Section 94(7) of the Income Tax Act
Income-tax Act, 2025: s.175
Section 94(7) falls under section 94 of the Income-tax Act, 1961, which corresponds to section 175 (Avoidance of tax by certain transactions in securities) of the Income-tax Act, 2025.
Read section 175 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 94(7) is CIT v. Walfort Share & Stock Brokers (P.) Ltd. (326 ITR 1), cited in 543 of the 130 judgments on BharatTax that turn on this section.
Leading authorities on Section 94(7)
For attracting Section 14A disallowance, there must be a proximate cause relating the expenditure to actual tax-exempt income, and such disallowance is not automatic but requires positive material. Additionally, Section 94(7) on dividend stripping only ignores losses to the extent of dividend received for assessment years post-April 1, 2002, allowing the remaining loss.
Disallowance of expenditure under Section 14A requires a proximate cause establishing the relationship between the expenditure and the exempt income. The expenditure must have a real, dominant, and immediate relationship with income not forming part of the total income.
The court examines a transaction involving the purchase and sale of UTI units with a short holding period, highlighting the cum-dividend purchase in relation to a booking closing date.
