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.