Vinod Chandran, J.
[ITA 59/2009, ITA.33/2014, ITA.1534/2009]
1. These appeals are connected, insofar as the questions of law raised. The question arises essentially from the order impugned in I.T.A.No.1534/2009 and in the identical order impugned in the other appeals both relating to the same company for the year 1991-92, the Tribunal followed its earlier order.
2. The questions of law arising in the appeal of the Revenue, as re-framed by us, are as follows:
i) Whether on the facts and circumstances of the case the Tribunal was correct in having found Section 94(4), not applicable to the specific transactions of the assessee, resulting in a loss which was not reckoned for computation of profits and gains as provided in sub-section (4) of Section 94, being allowed?
ii) Whether the Tribunal was correct in having found that the assessee does not have a business consisting wholly or partly in dealing in securities for reason only of the Assessing Officer having treated the loss on sale of securities as capital loss in an earlier year and the same having acquired finality at the Tribunal stage, with the Revenue accepting the same ?
3. The transactions by virtue of which the Assessing Officer invoked Section 94 is purchase and sale of units. Admittedly, the assessee had purchased units of the Unit Trust of India in the earlier years and also in the subject year and sold a considerable portion of the same in the subject year itself. For the units/bonds purchased and held for about 25 months, short term capital gain of Rs.22,81,871/- was computed. The assessee claimed a loss of Rs.2,14,65,000/-, which was claimed as loss occurred on the purchase and sale of the units in the very same year. The assessee disclosed in its accounts and the returns, the interest income obtained from such investments made in units, which was purchased and sold in the very same year. This was exempted under Section 10(15) of the Income Tax Act, 1961 (for short “the Act”).
4. The Assessing Officer found that sub-section (4) of Section 94 would be applicable and disallowed the same. The First Appellate Authority also concurred. The Tribunal, however, reversed the dis-allowance on the ground that sub-section (4) of Section 94 is not applicable to the assessee for reason of the assessee being not an owner of the shares as provided under sub-section (1) of Section 94 and also since the assessee did not have a business wholly or partly in securities. We have heard the Senior Standing Counsel for the Revenue and the learned Senior Counsel for the assessee.
5. The entire issue revolves on the interpretation of Section 94. We find that sub-sections (1) and (4) of Section 94 are interconnected, which are extracted hereunder:
“94. Avoidance of tax by certain transactions in securities.—(1) Where the owner of any securities [in this sub-section and in sub-section (2) referred to as ?the owner] sells or transfers those securities, and buys back or reacquires the securities, then, if the result of the transaction is that any interest becoming payable in respect of the securities is receivable otherwise than by the owner, the interest payable as aforesaid shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this sub-section, be deemed, for all the purposes of this Act, to be the income of the owner and not to be the income of any other person.
Explanation.—The references in this subsection to buying back or reacquiring the securities shall be deemed to include references to buying or acquiring similar securities, so, however, that where similar securities are bought or acquired, the owner shall be under no greater liability to incometax than he would have been under if the original securities had been bought back or reacquired.
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(4) Where any person carrying on a business which consists wholly or partly in dealing in securities, buys or acquires any securities and sells back or retransfers the securities, then, if the result of the transaction is that interest becoming payable in respect of the securities is receivable by him but is not deemed to be his income by reason of the provisions contained in subsection (1), no account shall be taken of the transaction in computing for any of the purposes of this Act the profits arising from or loss sustained in the business.”
6. The assessee as the owner of securities did not sell the shares owned by it and then repurchase it and hence there is no applicability of sub-section (1). The contention of the Revenue also is that the purchase and sale of the units carried out by the assessee in the subject year was from persons, who would fall under sub-section (1) and for that reason the assessee would come within the ambit of sub-section (4). This is why the Assessing Officer also called for the details of the persons from whom the shares were purchased and then sold. We do not think that such an enquiry is possible in the present case, especially when the units were purchased through an agent and there is nothing to indicate that the assessee had intended such owner, the seller, to be absolved of the liability to tax, which he would otherwise have had; dehors Section 10(15) by application of the deeming provision under sub-section (1).
7. 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. The owner, who sells and re-purchases securities, enabling another person to earn the interest due on the record date; in the process avoids tax on the interest but obtains a gain in so far as the repurchase would be at a lesser price after the record date. Section 94(1) in that circumstances shifts the liability to income tax on such interest income to the seller-repurchaser. Consequently, the person who received the interest income, but is exempted from liability to income tax by virtue of sub-section (1) of Section 94, is disentitled from claiming the loss occassioned in the transaction, in his assessment.
8. 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. These are provisions interlinked, so as to bring to tax the income of such persons, who sell and repurchase securities; only to absolve themselves of the liability to tax on interest income and in the process enables another to claim loss, which later claim, cannot be entertained by reason of the provisions under sub-section (4).
9. In the present case, we do not see any such deeming fiction applied on the interest income obtained by the assessee by reason only of which the interest receivable by him is exempted from taxation. The fact that Section 10(15) exempts such interest income is not relevant, insofar as sub-section (4) speaking only of the interest received by an assessee being deemed to be not his income by reason of the provisions under sub-section (1). In such circumstances, we answer the first question of law framed in favour of the assessee and against the Revenue and uphold the order of the Tribunal. We notice that the Tribunal has also considered the second issue of the assessee's purchase of securities being capital investment made, with which we do not think we have to deal with as we have found on the other issue that the assessee cannot be mulcted with the liability by adding back the loss claimed.
10. I.T.A.No.59/2009 is filed by the Revenue and I.T.A.No.33/2014 is filed by the assessee, who is the respondent in the other appeal. Here, again the Assessing Officer disallowed the loss claimed on the purchase and sale of shares. The assessee on being issued with a notice under Section 148, produced the details of the sellers and purchasers, not fully, but partly. The transactions with those persons, who were identified were excluded by the Assessing Officer. However, the First Appellate Authority issued a notice and included those transactions also and disallowed the loss with respect to such transactions enhancing the tax payable, in appeal. The assessee filed a further appeal before the Tribunal raising contentions against both the issues; on the disallowance as such and on the addition made with respect to those exempted by the Assessing Officer. The Tribunal followed its own order, impugned in I.
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T.A.No.1534/2009, and found the issue of dis-allowance in favour of the assessee; against which the Revenue has filed appeal. The Tribunal did not speak about the enhancement made by the First Appellate Authority and hence the appeal by the assessee. 11. There is also an ancillary ground raised on the application of sub-section (7) of Section 94, which is held in favour of the assessee and against the Revenue holding it to be prospective in application from 01.04.2002. The Hon'ble Supreme Court in CIT v. Walfort Share and Stock Brokers Private Limited, (2010) 8 SCC 137 has upheld the judgment relied on by the Tribunal. 12. We having upheld the order of the Tribunal in I.T.A.No.1534/2009, follow the same here also and reject I.T.A.No.59/2009 and allow I.T.A.No.33/2014. 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. I.T.A.Nos.1534/2009 and 59/2009 are rejected I.T.A.No.33/2014 is allowed. No order on costs.