The Commissioner Of Income Tax,-17 v. J.p.devadhar, Jj

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO. O. C. J. INCOME TAX APPEAL NO.2656 OF 2009 The Commissioner of Income Tax,-17. Vs. ...Appellant. Smt.Alka Bhosle. ...Respondent. .... Mr.D.K.Kamwal for the Appellant.Mr.Atul K.Jasani with Mr.P.C.Tripathi for the Respondent. ..... CORAM : DR.D.Y.CHANDRACHUD AND J.P.DEVADHAR, JJ. June 9, 2010. ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) : The following question of law has been formulated in the appeal by the Revenue under Section 260A of the Income Tax Act, 1961: “Whether on the facts and in the circumstances of the case and in law, ITAT was right in holding that clauses (a), (b) and (c) of Section 94(7) of the Income Tax Act, 1961, are to be satisfied independently or cumulatively.” 2.Section 94(7) of the Income Tax Act, 1961, as it stood at the material time, reads as follows: “(7) Where- (a) any person buys or acquires any securities or unit within a period of three months prior to the record date; (b) such person sells or transfers such securities or unit within a period of three months after such date; (c) the dividend or income on such securities or unit received or receivable by such person is exempt, then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax.” 3.The dispute in the present case relates to Assessment Year 2004-05. The question that falls for consideration is as to whether the conditions spelt out in clauses (a), (b) and (c) of sub-section (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 contention of the Revenue is that though the units were, as a matter of fact, sold beyond a period of three months of the record date, the provisions of Section 94(7) would apply since they were acquired within a period of three months of the record date. 4.There is no merit in the submission. Sub-section 7 of Section 94 spelt out three requirements; these being (i) The purchase or acquisition of any of the securities or units should take place within a period of three months prior to the record date; (ii) The sale or transfer should take place within a period of three months after the record date; and (iii) The dividend or income received or receivable should be exempt. In the event that these three conditions are fulfilled, the loss, if any, arising from the purchase or sale of securities or units, has to be ignored for the purpose of computing the income chargeable to tax, to the extent such loss does not exceed the amount of dividend or income received or receivable. Ex-facie, all the three conditions that are spelt out in clauses (a), (b) and (c) of Sub-section 7, must be fulfilled before the consequence that is envisaged in the section comes into force. In the present case, the sale of the units has taken place after the expiry of a period of three months from the record date. Hence, the second condition spelt out for the applicability of sub-section 7 would not come into force. 5.The Memorandum explaining the provisions of the Finance Bill of 2001 by which sub-section 7 was inserted, would make it clear that the requirements were intended to be cumulative. The Memorandum inter alia states as follows: 5.The Memorandum explaining the provisions of the Finance Bill of 2001 by which sub-section 7 was inserted, would make it clear that the requirements were intended to be cumulative. The Memorandum inter alia states as follows: “It is proposed to insert a new sub-section (7) in the said section to provide that where any person buys or acquires securities or unit within a period of three months prior to the record date fixed for declaration of dividend or distribution of income in respect of the securities or unit, and sells or transfers the same within a period of three months after such record date, and the dividend or income received or receivable is exempt, then, the loss, if any, arising from such purchase or sale shall be ignored to the extent such loss does not exceed the amount of such dividend or income, in the computation of the income, chargeable to tax, of such person.” (emphasis supplied). 6.By the Finance (No.2) Bill of 2004, the provisions of sub clause (b) were amended so as to provide a period of nine months for the transfer or sale of a unit. The Memorandum explaining the provisions of Finance (No.2) Bill of 2004 provide as follows: “It has been noticed that the condition specified in sub-section (7) of section 94 requiring an investor to hold units for at least ninety days after the record date did not provide the desired effect. In order to provide further deterrence to tax-avoidance, it is necessary to provide for a longer period of holding of units after a record date. It is accordingly proposed to amend the said sub-section so as to provide that where any person buys or acquires any unit within a period of three months prior to the record date and sells or transfers the same within a period of nine months after such record date, and the dividend or income received or receivable is exempt, then, the loss, if any, arising from such sale and purchase shall be ignored to the extent such loss does not exceed the amount of such income or dividend, in computation of the income, chargeable to tax, of such person.” 7.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 Sub-section 7 are intended to be cumulative in nature. The same view as we have taken, has been adopted in a judgment of the Division Bench of the Delhi High Court in Commissioner of Income Tax vs. Shambhu Mercantile Ltd.[1] In the circumstances, the appeal by the Revenue is lacking in merit and does not raise any substantial question of law. The appeal is accordingly dismissed. ( Dr.D.Y.Chandrachud, J.) ( J.P.Devadhar, J.)