TaxTMI 
TaxTMI 
2008 (2) TMI 467
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....und 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 dates of purchase, date of receipt of dividend and date of redemption are shown in the following chart:- --------------------------------------------------------------- Name of Date of Purchase Record Dividend Date of Mutual purchase amount date of amount redemption fund (in Rs.) dividend (in Rs.) --------------------------------------------------------------- Tata 25-11-2003 1,00,00,000 25-11-2003 29,89,774 9-3-2004 Index &....
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....t stood prior to its amendment with effect from 1-4-2005 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." 4. 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 Income-tax Act, which is 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 ....
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....ibited by the provisions of section 94(7) of the Act. 7. Aggrieved by the order of the Assessing Officer dated 30-12-2005, the assessee filed an appeal before the ld. Commissioner of Income-tax (Appeals). The ld. CIT(A) held that the provisions of section 94(7) will apply only when three conditions laid down therein are cumulatively satisfied. For this, the learned Commissioner of Income-tax (Appeals) relied on a Circular No. 14/2001 issued by the Central Board of Direct Taxes explaining the provisions of Finance Act, 2001 and the reasons for incorporating section 94(7) of the Act. The relevant part of the said Circular is reproduced hereunder for the sake of ready reference: "56. Measures to curb creation of short-term losses by certain transactions in securities and units. 56.1 Under the existing provisions contained in section 94, where the owner of any securities enters into transactions of sale and repurchase of those securities which result in the interest or dividend in respect of such securities being received by a person other than such owner, the transactions are to be ignored and the interest or dividend from such securities is required to be included in the total inc....
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....d the documents filed before us. Table contains three transactions of purchases on 25-11-2003, 25-11-2003 and 16-12-2003. We find that the condition of three months before and after the record date for purchase and sale respectively have not been satisfied in all of the transactions cumulatively. 11. Order of the CIT(A) details the facts of the transactions showing as to how the conditions in section 94(7) are not fulfilled. Relevant parts are from pages 15 and 16 are as under:- "Now coming to the case of the appellant it is noticed that the mutual funds of Tata Index Fund Nifty Plan - Option A, were purchased on 25-11-2003 for Rs. 1,00,00,000. On the same date the dividend of Rs. 29,89,774 was received by the appellant. The next dividend on the said mutual funds was received on 3-3-2004 of Rs. 9,96,591. The aforesaid mutual funds were redeemed thereafter on 9-3-2004. It is noticed that in the case of first dividend received, the time gap between the record date and the date of redemption is more than three months and in the case of second dividend, the time gap between the date of purchase and the record date is more than three months. The another mutual funds of Tata Index Fund....