2017 (8) TMI 1418 - HC - Income Tax

Disallowance invoking the provision of section 94(7) - Held that - The Assessing Officer applied newly added clause(b) of section 94(7) of the Act and disallowed the loss claimed by the assessee in the process on such purchase and sale. We may record that with effect from 1.4.2005, the legislature has inserted clause(b) providing that if a person who has acquired securities or units prior to the record date and has sold or transferred such securities or units within three or nine months of such date respectively, the loss, if any, arising out of such transaction to the extent it does not exceed the amount of dividend or income received or receivable on such securities, shall be ignored for the purpose of computing his income chargeable to tax. In plain terms, this provision having been introduced with effect from 1.4.2005, would have the effect prospectively. In the present case, purchase and sale both were prior to 1.4.2005. This was the view taken by the Tribunal and we find no error.

Summary

Issues:
Invoking section 94(7) of the Income Tax Act for disallowance of loss claimed by the assessee due to purchase and sale of mutual funds within a short duration.

Analysis:
The High Court addressed the appeal filed by the Revenue against the Income Tax Appellate Tribunal's judgment. The primary issue was the applicability of clause (b) of subsection (7) of section 94 of the Income Tax Act for the assessment year 2004-2005. The Assessing Officer disallowed the loss claimed by the assessee due to the purchase and sale of mutual funds within a timeframe of less than nine months. The Tribunal's decision was based on the fact that the relevant clause was inserted with effect from 1.4.2005, making it prospective in nature. Since both the purchase and sale in this case occurred before the specified date, the Tribunal correctly concluded that the provision could not be applied retrospectively.

The Court highlighted the legislative amendment introducing clause (b) to address situations where a person acquires securities or units before a record date and sells or transfers them within three or nine months, respectively. The provision states that any loss arising from such transactions, up to the amount of dividend or income received or receivable on the securities, should be disregarded for tax computation purposes. Given that the purchase and sale in the present case predated the introduction of the clause, the Tribunal's interpretation aligns with the prospective application of the law. Consequently, the Court found no error in the Tribunal's decision and dismissed the tax appeal filed by the Revenue.

In conclusion, the judgment clarified the temporal scope of the legislative amendment to section 94(7) of the Income Tax Act and affirmed the Tribunal's decision regarding the disallowance of the claimed loss by the assessee. The Court's analysis underscored the importance of interpreting tax provisions in accordance with their effective dates to ensure fair and consistent application of the law.