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Bombay Gymkhana Ltd. v. Income-tax Officer
Structured Summary of the Tribunal Order (Accountant Member A.K. Garodia)
Factual and Procedural Background
This is an appeal by the assessee against the order of the learned CIT(A)-I, Mumbai dated 21-11-2006 for the assessment year 2003-04.
Facts relevant to the appeal (as stated in the opinion):
- The assessee (a club) sold mutual fund units during the year for a total consideration of Rs. 48,68,72,010.
- The assessee treated the sale proceeds in its return as capital gains: short-term capital gain (STCG) of Rs. 2,20,201 on sales of Rs. 22,52,09,532 and long-term capital gain (LTCG) of Rs. 2,08,50,215 on sales of Rs. 26,16,62,478 after indexing; it also sought set-off of a brought forward long-term capital loss of Rs. 1,03,53,033.
- The Assessing Officer (AO) issued a questionnaire and, relying on magnitude and frequency of transactions (33 sales transactions in the year; earlier year had 60), concluded the activities amounted to business/adventure in the nature of trade and assessed the gains as business income, disallowing the brought forward capital loss set-off.
- The assessee explained that funds were arising from members' subscriptions/fees and were temporarily invested; investments were recorded as investments in books; minutes of managing committee meetings authorised purchases and sales; the assessee relied on earlier years' treatment (accepted as capital gains) and on case law to argue for capital-gains treatment.
- In addition to the capital-gains dispute (Ground 1), the appeal raised (Ground 2) the question whether interest income of Rs. 3,17,341 is exempt under the principle of mutuality, and (Ground 3) whether interest under section 234C (Rs. 4,243) should be computed on returned income rather than assessed income.
- The CIT(A) upheld the AO on the capital-gains point and on mutuality declined the exemption; the CIT(A) also held interest under section 234C to be mandatory (and not appealable per the bench below). The assessee is in further appeal to the Tribunal.
Legal Issues Presented
- Whether the long-term and short-term gains arising on sale of mutual fund units (aggregating Rs. 3,23,83,744 as per the ground) are taxable as business income (AO/CIT(A) view) or as capital gains (assessee's contention), and whether brought forward capital loss can be set off against such gain.
- Whether interest income totalling Rs. 3,17,341 earned on deposits is exempt under the doctrine of mutuality.
- Whether interest levied under section 234C (Rs. 4,243) must be computed on returned income (and thus is appealable on that basis) or is necessarily calculated on assessed income such that no appeal lies.
Arguments of the Parties
Appellant's Arguments
- The sale of mutual fund units represented liquidation of investments (capital assets) held out of members' funds (entrance fees, subscriptions, etc.) and were shown as investments in the books; therefore gains/losses are capital in nature.
- The managing committee's minutes authorised the investments and their sale; the club's object clause expressly permitted investment in securities.
- In the immediately preceding year the Department had accepted losses on sale of mutual fund units as long-term capital loss; hence the rule of consistency applies and the Department should not change its view (cited Radhasoami Satsang and Tribunal authority Janak S. Rangwalla).
- Efforts to maximise returns (including following investment advisor's advice) do not alter the character of the asset from investment to trading.
- Interest income on surplus funds deposited with banks/deposits is covered by the principle of mutuality and therefore exempt (relied on Director of IT (Exemptions) v. All India Oriental Bank of Commerce Welfare Society and other authorities like Chelmsford Club and Secunderabad Club).
- Interest under section 234C is mandatory but must be calculated on the basis of the returned income as section 234C compares advance tax paid with tax payable on returned income.
Revenue's Arguments
- The Assessing Officer relied on frequency, magnitude and number of transactions (33 sales in the year; substantial turnover in securities relative to the club's normal income) to conclude that the club was engaged in buying and selling of securities as a business/adventure in the nature of trade; hence the gains are business income.
- The Department (learned Departmental Representative) relied on the principle that entries in books are not conclusive and cited Sutlej Cotton Mills Ltd. v. CIT to support the contention that the character of receipts cannot be determined solely by entries in books.
