TaxTMI 
TaxTMI 
2008 (8) TMI 405
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....he assessee had invested funds in purchasing the units of mutual fund a few days before the announcement of bonus/additional units and sold the principal unit only to reduce the tax liability. 4. On the facts and in the circumstances of the case, the CIT(A) failed to consider the fact that the assessee wrongly interpreted the provisions of s. 94(7) of the IT Act, 1961." 2. Though the facts of the case are going to be appreciated in the following paras but after hearing the rival parties the interesting issue had come up for consideration is that whether or not the "dividend stripping" can be treated at par with the "bonus stripping" while applying the newly inserted provisions of s. 94(7) w.e.f. asst. yr. 2002-03 vis-a-vis s. 94(8) w.e.f. asst. yr. 2005-06 of IT Act. 3. Facts in brief as emerged from the corresponding assessment order passed under s. 143(3) dt. 24th Feb., 2006 were that the assessee individual is in the business of trading in shares. Though the impugned order of the AO is lengthy as also narrative however, the initial query pertained to the claim of "short-term capital loss" as summarized on p. 11 by the AO reproduced below: "23.............. (a) The....
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....he other there was a loss of Rs. 8,53,524 hence, the balance was the short-term capital loss of Rs. 62,221. Total short-term capital loss of two components; one of Rs. 25,899 i.e., mutual fund of Templeton India Dividend; and the other component was of Rs. 8,27,625 of IL & FS Bond(G). As is seen from the above chart, the main discussion and disallowance was in respect of IL & FS Bond as according to the AO the said units were covered by the provisions of s. 94(7) of the IT Act. As is evident from the chart the units of IL & FS Bonds were purchased on 9th Dec., 2002 @ Rs. 15.548 and those were sold on 16th Dec., 2002 @ Rs. 10.401. Thereafter, the AO has reproduced s. 94(7) of IT Act, according to which, if any person acquires any unit within the period of three months prior to the date of record date such person sells or transfers such securities within a period of three months after such date and the dividend on such securities is exempt and then on account of the said transaction if there is a loss arising on account of such purchase and sale of unit then the loss shall be ignored to the extent that such loss so exceeded the amount of dividend received or receivable. An another im....
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.... the basis of holding of principal units on account of purchase and sale of units. However, the above cl. (8) of s. 94 has been effective from asst. yr. 2005-06, this section is not applicable in our case in the assessment under consideration i.e., asst. yr. 2003-04." 3.2 However, the AO was not convinced and in his opinion the assessee's case had fallen under s. 94(7) of the Act. He has further elaborated that "dividend stripping" is a transaction in which the investor buys units of mutual fund just before record date of dividend (cum-dividend) and holds long enough to receive the dividend and thereafter sells it subsequently (ex-dividend). According to AO, the net result of s1,lch transaction is that the investor receives a cash dividend and suffers a capital loss, since the ex-dividend price is invariably less than the cum-dividend price. According to him facts of the case could not be differentiated because the additional bonus units of 80,398.778 were allotted to the assessee because of holding of principal units on the record date. According to him the investor undertakes dividend stripping because it has got a strategy to avoid tax on capital gains. Applying the principle....
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.... of the opinion that the AO was not justified in invoking the provisions of s. 94(7) on the facts of the appellant's case and, thus, was not justified in ignoring loss of Rs. 8,27,625. The AO is directed to allow the short-term capital loss of Rs. 8,27,625 as claimed by the appellant." 4.1 Since the issue was decided in favour of the assessee hence, now the Revenue is in appeal. 5. From the side of the Revenue learned Departmental Representative. Shri M.P. Singh and from the side of the respondent assessee, Smt. Rano Jain appeared. We have heard the submissions of both the sides and have carefully perused the orders of the authorities below in the light of the case law cited. 6. On hearing the submissions as also on perusal of the orders of the authorities below the legal question arises. which shall decide the issue in hand, that whether under the facts and circumstances of the case the provisions of s. 94(7) shall be applicable in the transactions of allotment of bonus units specially when the s. 94(8) has been introduced in the statute covering the situation has arisen in the present appeal. The admitted factual position is that the units of IL & FS mutual fund were pur....
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....as arosen about the year of its applicability. This controversy was addressed by several respected Co-ordinate Benches and now before us a decision of Tribunal, Rajkot Bench, in the case of Smt. Bhanuben Chimanlal Malavia vs. ITO (2006) 100 TTJ (Rajkot) 337 has been cited wherein it was held as under: "The provisions of s. 94(7) have been brought on the statute book by the Finance Act, 2001 w.e.f. 1st April, 2001. In other words, the Parliament did not deem it fit to intervene in the transactions that had already taken place. It was open to resort to giving retrospective effect to the provisions of s. 94(7), but the Parliament had chosen not to do that. Further, provisions of s. 94(7) do not stipulate any cost in relation to the income payout by a mutual fund. Further Circular No. 14 of 2001 [(2002) 172 CTR (St) 13] itself states that prior to the promulgation of the provisions of s. 94(7), it was legally permissible to claim the losses in the manner the assessee had done. The instruction issued by the CBDT from F. No. 178/32/2003-ITA-I on 23rd Feb., 2004 did not support the case of the Revenue. It is clearly mentioned in the said instruction that ordinarily disallowance of loss....
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....to streamline the legal aspect about the applicability of the amendment in s. 94 with respect to introduction of sub-s. (7). Therefore, it is clear that the said amendment is applicable for asst. yr. 2002-03 and once this position was made clear then the respected Co-ordinate Bench has held that the assessee in those appeals was not disentitled to the set off loss admittedly prior to the asst. yr. 2002-03. So, the same analogy is to be drawn while deciding the appeal in hand. 11. Sub-s. (8) of s. 94 was inserted by Finance (No. 2) Act, 2004 with a view to curb the tax avoidance via bonus stripping. Memorandum Explaining the said provisions reported in (2004) 268 ITR (St) 191 has indicated the intention of the said legislation that in such case where the person buys or acquires any units within a period of three months prior to the record date and he has been allotted additional units on the basis of such units without making any payment, and thereafter he sells or transfers within a period of nine months after such date all or any of such units while continuing to hold all or any of the additional units, then, the loss, if any, arising to him on account of such purchase or sale ....
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....that year. Any amendment in the Act which comes into force after first day of April of a financial year is not to apply to the assessment for that year, even if the assessment is actually made after the amendment came into force. 13. Though the legislature is not prevented from enacting an ex post facto law, but if any law takes away or impairs any vested rights acquired under existing law or creates a new obligation, imposes a new liability in respect of transactions, it must so provide in express terms or such should be a necessary implication from the language employed in such an amended provision. Nevertheless, the presumption against retrospective operation is only in respect of substantive law. On the other hand, there is a presumption of retrospective operation when the statute deals with the procedure. Judicially, no person has a vested right in any course of procedure. But in deciding an issue whether or not a particular provision of law is to be applied retrospectively, the real test is not only to consider merely whether the law is a law of procedure or substantive law but also whether the law in question affects or impairs the existing rights including the rights of ....