LI Network
Published on: January 17, 2024 at 10:00 IST
The Delhi High Court has clarified that transactions involving mutual funds are categorized as investments and are not primarily motivated by trade.
In a case where the Commissioner of Income Tax set aside an assessment order, asserting that gains from mutual funds should be treated as business income, the High Court ruled that the intention behind such transactions should be evaluated based on factors like frequency, duration of holding, purpose, and how they are recorded in accounts.
In the case, the Court highlighted that there is no presumption in law that the acquisition of shares, including mutual funds, is inherently for trade rather than investment.
The Court emphasized that the primary factors to consider include the magnitude and frequency of transactions, the period of holding shares, the purpose behind holding them, and the disclosure of transactions in books of account.
The Court acknowledged the findings of the Commissioner of Income Tax (CIT) and the Tribunal, which concluded that the mutual fund transactions in question were of an investment nature. The Court did not find any challenge to these findings as being unreasonable.
The case originated when the CIT set aside the assessment order, claiming that the gains on redemption of mutual funds and capital contributions should be treated differently for tax purposes.
The Tribunal subsequently upheld the view that the gains from mutual funds should be treated as capital gains, not business income.
The Court, in its decision, underscored the importance of considering various factors when determining the nature of transactions involving mutual funds.
Case Title: PCIT Versus M/S Wig Investment
