Section 94 of Income Tax Act for AY 2023-24

Amended and updated notes on section 94 of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to avoidance of tax by certain transactions in securities.

Chapter X (Sections 92 to 94B) of the Income Tax Act 1961 deals with the provisions related to special provisions relating to avoidance of tax. Section 94 of IT Act 1961-2022 provides for avoidance of tax by certain transactions in securities.

Recently, we have discussed in detail section 93 (Avoidance of income-tax by transactions resulting in transfer of income to non-residents) of IT Act 1961.

Today, we learn the provisions of section 94 of Income-tax Act 1961 as amended by the Finance Act 2022. The amended provision of section 94 is effective for financial year 2022-23 relevant to the assessment year 2023-24.

In this article, you will learn detail of the provisions of section 94 of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.

Section-94: Avoidance of tax by certain transactions in securities

Section 94 (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 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):

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):

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):

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):

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):

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):

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):

Where—

(a) any person buys or acquires any securities or units within a period of three months prior to the record date;

(b) such person is allotted additional securities or 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 securities or 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 securities or 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 securities or 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 securities or units referred to in clause (b) as are held by him on the date of such sale or transfer.

[Sub0section (8) in Section 94 amended (substituted) w.e.f. 1-April-2023 by the finance Act 2022]

Explanation: For the purposes of this section,—

(a) “interest” includes a dividend;

(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;