2010 (6) TMI 16 - HC - Income Tax

Avoidance of tax by certain transactions in securities Section 94(7) - ITAT hold that clauses (a), (b) and (c) of Section 94(7) of the Income Tax Act, 1961, are to be satisfied independently or cumulatively - The question that falls for consideration is as to whether the conditions spelt out in clauses (a), (b) and (c) of subsection (7) are cumulative. In the present case, the assessee had purchased certain units within a period of less than three months from the record date, but admittedly, the units were sold beyond a period of three months from the record date. The question that falls for consideration is as to whether the conditions spelt out in clauses (a), (b) and (c) of subsection (7) are cumulative. In the present case, the assessee had purchased certain units within a period of less than three months from the record date, but admittedly, the units were sold beyond a period of three months from the record date. Held that From the Memoranda explaining respectively the Finance Bills of 2001 and 2004, it is evident that the conditions prescribed in clauses (a), (b) and (c) of Subsection 7 are intended to be cumulative in nature. decided in favor of assessee

Summary

Issues involved: Interpretation of Section 94(7) of the Income Tax Act, 1961 - Whether conditions in clauses (a), (b), and (c) are to be satisfied independently or cumulatively.

Detailed Analysis:

1. Interpretation of Section 94(7):
The judgment revolves around the interpretation of Section 94(7) of the Income Tax Act, 1961. The section outlines conditions related to the purchase, sale, and exemption of securities or units within specific time frames. The primary question is whether the conditions in clauses (a), (b), and (c) of the section are to be satisfied independently or cumulatively.

2. Cumulative Nature of Conditions:
The court analyzed the provisions of Section 94(7) and concluded that the conditions specified in the clauses are intended to be cumulative. These conditions include the purchase or acquisition of securities within three months prior to the record date, sale or transfer within three months after the date, and the receipt of exempt dividend or income.

3. Requirement Fulfillment for Application:
To trigger the consequences outlined in Section 94(7), all three conditions must be fulfilled collectively. In the case under consideration, the units were purchased within the specified period but sold after three months from the record date. As a result, the second condition for the section's applicability was not met.

4. Legislative Intent and Amendments:
The court referred to the Memoranda explaining the provisions of the Finance Bills of 2001 and 2004 to ascertain the legislative intent behind Section 94(7). The Memoranda clarified that the conditions in the clauses are meant to be cumulative, emphasizing the importance of fulfilling all requirements for the section to apply.

5. Precedent and Dismissal of Appeal:
The court cited a judgment of the Division Bench of the Delhi High Court to support the view that the conditions in clauses (a), (b), and (c) of Section 94(7) are cumulative. Based on the analysis and legislative intent, the court dismissed the appeal by the Revenue, stating that it lacked merit and did not raise any substantial question of law.

In conclusion, the judgment clarifies that the conditions in clauses (a), (b), and (c) of Section 94(7) of the Income Tax Act, 1961 must be satisfied cumulatively for the section to apply. The court's interpretation, supported by legislative intent and precedent, emphasizes the importance of meeting all specified requirements for the provision to be invoked.