2011 (12) TMI 411 - HC - Income Tax

Delhi HC: Section 94(7) Conditions Must Cumulatively Apply for Income Tax Act Provision

Commissioner of Income-tax Versus Kailash Chandra Dhanuka

The Division Bench of the Delhi High Court affirmed that all three conditions of Section 94(7) of the Income Tax Act must be cumulatively satisfied for ... Avoidance of tax by certain transactions in securities - The assessee had claimed before the Assessing Officer that for certain transactions done by the assessee, as reproduced in paragraph 5 of the order of the ITAT, the provisions of Section 94(7) of the Income Tax Act (for short 'the Act') can not be attracted since the conditions contained in clauses (a) (b) & (c) of Section 94(7) of the Act are not cumulatively satisfied - Delhi High Court in the matter of CIT v. Shambhu Mercantile Ltd. [2009 -TMI - 202297 - Delhi High Court] wherein it was held that the three conditions of Section 94(7) of the Act are to be cumulatively satisfied - Appeal is dismissed Issues:Interpretation of Section 94(7) of the Income Tax Act for the assessment year 2004-05.Analysis:The appeal under Section 260-A of the Income Tax Act, 1961 was filed by the department against the order passed by the ITAT for the assessment year 2004-05. The assessee was engaged in trading shares, securities, mutual fund units, and derivative trading, with additional income from salary and house property. The Assessing Officer rejected the contention that Section 94(7) of the Act was not attracted to certain transactions. The CIT (Appeal) and ITAT held that the conditions of Section 94(7) were not cumulatively satisfied. The appellant argued that the said section is attracted even if one condition is satisfied. The Tribunal, after examining relevant circulars and judgments, found that all three conditions of Section 94(7) must be cumulatively satisfied to invoke the provision.The CIT (Appeal) observed that all three conditions of Section 94(7) must be cumulatively satisfied. The Tribunal referred to CBDT circulars and judgments to support the view that strict interpretation of the provision is necessary. The Tribunal found that the units were not purchased within three months before the record date, and thus, Section 94(7) was not applicable. The Tribunal emphasized that the AO did not provide evidence of any motive for the transactions to earn a loss, and the claim of the assessee was justified based on existing law and precedents.The Division Bench of the Delhi High Court affirmed the decision in the matter of Shambhu Mercantile Ltd., stating that the conditions of Section 94(7) are cumulative. A plain reading of the provision indicates that all three conditions must be satisfied for the provision to apply. The High Court independently examined the language of Section 94(7) and concluded that the conditions must be cumulatively satisfied. The Court dismissed the appeal, stating that no substantial question of law requiring consideration was present, and no other points were raised.In conclusion, the judgment clarifies that for Section 94(7) of the Income Tax Act to be applicable, all three conditions mentioned in the provision must be cumulatively satisfied. The decision was based on a thorough examination of relevant circulars, judgments, and the language of the Act, emphasizing the need for a strict interpretation of taxing statutes.