Sundaram Finance Ltd. v. Dy. CIT

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The Tax Publishers2013 TaxPub(DT) 0297 (Mad-HC) : (2012) 211 TAXMAN 0303 INCOME TAX ACT, 1961 --Avoidance of tax--Transaction in securities Colorable transaction due to non-registration of units in actual holder's name--Assessee-Non-banking finance company purchased and sold units of units of nit trust of India from Bank of America and claimed loss on same to be set-off against capital gain. Assessing officer disallowed the claim holding section 94(4) would be applicable and also benefit of section 80M was not available as Bank of America was foreign company and also there was avoidance of tax by owner Bank of America as even after sale the units were registered in the name of assessee. *Held:* Was not justified as section 94 came into effect from 1-4-2002, the provisions are not applicable to the assessment under consideration and revenue had accepted the transfer, the transaction cannot be sustained to be a colourable one merely due to non-registration of units in the actual holder's name. Income Tax Act, 1961 Section 94 Income Tax Act, 1961 Section 80M In the Madras High Court Chitra Venkataraman & K. Ravichandra baabu, JJ. Sundaram Finance Ltd. v. Dy. CIT Tax Case (Appeal) No. 1211 of 2005 20 June, 2012 Appellant by : R. Vijayaraghavan Respondent by : T. R. Senthil Kumar 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 the loss? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in restoring the order of the assessing officer, without appreciating the fact that the assessing officer has ignored the entire transaction by invoking the 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 carried forward as short term capital loss and to be set off against capital gains of later years. The assessing authority pointed out that Unit Trust of India had a record date for those units on 31-5-1991 and for the whole month of June 1991 no transaction of sale or purchase would be recorded and the books stood remained closed. Thus the units transferred upto 31-5-1991 would be entitled to dividend for the year 1990-91. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0297 (Mad-HC) : (2012) 211 TAXMAN 0303

INCOME TAX ACT, 1961

--Avoidance of tax--Transaction in securities Colorable transaction due to non-registration of units in actual holder's name--Assessee-Non-banking finance company purchased and sold units of units of nit trust of India from Bank of America and claimed loss on same to be set-off against capital gain. Assessing officer disallowed the claim holding section 94(4) would be applicable and also benefit of section 80M was not available as Bank of America was foreign company and also there was avoidance of tax by owner Bank of America as even after sale the units were registered in the name of assessee. Held: Was not justified as section 94 came into effect from 1-4-2002, the provisions are not applicable to the assessment under consideration and revenue had accepted the transfer, the transaction cannot be sustained to be a colourable one merely due to non-registration of units in the actual holder's name.

Income Tax Act, 1961 Section 94

Income Tax Act, 1961 Section 80M

In the Madras High Court

Chitra Venkataraman & K. Ravichandra baabu, JJ.

Sundaram Finance Ltd. v. Dy. CIT

Tax Case (Appeal) No. 1211 of 2005

20 June, 2012

Appellant by : R. Vijayaraghavan

Respondent by : T. R. Senthil Kumar

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 the loss?

2. Whether on the facts and in the circumstances of the case, the Tribunal was right in restoring the order of the assessing officer, without appreciating the fact that the assessing officer has ignored the entire transaction by invoking the 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 carried forward as short term capital loss and to be set off against capital gains of later years. The assessing authority pointed out that Unit Trust of India had a record date for those units on 31-5-1991 and for the whole month of June 1991 no transaction of sale or purchase would be recorded and the books stood remained closed. Thus the units transferred upto 31-5-1991 would be entitled to dividend for the year 1990-91.