Where the assessee bought units of a mutual fund, received tax-free dividend thereon and immediately thereafter redeemed the units and claimed the difference between the cost price and redemption value as a loss and the same had been upheld by a Five Member Special Bench of the Tribunal as a genuine loss, HELD affirming the order of the Special Bench that:
(i) S. 94(7) was inserted prospectively w.e.f. 1.4.2002 to disallow dividend stripping losses. If the argument of the Revenue that even transactions prior to s. 94(7) can be disallowed is accepted, it will render s. 94(7) redundant and also lead to anomalous results.(ii) CBDT Circular No. 14 of 2001 makes it clear that prior to s. 94(7) the loss was allowable. This Circular is binding on the revenue and they cannot argue contrary to that.
(iii) Even otherwise it was not established that the motive was to earn a loss. The allegation that there was complicity between the mutual funds, the brokers and the assessee was also without merit. Mc Dowell 154 ITR 148 (SC) and Azadi Bachao Andolan 263 ITR 706 (SC) considered.
(iv) The alternative argument that the loss should be treated as expenditure incurred to earn dividend and disallowed u/s 14A is also without merit.