Sale and Purchase of Mutual Funds by Maruti Suzuki can be treated as Business Income If Activities of Investment are towards Business Profit: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the sale and purchase of mutual funds by Maruti Suzuki can be treated as Business Income if activities of investment are towards business profit.

The assessee challenged the treating gains from the sale and purchase of mutual funds as “business income” as against the same being declared under the head “capital gains” by the assessee. The gains arising from the purchase and sale of investment in mutual funds were covered under the head “capital gains”, either as “long term” or “short term” based on the period of holding.  He further contended that the assessee claimed a long-term capital gain of Rs.3.32 crores, net of a short-term capital loss of Rs.5,41,404/-. 

The AO treated the capital gains as “business income” by following the assessment order of the earlier years wherein the disallowance was made on the ground that the investments were made as a systematic business activity and not to earn dividend income of capital appreciation. 

It was contended that the AO determined the taxable business income of Rs.125,66,52,966/- in respect of units of a mutual fund held for more than 12 months as against a long-term capital loss of Rs.68,16,79,305/- declared by the assessee after claiming the benefit of indexation. The AO did not allow the set off of the short-term capital loss amounting to Rs.5,41,404/- without specifying any reason. 

The transactions have been undertaken for a few days or weeks in the case of short-term gains and for one year to 13 months in the case of long-term gains.  The period of holding, the volume, and the frequency does not display the intent of investing these being so classified in the accounts.  

It was viewed that the intent is required to be examined whether it is for investment or otherwise for the business of course to arrive at any conclusion certain factors need to be kept in mind. If such factors point towards business activity certainly then any surplus arising would partake the character of business profit and  if it is for parking surplus fund or is mandatorily made under government policy or otherwise then it will fall in the

A Coram comprising of Shri Shamim Yahya, an Accountant Member & Shri Kul Bharat, a Judicial Member set aside the impugned order to verify the claim of the assessee that the transaction in question is pure investments by the assessee.

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