2010 (7) TMI 15 - SC - Income Tax

Dividend Stripping Transaction - Loss arising in the course of Dividend Stripping Transaction - Business Transaction - Setoff - AO disallowed the loss of ₹ 2,09,44,793 claimed by the assessee inter alia on the ground that a dividend stripping transaction was not a business transaction and since such a transaction was primarily for the purpose of tax avoidance, the loss so called was an artificial loss created by a pre-designed set of transaction - ITAT and HC allowed the loss to be deducted - Held that: - Section 14A deals with disallowance of expenditure per se and not with a disallowance of a loss which arises at a point of time subsequent to the purchase of units and the receipt of exempt income and occurring only when there is a sale of the purchased units. - Under Section 94(7) the dividend goes to reduce the loss. It applies to cases where the loss is more than the dividend - Section 14A comes in when there is claim for deduction of an expenditure whereas Section 94(7) comes in when there is claim for allowance for the business loss. We may reiterate that one must keep in mind the conceptual difference between loss, expenditure, cost of acquisition, etc. while interpreting the scheme of the Act. - Para 12 of Accounting Standard AS-13 has no application to the facts of the present cases where units are bought at the ruling NAV with a right to receive dividend as and when declared in future and did not carry any vested right to claim dividends which had already accrued prior to the purchase. - Decided in favor of assessee - revenue appeal dismissed