- On mutuality, the revenue supported the orders below which held lack of mutuality in the assessee's facts (CIT(A) view).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner Of Income Tax, Bombay v. H. Holck Larsen [1986] 160 ITR 67 (SC) | The central question is whether the initial purchase was in the course of trading or was an investment; characterization depends on the nature of purchase. | The Tribunal applied this principle to conclude that the purchases in the earlier year were investments; therefore the subsequent sales must be taxed as capital gains and not business income. |
| Investment Ltd. v. The Commissioner Of Income Tax, Calcutta [1970] 77 ITR 533 (SC) | Prior assessment findings are not conclusive but are good and cogent evidence about the nature of transactions; magnitude alone does not change nature. | The Tribunal relied on this authority by way of analogy to treat earlier acceptance of investment character as persuasive evidence and to hold that magnitude/frequency do not automatically convert investments into trading. |
| Janak S. Rangwalla v. Asstt. CIT [2007] 11 SOT 627 (Mum.) | Magnitude of investment transactions does not determine their character; consistency in treatment across years relevant. | The Tribunal respectfully followed the Tribunal judgment, finding the facts similar and holding there was no basis to treat the assessee as a trader when prior years showed investment intent. |
| Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) | Strict res judicata does not apply in income-tax proceedings, but where a fundamental factual aspect has been found and allowed to stand by parties, it is inappropriate to change position subsequently (rule of consistency). | The Tribunal relied on this Supreme Court authority to support the assessee's contention that the Department should not alter an accepted factual character (investment) in the subsequent year without a firm basis. |
| Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 | Book entries are not conclusive evidence of the nature of transactions. | The Tribunal acknowledged this principle but held that the AO did not bring sufficient contrary evidence beyond magnitude/frequency to overturn the entries showing investments. |
| Secunderabad Club v. ITO [2005] 97 ITD 541 (Hyd.) | This case was relied upon by the assessee; the opinion records reliance but does not detail the precise rule in the body of the order. | The precedent was cited by the assessee in support of capital-gains treatment; the Tribunal's reasoning relied principally on other authorities but the earlier Tribunal decision was among the authorities relied upon by the assessee. |
| Director of IT (Exemptions) v. All India Oriental Bank of Commerce Welfare Society [2003] 130 Taxman 575 (Delhi) | Principle of mutuality: interest earned on surplus funds of a society deposited with banks may be exempt under mutuality. | The Tribunal followed the Delhi High Court judgment on mutuality in deciding that the assessee's interest income on surplus funds was covered by mutuality and hence exempt. |
| Shivalika Co-operative Group Housing Society Ltd. v. ITO [2006] 101 ITD 391 (Delhi) | Tribunal holding that interest on surplus funds deposited with a bank is covered by mutuality. | The Tribunal followed this Tribunal decision, finding the facts similar, and allowed mutuality-based exemption for the assessee's interest income. |
| Chelmsford Club v. Commissioner Of Income Tax, Delhi [2000] 243 ITR 89 (SC) | This authority was cited by the assessee in argument on mutuality; the opinion records the citation but does not elaborate the specific principle from the case within the text. | Cited by the assessee in support of the mutuality argument; the Tribunal's decision on mutuality relied explicitly on the Delhi High Court and Tribunal authorities noted above. |
Court's Reasoning and Analysis
The Tribunal addressed each ground in turn. The analytical steps and application of legal principles (as stated in the opinion) are summarized below.
Ground 1 — Characterisation of gains (business income v. capital gains)
- The Tribunal reviewed the transactional details: total 33 sales transactions in the year under appeal; the long-term units (sold for Rs. 26,16,62,478) were purchased between 21-1-2001 and 15-3-2002 (15 transactions), and the short-term units (sold for Rs. 22,52,09,532) comprised 18 transactions.
- It noted the Assessing Officer and CIT(A) had relied primarily on magnitude and frequency of transactions and on turnover (Rs. 48,68,72,010) relative to normal income to classify the activity as business/adventure in the nature of trade.
- The Tribunal applied the principle from H. Holck Larsen that the critical inquiry is whether the initial purchase was in the course of trading or an investment — if the purchase was in the nature of investment, sale proceeds must be treated as capital gains despite subsequent magnitude of sales.
