TMI Blog2008 (8) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... a few days before the announcement of bonus/additional units and sold the principal unit only to reduce the tax liability. 4. On the facts and in the circumstances of the case, the CIT(A) failed to consider the fact that the assessee wrongly interpreted the provisions of s. 94(7) of the IT Act, 1961." 2. Though the facts of the case are going to be appreciated in the following paras but after hearing the rival parties the interesting issue had come up for consideration is that whether or not the "dividend stripping" can be treated at par with the "bonus stripping" while applying the newly inserted provisions of s. 94(7) w.e.f. asst. yr. 2002-03 vis-a-vis s. 94(8) w.e.f. asst. yr. 2005-06 of IT Act. 3. Facts in brief as emerged from the corresponding assessment order passed under s. 143(3) dt. 24th Feb., 2006 were that the assessee individual is in the business of trading in shares. Though the impugned order of the AO is lengthy as also narrative however, the initial query pertained to the claim of "short-term capital loss" as summarized on p. 11 by the AO reproduced below: "23.............. (a) The assessee had invested funds in purchasing units of said mutual fund i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the said transaction if there is a loss arising on account of such purchase and sale of unit then the loss shall be ignored to the extent that such loss so exceeded the amount of dividend received or receivable. An another important fact which was placed on record was that the assessee has received additional units of 80,398.778 as bonus units without cost. According to AO, the provisions of s. 94(7) were applicable since the units of IL FS Bonds were purchased on 9th Dec., 2002 and those were sold on 16th Dec., 2002, i.e., within a span of 7 days and thereupon incurred a loss of Rs. 8,27,625 which was set off against the short-term gains. Further according to AO the assessee has earned bonus units in lieu of those units; so the said bonus units were nothing but a gain in the nature of dividend. Therefore, according to AO, the provisions of s. 94(7) were applicable on the said transaction. On the other hand, the contention of the assessee was that the bonus units cannot be held as dividend received hence, provisions of s. 94(7) were not to be applied. It was contested that the instance of allotment of bonus units has been considered by the legislature by introducing sub-s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotted to the assessee because of holding of principal units on the record date. According to him the investor undertakes dividend stripping because it has got a strategy to avoid tax on capital gains. Applying the principle of the McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), he has disallowed the claim of the assessee. The said action of the AO was challenged. 4. When this issue was carried before the first appellate authority, elaborate discussions were carried out and the main emphasis of the argument was that the AO has wrongly applied the provisions of s. 94(7) of IT Act since the admitted fact was the allotment of additional units, therefore, covered by the newly inserted sub-so (8) of s. 94 of IT Act. Learned CIT(A) has examined the language of s. 94(7) of IT Act as also language of s. 94(8) of IT Act and thereafter summarized that sub-s. (7) was inserted by Finance Act, 2001 w.e.f. 1st April, 2002 however, on the other hand, sub-s. (8) was inserted by Finance (No. 2) Act of 2004 w.e.f. 1st April, 2005. Finally, he has held as under: "5.4.............. From the above cl. (c), it is evidently clear that provisions of s. 94(7) are appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of bonus units specially when the s. 94(8) has been introduced in the statute covering the situation has arisen in the present appeal. The admitted factual position is that the units of IL FS mutual fund were purchased on 9th Dec., 2002 @ Rs. 15,584 for a consideration of Rs. 25,00,000 which were sold on 16th Dec., 2002 @ Rs. 10,408 for a consideration of Rs. 16,72,374 with the result suffered a loss of Rs. 8,27,626. During this period additional bonus units were allotted numbering 80,398.778 units. It has also been placed on record that those bonus units have been subsequently sold on 19th March, 2004 but this is referred just for reference however, this fact has no bearing on the issue to be decided by us. 7. Rather the issue lies within the compass of the legal provisions of sub-s. (7) and sub-s. (8) of s. 94 reproduced below: "Avoidance of tax by certain transactions in securities. (1) to (6) ............... (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: (i) such securities within a period of three months after such date; or (ii) such unit withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction issued by the CBDT from F. No. 178/32/2003-ITA-I on 23rd Feb., 2004 did not support the case of the Revenue. It is clearly mentioned in the said instruction that ordinarily disallowance of loss in similar circumstances in respect of assessment years prior to the asst. yr. 2002-03 would amount to applying the provisions of s. 94(7) retrospectively. The Board, therefore, cautions its officers that such an assessment should be made only after in-depth investigation and proper recording and marshalling of all relevant facts because the provisions of s. 94(7) are prospective only." 9. An another decision of respected Special Bench Tribunal, Mumbai, in the case of Wallfort Shares Stock Brokers Ltd. vs. ITO (2005) 96 TTJ (Mumbai)(SB) 673 : (2005) 96 ITD 1 (Mumbai)(SB) has also been cited wherein the observations were as under: "The provisions of s. 94(7) have been brought on the statute book by the Finance Act, 2001 w.e.f. 1st April, 2002. In other words, the Parliament did not deem it fit to intervene in the transaction that has already taken place. It was open to resort to giving retrospective effect to the provisions of s. 94(7), but the Parliament had chosen not to do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of nine months after such date all or any of such units while continuing to hold all or any of the additional units, then, the loss, if any, arising to him on account of such purchase or sale of units shall be ignored for the purposes of computing income chargeable to tax of such person and the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units as are held by him on the date of such transfer or sale. 11.1 The clarification further states that amendment shall take w.e.f. 1st April, 2005 and therefore, shall apply in relation to the asst. yr. 2005-06 and subsequent years. 12. On the basis of the above discussion and also with reference to the views already expressed by the respected Co-ordinate Benches, it can be safely held that the legislature has made a distinction in the two transactions, on one hand, where the dividend or income on such securities or units is received or receivable by such person plus also exempt and, on the other hand, the transactions wherein such person is allotted additional units without any payment on the basis of holding of such units on such date. The transaction in this appeal undoubtedl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al test is not only to consider merely whether the law is a law of procedure or substantive law but also whether the law in question affects or impairs the existing rights including the rights of action which are substantive rights. If a law destroys the existing right or even places any restriction on it, as is happening in the circumstances of this appeal, no retrospective effect would be given to it unless the statute is expressly enacted to that effect. 13.1 Doctrine of casus ommissus cannot be supplied by judicial interpretative process commonly, except in the case of clear necessity. The settled principles of interpretation are that the Court must proceed on the assumption that the legislature did not make a mistake and that it did what it intended to do. We have read in our personal study that a Judge must not alter the material of the texture of which the rug is woven, but he can and should iron out the creases. Hence, we are duty-bound to adopt a constructionist view of interpretation so that a literal meaning of the language of the statute can be adopted. Our work as a Judge is to interpret provisions of law and not to legislate a law. 14. In the light of the above di ..... 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