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2019 (2) TMI 454 - HC - Income TaxAvoidance of tax by certain transactions in securities - Scope of section 94 - interest income - Claim of exemption u/s 10(15) - loss on sale and re-purchase of units of the Unit Trust of India - assessee being not an owner of the shares - assessee did not have a business wholly or partly in securities. Held that:- Sub-sections (1) and (4) of Section 94 are interlinked. We are of the opinion that the enquiry should commence from sub-section (1); where the owner of securities attempts to sell and repurchase, so that the interest income is not taxed in his hands. In that circumstances, the person to whom the securities are sold and then repurchased from; who actually earns the interest income and is liable to income-tax, but however is absolved from it by reason only of sub-section (1); would not in his assessment be entitled to claim for any loss that occurred in the transaction. Section 94 at one stroke discourages both the owner of securities, who sells and the purchaser from entering into a transaction, ostensibly to be one for avoidance of tax on the interest income. Pertinently, it is to be seen that sub-section (4) does not speak of an exemption under Section 10(15), but speaks of the interest income received by the person, who buys and re-sells the securities, not having the liability to income tax by reason only of sub-section (1), the deeming provision, which mulcts the liability of income tax on such interest income, on the owner of the securities, who sold it and then repurchased it. The loss claimed by the assessee on the sale of securities shall be allowed without any dis-allowance made under sub-section (4) of Section 94. Decided in favor of assessee and against the revenue.
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