- The Tribunal observed that the assessee had recorded the assets as investments in its books; the Department had in the immediately preceding year accepted similar transactions as investments (long-term capital loss accepted). Relying on Investment Ltd., Janak S. Rangwalla and Radhasoami Satsang, the Tribunal treated prior acceptance as strong and cogent evidence (rule of consistency) and concluded magnitude alone does not change the nature of the transactions.
- The Tribunal accepted that book entries are not conclusive (citing Sutlej Cotton Mills), but held that the AO failed to produce a firm basis other than magnitude and frequency to rebut the books; there was no material brought on record to show purchases were made in the course of dealing/trading rather than as investments.
- On this basis, the Tribunal concluded the income on sale of mutual fund units should be assessed as capital gains (as declared by the assessee) and permitted the set-off of the brought forward long-term capital loss.
Ground 2 — Mutuality and exemption of interest income
- The Tribunal examined the assessee's position that interest income (Rs. 3,17,341) arose from surplus funds of the club deposited in bank/deposits and was therefore covered by the principle of mutuality.
- The assessee relied on Director of IT (Exemptions) v. All India Oriental Bank of Commerce Welfare Society (Delhi High Court) and on Tribunal decisions (Secunderabad Club, Shivalika Co-operative Group Housing Society) to argue for exemption by mutuality.
- The Tribunal found the facts similar to the Shivalika Tribunal decision (interest on surplus funds deposited in bank) and respectfully followed the Delhi High Court decision on mutuality. Accordingly, the Tribunal allowed the ground and held the interest income was exempt under mutuality.
Ground 3 — Interest under section 234C
- The Tribunal accepted that interest under section 234C is mandatory but examined whether it should be computed on the basis of returned income or assessed income.
- Relying on the statutory language of section 234C (as recited in the opinion), which compares advance tax paid against tax payable on the returned income, the Tribunal held that interest under section 234C should be calculated with reference to the returned income.
- The Tribunal directed the Assessing Officer to compute interest under section 234C on the basis of returned income and to pass necessary orders after giving the assessee an opportunity of being heard.
Holding and Implications
APPEAL ALLOWED
Holdings (direct rulings in the order)
- On Ground 1: The Tribunal held that the gains arising on sale of units of mutual funds are to be treated as capital gains (long-term and short-term as claimed by the assessee) and the brought forward long-term capital loss of Rs. 1,03,53,033 is to be allowed as set-off against the long-term capital gain.
- On Ground 2: The Tribunal held that the interest income of Rs. 3,17,341 is exempt under the principle of mutuality (following relevant Delhi High Court and Tribunal authorities) and is not taxable as income from other sources.
- On Ground 3: The Tribunal held that interest under section 234C must be computed with reference to the returned income (as per section 234C language) and directed the AO to recompute and pass orders after hearing the assessee.
Implications
- Immediate consequences for the parties: The assessee's appeal is allowed in full — the mutual fund sale proceeds will be taxed as capital gains and the brought forward capital loss is allowed; the interest income is held exempt under mutuality; the section 234C interest is to be recalculated on returned income and the AO must pass a consequential order after hearing the assessee.
- The Tribunal's decision rests on application and reconciliation of existing precedents (including Supreme Court and Tribunal decisions) and on the facts recorded in the assessment: the order applies those precedents to the facts and does not purport to lay down a new legal principle. The opinion follows and applies earlier authorities rather than creating new precedent.
Note: All information in this summary is drawn exclusively from the provided Tribunal opinion. No facts or conclusions have been added beyond those contained in the text of the opinion.
ORDER
A.K. Garodia, Accountant Member. - This is an assessee's appeal directed against the order of the learned CIT(A)-I, Mumbai, dated 21-11-2006 for the assessment year 2003-04.
2. Ground No. 1 of the appeal reads as under :—
"The following grounds/sub-grounds of appeal are independent of and without prejudice to one another :
1. The CIT(A) erred in confirming that the long-term and short-term capital gains aggregating Rs. 3,23,83,744 on the sale of units of debt-oriented mutual funds are taxable under the head 'Business income', as against the appellant's contention that indexed long-term gains of Rs. 1,04,97,182 (Rs. 2,08,50,215 less brought forward capital loss of Rs. 1,03,53,033) are taxable under the head 'Long-term capital gains' and gains of Rs. 2,20,201 taxable under the head 'Short-term capital gain'.
