TMI Blog2012 (9) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... questioned the transaction as not legal, and not based on the amendment to Section 94, which came into existence only with effect from 1.4.2002, then Section 94 would not have come into play in considering the merits of the claim. Thus, on principle, when the Revenue had accepted the transfer, the sole ground on which the transaction was held to be a colourable one could not be sustained. Appeal decides in favour of assessee - Tax Case (Appeal) No.1211 of 2005 - - - Dated:- 20-6-2012 - Mrs.Justice CHITRA VENKATARAMAN, Mr.Justice K.RAVICHANDRABAABU, JJ. For appellant : Mr.R.Vijayaraghavan For respondent : Mr.T.R.Senthilkumar Standing Counsel JUDGMENT CHITRA VENKATARAMAN, J. The assessee is on appeal as against the order of the Tribunal relating to the assessment year 1992-93, raising the following substantial questions of law:- 1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that loss arising from purchase and sale of units is not allowable as the transaction is a colourable device to avoid tax despite the fact that the actual purchase and sale has taken place and the appellant has actually incurred th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, remained in the name of the existing holder, namely, the assessee herein and on the purchase made by the assessee on 31.5.1991 the dividends were released in the name of the assessee only. Subsequently, there was no transfer of the units to the name of the assessee once again after its repurchase on 31.5.1991. The Assessing Authority pointed out that in this regard the Unit Trust of India was addressed and it was confirmed by the Unit Trust of India that the transfers were registered in the name of the assessee from 31.5.1990 till 14.5.1994 and that the assessee received dividends till 1994. 4. In the background of the above said facts, the Assessing Officer issued a proposal to the assessee to show cause as to why the provision of Sections 73 or Section 94 of the Income Tax Act should not be applied to the assessee's case. Referring to Explanation under Section 94 that securities includes stocks and shares and also interest includes dividend the Assessing Officer held that Section 94(4) would be applicable to the facts of the case and thus ignoring the loss of Rs. 1,60,65,000/- on account of the difference between the purchase and sale price as well as the dividend of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner of Income Tax(Appeals) held that in his view the transaction of this nature was neither unreal nor prohibited by the statute. Thus, the Commissioner of Income Tax (Appeals) agreeing with the assessee's contention held that the reliance placed on Section 94 was misplaced and the transactions were not colourable one. Aggrieved by the said order, the Revenue went on appeal before the Tribunal. 7. The Tribunal accepted the Revenue's case on different grounds, namely the act of the assessee in purchasing the unit on 31.5.1991 and selling them on 1.6.1991 clearly showed that for the purpose of getting deduction under Section 80M alone the transaction was entered into. The Tribunal further pointed out as far as the transfer of units was concerned, the units in fact after the transactions were given physical possession by the assessee to Bank of America and again on its repurchase and resale , there had been in fact physical possession. 8. As far as relevance of Section 94 is concerned, the Tribunal had not in any manner spelt out on this aspect, however, it confined its contention only to the issue of colourable transaction. The Tribunal held that the transactions wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as the receipt of dividend on the purchase of units is concerned the assessee pointed out that the same was offered under Section 80M and the sale consideration included this amount also which was offered by the Bank of America as income arising out of purchase of units. 11. As regards the non-registration of the units in the respective owners' name in the books of Unit Trust of India, learned counsel for the assessee pointed out that being movable property on the transactions taking place, the units were physically handed over to the purchaser, a fact which has not been disputed by the Revenue too. In the circumstances, when the transaction that had taken place between the parties had not been in any manner questioned, the view of the Tribunal on the claim made by the assessee for deduction under Section 80M could not be any manner held as legally correct. The decision of the Apex Court in the case of Mc Dowell Co., (154 ITR 148) has no relevance to the facts of the case. On going through the records, rightly the Commissioner of Income Tax (Appeals) held that Section 94(4) has no relevance to the case of the assessee. Consequently, learned counsel prayed for setting aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, we do not think that such a reasoning would be justifiable one considering the fact that as held by the Apex Court in the decision reported in (2010) 326 ITR 1 (SC) (Commissioner of Income Tax Vs. Walfort Share and Stock Brokers P.Ltd.,), the inclusion of units as a security for the purpose of applying Section 94 comes only with effect from 1.4.2002; thus the provisions under Section 94 itself is not applicable to the assessment under consideration. Consequently, the Assessing Authority was not justified in rejecting the transaction as not genuine. 16. As far as the Commissioner's order is concerned, we are in entire agreement with the view expressed by the Commissioner of Income Tax (Appeals), particularly in paragraph 34. When the Explanation to Section 94, as it stood at the material time relevant to this case, defined interest to include dividend, the term "securities" to include stocks and shares alone and not units of Unit Trust of India, by necessary implication the units of Unit Trust of India stood excluded from the definition of securities for the limited purpose of section 94, which is in line of the reasoning as spelt out by the decision reported repor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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