Tuesday, June 24, 2014

No registration to a trust if its financing activities weren’t carried out for furtherance of its objects

Principal activities of metropolitan development authority were to be ascertained before denying it registration under section 12A on account of financing and rental activities.


a)The assessee, a city metropolitan development authority under section 12, was established under a State Act, viz., MMRD Act. The assessee was claiming exemption under section 11.

b)It earned interest on sums lent to various organizations and lease rental of its property. The DIT(E) cancelled/withdraws its registration under Sec. 12A on the ground that activities carried out by it were commercial in nature.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held as under:

1)There was no finding that interest and rent receipts were integral to the assessee's functioning or its principal objects, so as to be considered as arising on account of activities necessary for the furtherance of the objects of assessee.

2)There ought to have been some principal activities for financing and rental activities to be considered as necessary and incidental thereto. The physical and/or functional correlation between the two would decide this aspect of the matter.

3)Such a finding was necessary to satisfy conditions stipulated under section 12AA(3). Thus, as the issue of applicability of section 12AA(3) in the instant case being factually indeterminate, the case was to be restored to the DIT(E) for passing a speaking order in accordance with law. - MUMBAI METROPOLITAN REGION DEVELOPMENT AUTHORITY V. DIT(E) [2014] 45 taxmann.com 354 (Mumbai - Trib.)

No business income if shares held as investments were sold within short span for better returns

Merely because assessee liquidated its investments within a short span, which had given better overall earning to assessee, it would not lead to conclusion that assessee had no intention to keep on funds as investment in equity shares, but was actually intending to trade in shares.


a)The assessee was engaged in the activity of investing in shares and showed the said shares as investments in the audited balance-sheet. Consequently, as and when the shares were sold, profit arising thereon was offered as capital gains.

b)However, during the year under consideration, the Assessing Officer did not treat the gain on sale of investment as 'capital gains' and instead treated it as 'business income'.

c)On appeal, the CIT(A) allowed assessee's claim. The Aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The treatment given by the assessee in its books of account was one of the decisive factors to find out whether the shares were held as investments or stock-in-trade. If the shares were bought with the intention of earning capital gains and dividend by keeping it as investment, the gain arising therefrom was to be treated as capital gains.

2)On the other hand, if the shares were purchased with the intention to earn profit thereon and the same was treated as stock-in-trade in the books of account, the profit arising on their sales would be liable to be treated as business income.

3)Merely because the assessee liquidated its investment within a short span of time, which had given better overall earning to the assessee, it would not lead to the conclusion that the assessee had no intention to keep them as investments.

4)The assessee had been consistently investing in shares and income arising from transactions of sale and purchase of shares had been shown as capital gains. Analysis of balance sheet of assessee reflected holding of shares as investments.

5)In the instant case, the assessee had made investment in shares with an intention to earn dividend income. Therefore, it could not be said that the assessee was doing business. Thus, resultant gains on sale of shares were to be taxed as capital gains instead of business income.- DY. CIT V. E-CAP PARTNERS [2014] 45 taxmann.com 342 (Mumbai - Trib.)