1.1 The CIT(A) further erred in holding that above referred capital gains are taxable as business income because concept of mutuality is not applicable, having failed to appreciate that appellants have offered such gains to tax on the ground that such gains are not covered by mutuality and therefore taxable under the head 'Capital gain'."
3. Briefly stated, the facts are that during the present year, the assessee has sold units of mutual fund totalling Rs. 48,68,72,010 and out of this, it is claimed by the assessee in the return of income that income arising on account of sale of these units of mutual fund is taxable under the head income from capital gain. Regarding part of sales to the extent 22,52,09,532, the assessee computed short-term capital gain at Rs. 2,20,201 and for the balance amount of sale of units of mutual funds of Rs. 26,16,62,478, the assessee computed long-term capital gain of Rs. 2,08,50,215 after reducing indexed cost of acquisition of Rs. 24,08,12,263 as against original cost of Rs. 22,94,98,935. The assessee also claimed set off of brought forward capital loss of Rs. 1,03,53,033 against this long-term capital gain.
4. The Assessing Officer issued a questionnaire to the assessee on 10-2-2006 stating that as per record of earlier years, it is found that the assessee is dealing in buying and selling of securities of huge amounts and main transactions for these years were noted by the Assessing Officer in this questionnaire. Details of these transactions are noted by the Assessing Officer on p. 2 of the assessment order also, as per which, there was purchase of securities to the extent of Rs. 913.93 lacs in assessment year 2002-03, to the extent of Rs. 500.35 lacs in 2001-02 and to the extent of Rs. 101.12 lacs in assessment year 2000-01. Sale on account of securities held for short-term capital gains was Rs. 917.67 lacs in assessment year 2002-03, Rs. 492.35 lacs in assessment year 2001-02 and Rs. 100 lacs in assessment year 2000-01 and sale on account of securities held for long-term amounted to Rs. 2560.16 lacs in assessment year 2002-03, Rs. 539.43 lacs in assessment year 2001-02 and Rs. 492.87 lacs in assessment year 2000-01. In the same questionnaire, the Assessing Officer noted number of transactions in each year and as per the same, the number of buying transactions were 18 in the present year, 16 in assessment year 2002-03, 8 in assessment year 2001-02 and 2 in assessment year 2000-01 and number of selling transactions in the present year were 33, 60 in assessment year 2002-03, 18 in assessment year 2001-02 and 6 in assessment year 2000-01.
5. It was noted in the questionnaire that in view of these facts, it is noticed that the company is regularly engaged in the business of buying and selling of securities and since in the current year, there are 33 transactions of high magnitude, it shows that the company was engaged in business of buying and selling of securities. It is also noted by the Assessing Officer in the questionnaire that the business of buying and selling was done in 8 months out of 12 months in the present year being July, 2002, September, 2002, October, 2002, November, 2002, December, 2002, January, 2003, February, 2003 and March, 2003. It is also noted by Assessing Officer that total turnover in securities comes to Rs. 48,68,72,010 as against normal income of Rs. 8,50,25,425 being subscription, games, amenities and activities etc. as per income and expenditure account. It was also stated by the Assessing Officer that in view of these facts, it is clear that the main business of the assessee company is buying and selling of securities and hence it should be considered as income from business. The Assessing Officer asked why income from buying and selling of securities be not considered as income from business as against capital gains. The assessee replied vide letter dated 3-3-2006 in which, it was submitted that monies of the assessee are arising out of the amounts received from its members for entrance fee, subscription etc. and the same are primarily utilized for meeting the expenses of the Gymkhana and surplus, if any, is temporarily invested in interest/dividend-bearing securities according to the resolutions passed by the managing committee from time to time. It was also submitted that whenever there is requirement of fund for Gymkhana activities, the same is made available by liquidating the investments after getting approval of the managing committee. The amount invested in securities, therefore, has been disclosed as investment in books of accounts and hence the same is in the nature of capital assets.
