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2009 (4) TMI 502 - AT - Income TaxDividend stripping - Amendment to section 87(6) - effective date of amendment - retrospective or prospective - held that - Any amendment which is in force at the beginning of the relevant assessment year must govern the case though the amendment is made after the income under assessment is earned. In other words, the IT Act as it stands amended on 1st April of a financial year must apply to the assessment for that year. CIT vs. Isthmian Steamship Lines (1951 -TMI - 49738 - SUPREME Court) - there is express implication by the legislature in the Act, the date from its applicability i.e., 1st April, 2004, as such it is applicable from 1st April, 2004 relevant to previous year 1st April, 2004 to 31st March, 2005 and assessment year ending on 31st March, 2006 i.e., asst. yr. 2005-06. Accordingly, the amendment is applicable to the assessment year under consideration - Disallwance made by AO and sustained by CIT(A) u/s 94(7) is justified - Decided against the assessee. Fulfillment of conditions u/s 111A - Tax on accumulated balance of recognised provident fund - Power of the CIT(A) - Held that - CIT(A) has not poer to set aide the issue and restore the matter to AO - The learned CIT(A) should have decided this issue himself instead of setting aside the issue. This is a irregularity, which can be cured by us otherwise it will lead to miscarriage of justice. Hence, we direct, the learned CIT(A) to decide this issue himself instead of setting aside to the AO. This issue is accordingly set aside to the file of the CIT(A) for deciding afresh after affording an opportunity to the assessee.
Issues Involved:
1. Disallowance under Section 94(7) of the IT Act. 2. Restoration of matter to AO for determination under Section 111A. 3. Applicability of amendment to Section 94(7) for the assessment year 2005-06. Issue-wise Detailed Analysis: 1. Disallowance under Section 94(7) of the IT Act: The assessees claimed short-term capital loss on the sale and purchase of mutual funds, which was disallowed by the AO under Section 94(7) of the IT Act, 1961, citing dividend stripping. The AO noted that the units were sold within nine months from the record date, and the dividend received was exempt from tax, thus fulfilling the conditions of Section 94(7). The assessees argued that the amendment to Section 94(7) was effective from the assessment year 2006-07, not 2005-06. However, the CIT(A) upheld the AO's decision, leading to the appeal. 2. Restoration of matter to AO for determination under Section 111A: The assessees sold shares and securities, earning short-term capital gains, and paid security transaction tax. They argued that a 10% tax rate under Section 111A should apply, but the AO applied a 35% tax rate. The CIT(A) agreed with the assessees but restored the matter to the AO for verification of conditions under Section 111A. The assessees contended that the CIT(A) lacked the power to set aside the matter post-1st June 2001. 3. Applicability of amendment to Section 94(7) for the assessment year 2005-06: The assessees argued that the amendment to Section 94(7)(b) by the Finance Act (No. 2), 2004, effective from 1st April 2005, should not apply to the assessment year 2005-06. They cited that the amendment was made after the financial year had begun, thus should apply only from the financial year 2005-06. The CIT(A) and the Tribunal, however, held that the amendment was applicable to the assessment year 2005-06, as it was in force at the beginning of the assessment year. Detailed Analysis: 1. Disallowance under Section 94(7): The Tribunal examined the Finance (No. 2) Act, 2004, and its preamble, which indicated that the amendments were to take effect from 1st April 2005. The Tribunal reviewed various legal precedents and concluded that the law as amended on 1st April of a financial year applies to the assessment for that year. The Tribunal dismissed the assessees' argument, stating that the amendment to Section 94(7)(b) was applicable to the assessment year 2005-06. 2. Restoration of matter to AO under Section 111A: The Tribunal found merit in the assessees' argument that the CIT(A) had no power to set aside the issue to the AO after 1st June 2001, as per the Finance Act, 2001. The Tribunal directed the CIT(A) to decide the issue himself instead of setting it aside, thus curing the irregularity and preventing a miscarriage of justice. The matter was remanded to the CIT(A) for a fresh decision after affording an opportunity to the assessees. 3. Applicability of amendment to Section 94(7): The Tribunal reiterated that the law in force on 1st April of the assessment year applies to that year. They cited multiple Supreme Court judgments supporting this principle. The Tribunal dismissed the assessees' reliance on the Allahabad High Court judgment in Krishna Mohan Agrawal vs. CIT, noting that the amendment explicitly stated its applicability from 1st April 2005. Thus, the amendment to Section 94(7)(b) was applicable to the assessment year 2005-06. Conclusion: The Tribunal upheld the disallowance under Section 94(7) and directed the CIT(A) to decide the issue under Section 111A himself. The appeals were partly allowed for statistical purposes, with the Tribunal providing a detailed legal basis for its decisions.
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