2014 (12) TMI 1250 - HC - Income Tax

Short term capital loss on sale of mutual funds within one day after earning tax free dividend income thereon - Held that - We hold that the Tribunal was right in allowing the short term capital loss on sale of mutual funds within one day after earning tax free dividend income thereon. See CIT., Mumbai Versus M/s. Walfort Share & Stock Brokers P. Ltd. 2010 (7) TMI 15 - SUPREME COURT - Decided in favour of assessee

Summary

Issues Involved:
Appeal against ITAT order dismissing Revenue's appeals for A.Y. 2002-03 regarding short-term capital loss on sale of mutual funds after earning tax-free dividend income.

Analysis:
The High Court heard and disposed of two appeals together concerning the Revenue's challenge against the ITAT's order for A.Y. 2002-03. The respondent-assessee filed returns claiming short-term loss from the previous year, which led to scrutiny by the A.O. resulting in additions to the income. The assessees and the Revenue appealed to the Tribunal, which dismissed the appeals, prompting the current appeals.

Upon admission, the Court framed the question of law regarding the Tribunal's decision on allowing short-term capital loss on mutual funds sale after earning tax-free dividends within one day. The Advocate for the assessees argued that a previous judgment favored the assessee, citing the Apex Court's decision in "CIT VS. WALFORT SHARES AND STOCK BROKERS P. LTD." The Court considered this precedent and upheld the Tribunal's decision, emphasizing that losses related to exempted income before 1.4.2002 cannot be disallowed.

The Senior Advocate for the Revenue did not contest the established legal position and failed to present any contrary judgments. Consequently, the Court affirmed the Tribunal's decision to allow the short-term capital loss on mutual funds sale after receiving tax-free dividends.

In conclusion, both appeals were dismissed, ruling in favor of the assessee and against the Revenue. The Court upheld the Tribunal's decision, emphasizing the legality of claiming short-term capital loss on mutual funds sale after earning tax-free dividend income.