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TMI Blog2014 (4) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... eposit can be taken to be distinct or different from other transactions carried out by the assessee - The deposit was clearly made by the assessee to earn profits on its deposit and thus, was in the nature of stock-intrade and the revenue generated to the extent of Rs.1,24,70,700/- is to be assessed as business income. The CIT(A) as also the ITAT were wrong in adjudicating the income on sale of Tata Mutual Funds (Dividend Plan) as income from 'short term capital gains' merely on the ground that the units of mutual funds were not freely tradable and thus, such investment was in non-tradable commodity - it has been amply proved that the business of the assessee is to make profits by virtue of investments in shares and securities etc. - Merely because there is single transaction or that such investment was in not freely tradable commodity, does not change the profit intent of the assessee who is in the business of investments only - the investment made by the assessee was rightly treated as stock-in- trade and revenue generated was correctly assessed as business income by the AO – Decided in favour of Assessee. - I.T.A. No. 39 of 2012, I.T.A. No. 226 of 2012, I.T.A. No. 227 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Tribunal (hereinafter mentioned as the ITAT), the revenue had taken the following ground: That the learned CIT(A)-II has erred in law and on facts in directing the Assessing Officer to consider the income of Rs.1,24,70,700/- as short term capital gain instead of business income assessed by the Assessing Officer. 5. The revenue had sought restoration of the order of the AO on reversal of the order of the CIT(A). 6. The ITAT disagreeing with the AO, refused to set aside the order of the CIT(A) and held that units of Tata Mutual Funds (Dividend Plan) are assessable in the hands of the assessee as income from short term capital gains, and not as business income. 7. In appeal before this Court, following question of law has been posed for adjudication: Whether on the facts and in law, the Hon'ble ITAT was legally justified in upholding the decision of CIT(A)-II, Ludhiana and in holding that the income on sale of Tata Mutual Funds (dividend plan) are assessable as income from Short Term Capital Gain interealia on the ground that the units of mutual funds are not tradable and that therefore the assessee had made investment in non-tradable commodity? 8. Pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely because it was not held by the assessee for the complete term; and, (v) No borrowed funds were used by the assessee for the impugned deposit but it was surplus out of the earned income of the assessee, which was used for such deposit. 11. Notwithstanding such strong observations of the CIT(A) as also of the ITAT in their respective orders in favour of the assessee, there are certain important aspects which either got ignored or had not engaged the quantum of attention, these deserved by these appellate authorities. Those aspects are being considered herebelow. 12. The assessee is not a business entity in the nature of a manufacturing unit or marketing concern which, making departure from its normal business or marketing activities, had acquired a 'capital asset' as distinguished from 'business asset'. In case of such an assessee, as is mentioned earlier, making investment to raise a 'capital asset' would definitely be not in the nature of stock-in-trade and such transaction would also not be a venture in the nature of trade. Thus, CIT Versus Principal Officer, Laxmi Surgical (P) Ltd [1993] 202 ITR 601 (Bombay) where the asset had been acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of normal business activity of making investments to earn profits in the regular course of such business. Contention of the assessee that such deposit was merely to earn dividend and thus,was in the nature of capital investment different from the normal business activity of dealing in shares and debentures, is an argument, devoid of any merit. 16. Assessee, a company earning its income from sale and purchase of shares, securities as also from dividends and interest from its investments, as all other such investment companies do, acted intelligently in managing its portfolio. When sale and purchase of shares, debentures and other securities are subjected to vagaries of market forces which considerably affect quantum of profits and at times even results in losses, investments enuring for fixed returns are safe and are sometimes used by investment companies to offset their possible losses in trading of other scrips. Consequently, impugned deposit was not at all an activity made in departure from the normal business activity of the assessee. In fact, such deposit cannot be taken away from the normal business activity and also from usual course of trade of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction is to be gathered not only from the recording of an entry in the accounts where it even manipulatively may be shown as tenurial investment but also from the conduct which precedes or follows such a transaction. The pattern of investments made, behaviour of the assessee in conducting its business, nature of the transactions entered into in the usual course of its business, outcome of such transactions and of deposits made by the assessee, are important factors which were completely ignored by the appellate authorities. Outcome of this deposit is that the assessee had made profits from its investment and it was in the usual course of its business. The assessee had also not to wait for long to earn this income in the nature of dividend. 21. Viewing it from another angle, undoubtedly, the motive in purchase and sale of share, securities and of such deposits by the assessee is to earn profit. There cannot be intention or object of making such deposits to raise capital. The only purpose was to earn safe profits within a short span of time, even though by making investment in a tenurial dividend plan. 22. Merely because it is a single transaction of deposit ipso facto i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revenue is merely a bid to reduce its tax liability. It is neither 'tax planning' nor 'tax organization' nor 'tax management' but is clearly a manipulation to thwart the tax effect as also to thwart legal provisions for which actually, there is no escape for the assessee. 26. Merely because deposits in mutual funds are not traded in the nature of sale and purchase of equity shares and such transactions are different in effect and consequences is no ground to treat those differently. Frequency of dealings in deposits of mutual funds with the strategy of firstly investing in tenurial plans and then getting redemption within the same year of deposit and at times resulting in huge profits while at other times in loss, has been usual business activity of the assessee. Such before term redemption, is done in the usual course of business by the assessee clearly to increase its actual cash inflow to tide over its commitments made in the market and at times to earn higher interest in other lucrative investment plans contemporaneously emerging in the market. In this case, in the name of consistency the assessee had tried to hoodwink the authorities. Rather ..... X X X X Extracts X X X X X X X X Extracts X X X X
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