6. It is also submitted by the assessee that the club does not hold investment in securities as stock-in-trade and therefore, ft was submitted that income earned on sale of securities is chargeable to tax as capital gains. Reliance was placed on the judgment of the Tribunal in the case of Secunderabad Club v. ITO [2005] 97 ITD 541 (Hyd.) . But the Assessing Officer did not accept the contention of the assessee and assessed the income on sale of the units of mutual fund as business income and did not allow set' off of brought forward capital loss. Being aggrieved, the assessee brought the matter before the learned CIT(A) in appeal but without success. Now, the assessee is in further appeal before us.
7. It is submitted by the learned counsel for the assessee that on p. 20 of the paper book is the balance sheet of the assessee for the year ending 31-3-2003 and on pp. 23-25 of the said balance sheet, details are appearing of investments for the current year as well as for the earlier year i.e., year ended 31-3-2002. It is also submitted that in the earlier year i.e., assessment year 2002-03, loss on sale of mutual fund units was Rs. 103,53,33 and the same was assessed under the head capital gains. He submitted a computation of total income for assessment year 2002-03 as per which, the assessee has computed long-term capital loss of Rs. 1,03,53,033 in that year. He also submitted that in that year, no order was passed under section 143(3) and the return was filed on 31-10-2002 which was accepted under section 143(1)(a). He also submitted computation of total income and copy of assessment order under section 143(3) for assessment year 2001-02 and it was pointed out that in that year, there was long-term capital gain of Rs. 10,34,675 as per computation of total income filed by the assessee along with return of income and the same was accepted by the Assessing Officer in assessment order passed under section 143(3). Our attention was drawn to p. 17 of the paper book, which contains the object clause of the assessee company and in particular, our attention was drawn to para (i) of this clause as per which, one of the objects of the assessee company was to invest money available with the club in purchase of shares, stocks, debentures, debenture stock, bonds, mortgages, obligations and securities of any kind issued by any company, Central or State Government, municipal or other body or any other person and to lend and advance monies whether on fixed deposit or otherwise, to such persons and on such terms as the managing committee may deem expedient and to guarantee the performance of any other contract or obligation and the payment of money of or by any such person or companies etc. It was also submitted that on pp. 8 and 9 of the paper book is the complete details of the working of the long-term capital gain as well as for short-term capital gain. Copy of minutes of managing committee meeting on 19-9-2002 and 20-2-2003 were also filed as appearing on pp. 26-39 of the second paper, book. Our attention was drawn to p. 30 of this paper book which is part of minutes of managing committee meeting held on 19-9-2002 as per which, sale of units in DSP Merrill Lynch was approved to be sold for Rs. 50 lacs for making payment to the union employees. Our attention was drawn to pp. 34-36 of the paper book, which is part of the minutes of managing committee meeting held on 20-2-2003 as per which, various other purchases and sales of units of various mutual-funds were approved by the managing committee. When it was pointed out by the Bench that as per this minutes of meeting of managing, committee held on 20-2-2003, DSP Merril Lynch (DSPML) were the investment advisor of the assessee and these purchases and sales were affected as per their advise and under these facts, why it should riot be held that the assessee's activities of purchases and selling of mutual fund units were in the nature of adventure in the nature of trade, it was submitted by the learned counsel for the assessee that efforts made to maximize the returns from investment cannot be a basis to change the character of investment or income therefrom. Reliance was placed on the following judgments :—
(1)
Commissioner Of Income Tax, Bombay v. H. Holck Larsen [1986] 160 ITR 67 (SC);
(2)
Investment Ltd. v. The Commissioner Of Income Tax, Calcutta [1970] 77 ITR 533 (SC);
(3)
Janak S. Rangwalla v.
Asstt. CIT [2007] 11 SOT 627 (Mum.).
8. It was also submitted that in view of the fact that in earlier year, the same activity was accepted by the Department as investment activity and income/loss therefrom was assessed under the head capital gain, in the present year, Department cannot take a different view and the rule of consistency has to be followed and in support of this contention, reliance was placed on the judgment of Hon'ble Supreme Court, rendered in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) . As against this, the learned Departmental Representative of the revenue supported the orders of authorities below and reliance was placed on the judgment of Hon'ble Apex Court rendered in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 in support of this contention that entries in the books are not conclusive.
9. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgments cited by both the sides. We find that as per details appearing on pp. 8 and 9 of the 1st paper book, the units which were sold for Rs. 26,16,62,478 on account of which, income is offered by the assessee as long-term capital gain, were purchased during the period from 21-1-2001 to 15-3-2002 and the number of transactions are 15. The units sold for balance amount of Rs. 22,52,09,532 are for 18 transactions and income on this account is offered by assessee as short-term capital gain. Hence, there are total 33 transactions of sale of units of mutual fund during this year, whereas, it is noted by the Assessing Officer himself on p. 2 of the assessment order that number of transactions of sale of mutual fund units were 60 in the immediately preceding year. The Assessing Officer and the learned CIT(A) have come to the conclusion that the income arising on purchase and sale of mutual fund units in the present year is taxable under the head income from business mainly on the basis that principle of mutuality is not applicable with regard to these transactions and for the reason that magnitude and frequency of transactions suggest that these transactions were in the nature of adventure in the nature of trade and hence taxable under the head business income and not capital gain. In the light of these facts, we have to decide as to whether merely because there are 33 number of transactions of sale of mutual fund units, it can be held that income on this account is taxable under the head income from business. We first consider the judgment of the Hon'ble 'apex Court rendered in the case of H. Hoick Larsen (supra), wherein it Was held by the Hon'ble Apex Court that it was not in the hand of the Department as to whether one was dealer in shares or investor. The real question was as to whether the first step i.e., purchase of shares was in course of a trading transaction or in course of investment. In the present case, the purchase of units was made as investment and the same was shown by the assessee in its books of account as investment and in earlier years, this stand of the assessee was accepted by the Department. Admittedly, the units of mutual fund on sale of which long-term capital gain has arisen to the assessee were purchased during the period from 21-1-2001 to 15-3-2002 i.e., during assessment year 2002-03 and in that year, it is not disputed by the Department that these are investments. If the purchase of units is accepted as purchase in course of investment, at the time of sale thereof, income arising on sale has to be assessed as capital gain and it cannot be assessed as business income merely for the reason that quantum is high or the number of transactions are high. In the case of Investment Ltd. (supra) it was held by the Hon'ble Apex Court that though, it is true that an order made in assessing the income of one year regarding nature of transaction or income received therefrom is not conclusive in another year, but that finding is a good and cogent evidence of the nature of transactions in shares and securities in the assessment year 1952-53 and of the receipts therefrom. Facts of that case are that the assessee was showing in its balance sheet shares as investments and the securities were valued by assessee at cost and in spite of this, it was held that loss on sale of such securities was revenue loss and not capital loss because of the fact that in assessment years 1952-53 and 1955-56 it was accepted and held that the shares and securities were stock-in-trade. On the same analogy, we are of the considered opinion that in the present case, gain on sale of mutual fund units has to be accepted as capital gain and it cannot be assessed as business income because in all other years, these transactions were accepted by Department as investment. Reliance was also placed by the learned counsel for the assessee on the Tribunal judgment in the case of Janak S. Rangwalla (supra) in support of his contention that rule of consistency has to be followed. We find that in that case also, it is noted by the Tribunal that the investment in shares is of large magnitude but same shall not decide the nature of transaction. It is also decided that similar transactions of sale and purchase of shares in the preceding years have been held to be income from capital gain on both long-term and short-term. And similar transactions were there in the year which was before the Tribunal and under these facts, its was held by the Tribunal that there is no basis to treat the assessee as trader in shares when his intention was to hold the shares as an investment and not as stock-in-trade. It was also held that magnitude does not change nature of transaction. Reliance was placed in that case on the judgment of the Hon'ble apex Court rendered in the case of Radhasoami Satsang (supra) and part of the relevant para was reproduced by the Tribunal in that order which is reproduced below:—
"....strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year."
10. Since, facts in the present case are similar to the facts in the case of Janak S. Rangwalla (supra), we decide this issue in favour of the assessee by respectfully following this Tribunal judgment and the judgment of the Hon'ble Apex Court relied upon by the learned counsel. Regarding the contention of the learned Departmental Representative of the Revenue that entries in books are not conclusive, we would like to mention that there is no dispute on this count. It is a settled legal position by now that entries in books are not conclusive but there should be a firm basis to take a different view from entries in books of account. In the present case, the Assessing Officer has taken a different view contrary to books of account on the basis of magnitude and number of transactions without bringing anything else on record that purchases of units of mutual fund were made on account of dealing in shares and not on account of investments. We, therefore, are of the considered opinion that in the present case, the income on sale of units of mutual funds has to be assessed as capital gain as declared by assessee and set off of brought forward capital loss has to be allowed against long-term capital gain as claimed by the assessee in return of income. This ground of the assessee is allowed.
