Law:

Section:

Section 94 of the Income-tax Act, 1961 - Avoidance of tax by certain transactions in securities - Whether all three conditions that are spelt out in clauses (a), (b) and (c) of section 94(7) must be fulfilled before consequence, that is envisaged in section, comes into force - Held, yes FACTS 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. According to the revenue, 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. The Tribunal held that clauses (a), (b) and (c ) of section 94(7) are to be satisfied independently or cumulatively and, therefore, section 94(7) had no applications in the instant case. On the revenue's appeal : HELD Sub-section (7) of section 94 spells out three requirements: (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 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 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 instant case, the sale of the units had 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. [Para 4] The memorandum explaining the provisions of the Finance Bill, 2001, by which sub-section (7) was inserted, would make it clear…

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