Perry4Law
and Perry4Law’s
Techno Legal Base (PTLB) have already discussed the legal issues
pertaining to transfer
pricing laws in India. We have also discussed avoidance
of income-tax by transactions resulting in transfer of income to non
residents.
In this article we would discuss a related concept
that results in tax evasion by mode of certain transactions in
securities.
Section 94 (1) of the Act provides that where the
owner of any securities (in this sub-section and in subsection (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 sub-section 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 income-tax than he would have been
under if the original securities had been bought back or reacquired.
Section 94 (2) of the Act provides that where any
person has had at any time during any previous year any beneficial
interest in any securities, and the result of any transaction
relating to such securities or the income thereof is that, in respect
of such securities within such year, either no income is received by
him or the income received by him is less than the sum to which the
income would have amounted if the income from such securities had
accrued from day to day and been apportioned accordingly, then the
income from such securities for such year shall be deemed to be the
income of such person.
Section 94 (3) of the Act provides that the
provisions of sub-section (1) or sub-section (2) shall not apply if
the owner, or the person who has had a beneficial interest in the
securities, as the case may be, proves to the satisfaction of the
Assessing Officer-
(a) That there has been no avoidance of income-tax,
or
(b) That the avoidance of income-tax was exceptional
and not systematic and that there was not in his case in any of the
three preceding years any avoidance of income-tax by a transaction of
the nature referred to in sub-section (1) or sub-section (2).
Section 94 (4) of the Act provides that 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 sub-section (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.
Section 94 (5) of the Act provides that sub-section
(4) shall have effect, subject to any necessary modifications, as if
references to selling back or retransferring the securities included
references to selling or transferring similar securities.
Section 94 (6) of the Act provides that the
Assessing Officer may, by notice in writing, require any person to
furnish him within such time as he may direct (not being less than
twenty-eight days), in respect of all securities of which such person
was the owner or in which he had a beneficial interest at any time
during the period specified in the notice, such particulars as he
considers necessary for the purposes of this section and for the
purpose of discovering whether income-tax has been borne in respect
of the interest on all those securities.
Section 94 (7) of the Act provides that where-
(a) Any person buys or acquires any securities or
unit within a period of three months prior to the record date;
(b) Such person sells or transfers-
(i) Such securities within a period of three months
after such date; or
(ii) Such unit within a period of nine months after
such date;]
(c) The dividend or income on such securities or
unit received or receivable by such person is exempt, then, the loss,
if any, arising to him on account of such purchase and sale of
securities or unit, to the extent such loss does not exceed the
amount of dividend or income received or receivable on such
securities or unit, shall be ignored for the purposes of computing
his income chargeable to tax.
Section 94 (8) of the Act provides that where-
(a) Any person buys or acquires any units within a
period of three months prior to the record date;
(b) Such person is allotted additional units without
any payment on the basis of holding of such units on such date;
(c) Such person sells or transfers all or any of the
units referred to in clause (a) within a period of nine months after
such date, while continuing to hold all or any of the additional
units referred to in clause (b), then, the loss, if any, arising to
him on account of such purchase and sale of all or any of such units
shall be ignored for the purposes of computing his income chargeable
to tax and notwithstanding anything contained in any other provision
of this Act, the amount of loss so ignored shall be deemed to be the
cost of purchase or acquisition of such additional units referred to
in clause (b) as are held by him on the date of such sale or
transfer.
Explanation.-For the purposes of this section,
(a) “Interest” includes a dividend;
(aa) “Record date” means such date as may be
fixed by-
(i) A company for the purposes of entitlement of the
holder of the securities to receive dividend; or
(ii) A Mutual Fund or the Administrator of the
specified undertaking or the specified company as referred to in the
Explanation to clause (35) of section 10, for the purposes of
entitlement of the holder of the units to receive income, or
additional unit without any consideration, as the case may be;
(b) “Securities” includes stocks and shares;
(c) Securities shall be deemed to be similar if they
entitle their holders to the same rights against the same persons as
to capital and interest and the same remedies for the enforcement of
those rights, notwithstanding any difference in the total nominal
amounts of the respective securities or in the form in which they are
held or in the manner in which they can be transferred;
(d) “Unit” shall have the meaning assigned to it
in clause (b) of the Explanation to section 115AB.
