THE COMMISSIONER OF INCOME TAX, V. MR SAROSH NOWROJEE BURJOJEE

ITA/1025/2008

AI Insights

The case involves appeals by the Commissioner of Income Tax and the Assistant Commissioner of Income Tax against Mr. Sarosh Nowrojee Burjorjee (deceased) and his legal representatives, concerning the deductibility of losses from the sale of mutual fund units. The primary legal issue was the interpretation of 'such date' in Section 94(7) of the Income Tax Act, 1961, which deals with the avoidance of tax by certain transactions in securities. The revenue contended that the losses should not be allowed as deductions since the sales were made within three months from the record date of dividend declaration. However, the Tribunal and subsequently the High Court interpreted 'such date' to mean the date of purchase, allowing the deduction as the sales were made beyond three months from the purchase date.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 728937 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 20-10-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: HARISH S
• Assessee Lawyers: K V ARAVIND
• Keywords: Dividend income; Income tax appeal; Sale of Securities; Loss Ignorance; Record Date
• Section: 143(2); 94(7); 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 20TH DAY OF OCTOBER, 2014 PRESENT THE HON’BLE MR. JUSTICE N. KUMAR AND THE HON’BLE MR. JUSTICE B.MANOHAR INCOME TAX APPEAL No.1025 OF 2008 C/W INCOME TAX APPEAL No.1026 OF 2008 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX C.R.BUILDING, QUEENS ROAD BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 7(1), C.R.BUILDING QUEENS ROAD, BANGALORE. ... APPELLANTS [COMMON IN BOTH THE CASES] (BY SRI: K V ARAVIND ADV) AND: MR SAROSH NOWROJEE BURJORJEE SINCE DEAD BY L R’s ZENOBYA SAROSH BURJORJEE W/O LATE SAROSH NOWROJEE BURJORJEE AGED ABOUT 60 YEARS PRESENTLY R/AT: NO.288, 6TH BLOCK, 18TH 'D' MAIN, 2 KORAMANGALA BANGALORE-560 095. ... RESPONDENT [COMMON IN BOTH THE CASES] [IMPLEADED V C O DATED 01.08.2014] (BY SRI: HARISH V S, ADV FOR M/S: D N S LAW HOUSE, ADVS FOR L R’s OF THE DECEASED RESPONDENT) THESE ITAs ARE FILED UNDER SECTION 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 19.06.2008 PASSED IN MP NO.39/BANG/2008 IN ITA NO. 56/BNG/2008, FOR THE ASSESSMENT YEAR 2004-05, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN MP NO.39/2008 IN ITA NO.56/BNG/2008 AND ITA NO.56/BANG/2008, DATED 19.06.2008 CONFIRM THE ORDERS OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-7(1), BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY. THESE ITAs COMING ON FOR FINAL HEARING, THIS DAY N.KUMAR J DELIVERED THE FOLLOWING: COMMON JUDGMENT The revenue has preferred these appeals against the order passed by the Tribunal which has held that the sale of securities was after the period of three months from the date of purchase of shares and therefore, the loss sustained cannot be ignored. 3 2. The assesee is an individual and filed his return of income for the assessment year 2004-05 on 15.09.2004 declaring a total income of Rs.2,30,88,507/-. The assessee’s case was selected for scrutiny and notice under Section 143(2) was issued. During the year under consideration, the assessee invested huge amount in various mutual fund units, totaling 6.4 crores including a sum of Rs.2 crores in Sundaram Mutual Funds, Rs.1.4 crores in the units of Birla Sunlife. The assessee has sold these units in a short period incurring huge losses in respect of Sundaram Mutual Funds. The assessee claimed purchases of Rs.2 crores as on 17.12.2003 and sales of entire lot as on 26.03.2004 for a sum of Rs.1,13,90,768/-. Thus, incurring loss of Rs.86 lakhs. As per the information provided by the assessee, these units were purchased as on 17.12.2003 and record date for declaration of dividend is 26.12.2003. These units have been sold on 26.03.2004. 4 3. The Assessing Authority held as the units have been sold on 26.03.2004 within a period of three months from the record date in view of Section 94(7) of the Income Tax Act 1961, the loss so arisen shall be included in computation of taxable income of the assessee and therefore, the assessee claim to that extent was disallowed and added back in the hand of the assessee. