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TMI Blog2012 (9) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 94 which is not applicable to the facts of this case ?" 2. The assessee herein is a non-banking finance company. In respect of the assessment year 1992-93, while completing the assessment, the assessing officer noted that the assessee had purchased 85 lakhs units of the Unit Trust of India from Bank of America on 31.5.1991 for a sum of Rs. 12,75,00,000. On the very next day i.e. 1.6.1991 the assessee sold back the very same units to the same Bank of America for a sum of Rs. 11,13,79,750/-. In that process. the assessee had incurred a loss of Rs. 1,60,65,000/- which included brokerage. It is a matter of record that at the time of purchase of the units, the amount paid by assessee did not include brokerage and commission. It is seen from the facts that the assessee received the dividends in respect of the units held by it amounting to Rs. 1,65,75,000/- which was offered for tax along with other dividends under the head other sources. However, the assessee wanted to set off the loss of Rs.1,60,65,000/- against the income under the head capital gains to the tune of Rs.51,50,698/-. The assessee thereafter sought the balance loss of Rs.1,09,14,302/- to be ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms capital loss to be set off against capital gains of later years. The Assessing Officer further held that Bank of America is a foreign company and not a domestic company and the benefit of Section 80 M was not available to it and it had paid the tax on the profit earned on the difference between the sale and repurchase price. Quoting Section 94 (1) which provides the income arising from the transaction of the sale of the securities as income of the owner, the Assessing Authority held that there was an avoidance of tax by the owner Bank of America . Aggrieved by the said view, resulting from the application of Section 94(4) to the transaction in question, the assessee went on appeal before the Commissioner of Income Tax (Appeals). 5. A perusal of the order of the Commissioner of Income Tax (Appeals) particularly paragraph 34 shows the discussion on the scope of Section 94. Taking the view that the units of the Unit Trust of India could not be considered as having the attributes of the shares, the Commissioner of Income Tax (Appeals) held that Section 94 has no relevance at all to the facts of the case. The Commissioner held that the Assessing Officer had ignored the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would clearly be applicable to the assessee's case . 9. The Tribunal further pointed out that the units were already in the name of the assessee , even though the real owner was Bank of America. After purchase from the assessee, Bank of America kept the units untransferred to its name. Since the transaction was only for the purpose of getting deduction under Section 80M, the Bank of America and the assesseee colluded together and made the colourable device to avoid tax. Thus, the Tribunal by applying the decision reported in the case of Mc Dowell & Co., reported in 154 ITR 148 allowed the Revenue's appeal. Aggrieved by the said order the assessee is before us. 10. Learned counsel appearing for the assessee pointed out that admittedly the units of the Unit Trust of India was not included within the definition of securities till the amendment came to sub-section (7) by introduction of Finance Act 2001 with effect from 1.4.2002. In the circumstances, the relevance of Section 94 relating to the transaction dealing in securities has to be confined to securities only other than units. He further pointed out that the said provision was also considered by the Apex Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel appearing for the appellant and the learned Standing Counsel appearing for the Revenue and perused the materials available on record. 14. As seen from the preceding paragraphs, it is a matter of record that the assessee purchased the units on 31.5.1991, where the price paid by the assessee included the dividend. As noted in the order of the Assessing Authority the purchase price of the units upto 31.5.1991 is inclusive of dividends entitling the purchaser to the dividends. It is no doubt true that immediately on the next day the assessee sold the units on 1.6.1991 at quoted price, which evidently was not inclusive of dividends. Thus, the difference in the sales price led to the assessee reporting a loss. 15. As far as the absence of entry in the Register of Unit Trust of India is concerned, the assesee never pleaded ignorance or lack of knowledge as to absence of entries in the respective holders name at the relevant point of time. The assessee admits that the Bank of America purchased the units from the assessee earlier in two lots on 2.7.1990 and 24.7.1990 and the transferee viz., Bank of America did nothing to transfer the units to its name. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer by applying Section 94(4) is erroneous in respect of the transaction in question. 17. As far as the Tribunal's reasoning is concerned, it is no doubt true that by purchase, the assessee was entitled to have the benefit of deduction under Section 80M and by this we do not think that there is no justifiable ground to hold that the transaction of sale on the next date would make the transaction of purchase and resale a colourable one. The assessee is entitled to have the benefit of deduction under the provisions of the Income Tax Act on any income earning transaction. In taking advantage of such provision, we do not find that the assessee could be charged with the allegation that it has indulged in any colourable transaction. The Apex Court pointed out in the decision reported in (2010) 326 ITR 1 (SC) (Commissioner of Income Tax Vs. Walfort Share and Stock Brokers P.Ltd.,) at paragraph 20 that when the assessee had made use of the beneficial provision available under the Act , as in the case of the present assessee as recognised under Section 10(33) such conduct could not be called as abuse of law. The Apex Court observed as follows:- Even assuming that the transaction wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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