessee is minimum of 72 days and maximum of 186 days in the four schemes. As the assessee contended before the CIT(A) that these are the only four transactions during the year. Magnitude of the investment coupled with the volume is also not much. CIT(A) relying on the decision of the BS Raju Vs. Addll. CIT 2010 (10) TMI 1041 - ITAT HYDERABAD held that same is capital gain. He further held that in case of mutual fund the assessee does not have any control on the manner in which further investment have been made. Further, in case of the assessee, in earlier years the revenue has accepted the claim of the assessee as capital gain or loss. There is no change shown to us in the facts of the case this year. In this year only there is a change in the stand of the revenue. CIT(A) has also followed the principle of consistency. On reading of the order of the CIT(A) we do not find any infirmity in holding profit of sale of mutual fund earned by the assessee as chargeable to tax under the head capital gain and not as business income. - decided against revenue.

Summary

Issues:
1. Classification of profit on sale of mutual funds as capital gain or business income.

Analysis:
The appeal was filed by the ld ACIT against the order of the ld CIT(A) regarding the classification of profit on the sale of mutual funds as capital gain or business income for Assessment Year 2011-12. The ld AO treated the profit as business income, while the ld CIT(A) held it to be capital gain.

The assessee, an individual engaged in trading in securities, derivatives, and professional income, declared income of &8377; 9591980/- and also showed capital gain of &8377; 26953746/- from the sale of mutual funds in one AMC in four different schemes with holding periods ranging from 72 days to 186 days. The ld AO, citing Circular No. 74/2007, concluded that the assessee was engaged in trading and investment in shares and mutual funds, treating the profit as business income. The ld CIT(A) disagreed and classified it as capital gain.

The ld CIT(A) considered the evidence submitted by the appellant during the appellate proceedings, including details of long and short term capital gains, investments, and holding periods. The Assessing Officer's argument about the short holding periods was countered by the appellant, showing that the intent was investment appreciation over time, not short-term trading. The ld CIT(A) also highlighted the appellant's separate treatment of shares and mutual funds, consistent with previous assessments.

The Tribunal upheld the ld CIT(A)'s decision, emphasizing the appellant's investment intent, lack of control over further investments in mutual funds, and the revenue's past acceptance of similar claims as capital gain or loss. The principle of consistency was also cited. The Tribunal found no reason to disturb the classification of the profit on the sale of mutual funds as capital gain, dismissing the revenue's appeal.

In conclusion, the Tribunal affirmed the ld CIT(A)'s decision, holding the profit on the sale of mutual funds as capital gain and not business income for the Assessment Year in question.