Unreported
26 Disallowance of loss u/s.94(7) of Income-tax Act, 1961 :
A.Y. 2004-05 : The conditions spelt out in clauses (a), (b) and (c) are
cumulative and not alternative : Purchase of units within a period of less than
three months from the record date, but sale beyond a period of three months :
Loss cannot be ignored.
[CIT v. Smt. Alka Bhosle (Bom.), ITA No. 2656 of 2009
dated 9-6-2010]
In the previous year relevant to the A.Y. 2004-05 the
assessee had purchased certain units within a period of less than three months
from the record date, but the units were sold beyond a period of three months
from the record date. The Tribunal held that the provisions of S. 94(7) of the Income-tax Act, 1961 are not applicable and there would be no disallowance of loss.
In the appeal filed by the Revenue, the following question
was raised :
“Whether on the facts and in the circumstances of the case
and in law, the ITAT was right in holding that clauses (a), (b) and (c) of S.
94(7) of the Income-tax Act, 1961, are to be satisfied independently or
cumulatively ?”
The Bombay High Court upheld the decision of the Tribunal and
held as under :
“(i) The question that falls for consideration is as to
whether the conditions spelt out in clauses (a), (b) and (c) of Ss.(7) are
cumulative.
(ii) The contention of the Revenue is that though the units
were, as a matter of fact, sold beyond a period of three months of the record
date, the provisions of S. 94(7) would apply since they were acquired within a
period of three months from the record date.
(iii) There is no merit in the submission. Ss.(7) of S. 94
spelt out three requirements; these being (i) The purchase or acquisition of
any of the securities or units should take place within a period of three
months prior to the record date; (ii) The sale or transfer should take place
within a period of three months after the record date; and (iii) The dividend
or income received or receivable should be exempt. In the event that these
three conditions are fulfilled, the loss, if any, arising from the purchase or
sale of securities or units has to be ignored for the purpose of computing the
income chargeable to tax, to the extent such loss does not exceed the amount
of dividend or income received or receivable.
(iv) Ex-facie, all the three conditions that are spelt out
in clauses (a), (b) and (c) of Ss.(7), must be fulfilled before the
consequence that is envisaged in the Section comes into force. The conditions
prescribed in clauses (a), (b) and (c) of Ss.(7) are intended to be cumulative
in nature.
(v) In the present case, the sale of the units has taken
place after the expiry of a period of three months from the record date.
Hence, the second condition spelt out for the applicability of Ss.(7) would
not come into force.
(vi) In the circumstances, the appeal by the Revenue is
lacking in merit and does not raise any substantial question of law. The
appeal is accordingly dismissed.”