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax. The authorities dismissed the appeal. Aggrieved by the said order, the assessee preferred the second appeal before the Tribunal. The Tribunal calculated three months from the date of purchase of shares i.e., 17.12.2003 and three months expired on 15.03.2004 and therefore, held that the sale being on 26.03.2004, after three months, the assessee is entitled to deduction of loss sustained by him. As the assessee has not furnished the extent of dividend of income received by him and as it is not indicated in the order, the matter was remitted to the assessing 5 authorities to give a finding and limit the allowability of loss only to the extent of dividend income. Aggrieved by the said order, the revenue is in appeal. 4. The substantial questions of law arises for consideration in these appeals is as under: “The word ‘such date’ used in Section 94(7)(b)(i) refers to ‘record date’ or ‘date of purchase of share’. 5. Section 94 deals with avoidance of tax of by certain transactions in securities. The relevant provision of Section 94(7) reads as under: “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- (i) such securities within a period of three months after such date; or 6 (ii) such unit within a period of nine 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. 6. The aforesaid provisions was inserted by the Finance Act, 2001, with effect from 01.04.2002 providing that where any person buys or acquires any securities or unit within a period of three months prior to the record date, the declaration of dividend or distribution of income in respect of such securities, or units or sells or transfers the same within a period of three months after such date etc., and lastly the 7 dividend or income on such securities, units received or receivable is exempt, then if any loss arising from such purchase or sale shall be ignored to the extent of such loss does not exceed the amount of such dividend or income in computing the income chargeable to tax of such person. Therefore, the loss sustained in transfer of shares has to be ignored for the purpose of computing his income or chargeable to tax. In other words, he is not entitled to benefit of deduction of loss of undetermined taxable income. 7. In order to attract the said provisions, the three conditions should be specified: (1) such securities within a period of three months after such date; or (2) such unit within a period of nine months after such date; (3) the dividend or income on such securities or unit received or receivable by such person is exempt from payment of tax. 8 8. The question for consideration is the word ‘such date’ in clause (b) does it mean ‘record date’ or ‘the date on which the person buys or acquires any securities or units’. The legislature has consciously used the word ‘record date’ in clause (a). If the intention of legislature was “on such date” used under Sub Clause (i) (ii) of Clause (b), to mean record date, there was no difficulty to use the word ‘record date’ itself instead of ‘such date’. The ‘record date’ is definite date whereas the date of purchase varies from person to person. Therefore, intentionally in Clause (b) the word used as ‘such date’, as it varies from transaction to transaction. Therefore, they have used the vague expression ‘such date’. 9. In the judgment relied on by the learned Counsel for revenue, the question whether ‘such date’ means ‘record date’ or ‘date of purchase’ was not the subject matter nor was it gone into in all those cases. The Court granted the relief on the ground that 9 purchase was within three months from the record date, therefore, the benefit was extended. Therefore, the said judgment is of no assistance in deciding the controversy in these cases. 10. In the light of what is stated, we are of the view the word ‘such date’ used in Clause (b) of Sub Section (7) of Section 94 is date, the person buys or acquires securities or units and not the ‘record date’. The period is calculated from the date of purchase. If the sale is beyond three months from the date of such purchase, the said sale would not fall under Sub Section (7) of Section 94. Therefore, the loss sustained in the said transaction cannot be ignored as contemplated under the said provisions. The assessee shall be entitled to the benefit of deduction. As the amount of dividend was not forthcoming, the Tribunal was justified in remitting the matter to the Assessing Authorities to compute the same and grant the relief. 10 11. In that view of the matter, we do no see any error committed by the Tribunal in passing the impugned order. The substantial question of law is answered in favour of the assessee and against the revenue. No merits. Hence, dismissed. Sd/- JUDGE Sd/- JUDGE *bgn/- "