Mumbai ITAT: Purchase and sale of shares of other companies does not include purchase and sale of mutual funds

Equest India Pvt. Ltd. v. ITO, decided on 18^th February, 2011

ITA NO.3921/MUM/05

Assessment Year: 2001-02

Question/s before the Hon’ble Tribunal: Whether loss in purchase and sale of mutual funds is loss speculative business as it appears in the explanation to section 73 of the Income tax Act, 1961?

Relevant facts: A loss of Rs. 1,02,07,278/- which was treated as loss in speculative business also included loss of Rs.46,68,912/- relating transactions pertaining to units of mutual funds.

Upholding the appeal of the assessee, the Hon’ble Tribunal held that:

Para 4: “It was the contention of the ld. Counsel for the assessee that units of mutual funds cannot be treated as “purchase and sale of shares” so as to attract the provisions of Explanation to section 73 of the Act. We find force in the contention raised by the ld. Counsel for the assessee. We direct the Assessing Officer to verify the claim of the assessee with regard to the loss on sale of units of mutual funds and if the claim of the assessee is found to be correct to treat such loss as ordinary loss and not speculative loss.”