Disallowances U/S 94(7)

[S.C. WADHWA]

Dear Sir,

Our company had invested ₹one lac by purchasing 10000 units of a mutual fund  on daily dividend pay out on 26.4.2010.  Sold one thosand units on 24.7.10 and suffers loss of ₹ 2500/- but dividend recd ₹2200/-. Then 1000 units sold on 24.8.10 and suffers loss of ₹ 1300/- but dividend recd ₹ 4100/- till date.  Then on 27.10.10 1000 units sold and get profit ₹3700/- but dividend recd ₹5700/- till date on daily basis.  Balance 7000 units sold on 27.3.11 and get profit of ₹ 17000/- alongwith dividend of ₹ 9500/- till date. Recod date is not known to us.

Now my query is that if any amount of loss suffered on sale of units to be disallowed in income tax or not. Pls advise.

Regards,

WADHWA

[DR.MARIAPPAN GOVINDARAJAN]

You may better have a consultation with the Chartered Accountant.

AI Summary

Disallowance of losses on mutual fund unit sales where dividend payout timing may trigger an anti avoidance rule; seek professional advice. Whether capital losses on sale of mutual fund units are disallowed under section 94(7) where units were held in a daily dividend payout option and dividends were received; factual pattern shows staggered disposals with losses and gains and dividend receipts, and the document records only advice to consult a chartered accountant rather than a legal determination.