11. Ground No. 2 of the appeal reads as under :—
"The CIT(A) erred in confirming that interest income of Rs. 3,1 7,341 (earned on deposits) is not exempt under mutuality.
The appellants submit that, above interest income is exempt on the ground of mutuality and therefore should not be included in the total income."
12. Briefly stated, the facts are that the assessee received interest income of Rs. 77,931 on BEST deposit, Rs. 2,35,621, from savings bank account and Rs. 3,781 from fixed deposits totalling to Rs. 3,17,341. It was claimed by the assessee in the computation of total income that these incomes are not taxable on the ground of mutuality as per judgment of Hon'ble Delhi High Court rendered in the case of Director of IT (Exemptions) v. All India Oriental Bank of Commerce Welfare Society [2003] 130 Taxman 575 (Delhi) . But the Assessing Officer has assessed this income as income from other sources. Being aggrieved, the assessee carried the matter in appeal before the learned CIT(A) and before the learned CIT(A), reliance was placed on the same judgment of Hon'ble Delhi High Court rendered in the case of India Oriental Bank of Commerce (supra). Reliance was also placed on the Tribunal judgment in the case of Secunderabad Club (supra) and also another Tribunal judgment rendered in the case of Shivalika Co-operative Group Housing Society Ltd. v. ITO [2006] 101 ITD 391 (Delhi) . The learned CIT(A) decided this issue against the assessee by holding , that the judgments relied upon by the learned counsel for the assessee are distinguishable to the case of the assessee due to the lack of mutuality and he upheld the order of the Assessing Officer and the assessee is now in further appeal before us.
13. The assessee reiterated the same arguments, which were advanced before the learned CIT(A) and reliance was placed on the judgment of Hon'ble Apex Court rendered in the case of Chelmsford Club v. Commissioner Of Income Tax, Delhi [2000] 243 ITR 89 (SC) . The learned Departmental Representative of the revenue supported the orders of the authorities below.
14. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that this issue is covered in favour of the assessee by the Tribunal judgment rendered in the case of Shivolika Co-operative Group Housing Society Ltd. (supra) relied upon by the learned counsel for the assessee. In that case, issue involved was with regard to interest income of the assessee on fixed deposit with bank. It is observed by the Tribunal in that case that the interest income earned by the assessee was on surplus fund of society deposited with bank and hence same is covered by the principle of mutuality as held by the Hon'ble Delhi High Court in the case of Director of IT (Exemptions) Oriental Bank (supra). Since, facts in the present case are similar, we decide this issue in favour of the assessee by respectfully following this judgment of Hon'ble Delhi High Court and this Tribunal judgment. This ground of the assessee is allowed.
15. Ground No. 3 of the appeal reads as under :—
"3. The CIT(A) erred in confirming the levy of interest of Rs. 4,243 under section 234C on the ground that the levy is mandatory under the Act and no appeal lies against it.
The appellants submit that the interest cannot be levied on assessed income but only on returned income and therefore it is appealable."
16. It is submitted by the learned counsel that there is no dispute that interest is mandatory but it should be on returned income. The learned Departmental Representative of the Revenue supported the orders of the authorities below.
17. We have heard the rival submissions, perused the material on record and have gone through the orders of authorities below. We are of the considered opinion that it is a settled issue that interest under section 234C is mandatory but we find force in the submission of the learned counsel of the assessee that interest under section 234C has to be calculated on the basis of returned income because we find that in section 234C, the reference to the difference regarding payment of advance tax is made as compared to tax payable on, returned income and advance tax paid by the assessee. We, therefore, direct the Assessing Officer that interest under section 234C should be charged on the basis of returned income as provided under section 234C. The Assessing Officer should pass necessary order as per law after providing adequate opportunity of being heard to the assessee. This ground of the assessee is allowed.
18. In the result, the appeal filed by the assessee is allowed.
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