2006 (7) TMI 93 - HC - Income Tax

Business loss Revenue contended that investment in the units was merely to get the benefit of dividend income u/s 10(33)of ITA, 1961and that the assessee was not otherwise engaged in the said business Held that revenue contention was correct and allowed

Summary

Issues: Disallowance of claim for loss on account of purchase and sale of securities.

Analysis:
The High Court judgment dealt with the disallowance of a claim for loss on the purchase and sale of securities by the appellant assessee. The assessing officer, appellate authority, and Tribunal concluded that the investment in units of a mutual fund was primarily for the purpose of benefiting from dividend income under Section 10(33) of the Income Tax Act, rather than engaging in a genuine business transaction. The Tribunal highlighted that the transactions lacked the essential characteristics of a trade, as the purchases and sales were orchestrated in a coordinated manner through a specific entity, with prior knowledge of dividend declaration dates. The Tribunal emphasized that the intention to earn profits was absent, and the transactions did not constitute an adventure in the nature of trade. Consequently, the Tribunal computed the actual loss incurred by the assessee based on the cost of units, sale proceeds, and dividend received, resulting in a loss of Rs.1,50,771, which could be adjusted against the current year's income or carried forward. The judgment upheld the Tribunal's findings, emphasizing that such manipulative practices for tax benefits were impermissible under the law.

The Court noted that the appellant's attempt to claim a business loss of Rs.31,94,194 on a transaction where only Rs.5 lacs were invested for a short period to gain tax-free dividend income of Rs.29,02,226 was a clear manipulation of the system. The Court found no merit in challenging the Tribunal's findings, deeming them not perverse. Consequently, the appeals were dismissed, affirming the Tribunal's decision and emphasizing the impermissibility of such manipulative practices under the law.