INCOME TAX OFFICER Vs. SHAMBHU MERCANTILE LTD
LAWS(IT)-2008-2-4
INCOME TAX APPELLATE TRIBUNAL
Decided on February 29,2008

Appellant
VERSUS
Respondents

JUDGEMENT

D. Karunakara Rao, A.M. - (1.) THIS is an appeal by the Revenue against the order dt. 20th March, 2006 of learned CIT(A)-XI, New Delhi. The Revenue has raised the following grounds: 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs. 1,88,47,816 by disallowing exemption under Section 10(34) claimed by the assessee.
(2.) On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that all the conditions prescribed in Section 94(7) (sic). 2. Briefly stated, the facts are that the assessee is a public limited company engaged in the business of sale, purchase and trading in stock, shares and units of mutual fund. During the relevant assessment year, assessee purchased units of mutual funds, which include units of Tata Index Fund Nifty Plan Option-A and IL & FS Index Fund Nifty Plan. The assessee sold the said units during the relevant assessment year and the loss incurred on sale of such units was set off against the profits on sale of other units of mutual funds. The assessee also received dividend income on the aforesaid units, which was claimed exempt under Section 10(34) of the Act. The relevant date of purchase, date of receipt of dividend and date of redemption are shown in the following chart: JUDGEMENT_3620_TLIT0_20080.htm Assessee earned dividend income as shown in the table above. However, the effect of the above transactions was capital loss of Rs. 1,88,47,816. The AO has, however, not allowed the said loss, which was incurred on sale of aforesaid units alleging the said transactions are hit by the provisions of Section 94(7) of the Act. Section 94(7) of the Act as it stood prior to its amendment w.e.f. 1st April, 2005 reads as follows: Where-- (a) any person buys or acquires any securities or unit within a period of three months prior to the record date; (b) such person sells or transfers such securities or unit within a period of three months after such date; (c) the dividend or income on such securities or unit received or receivable by such person is exempt, then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax.
(3.) ACCORDING to the assessee, provisions of Section 94(7) are not applicable as the following three conditions are cumulatively required to be satisfied by the assessee in order to fall within purview of Section 94(7) of the IT Act, which are as under: (i) The shares/units must be purchased within a period of three months prior to the record date; and (ii) The shares/units must be sold within a period of three months after such date; and (iii) The dividend income earned from such securities/units should be exempt from tax.;


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