Q & A corner

 I bought 1,000 shares in BPCL cum dividend. The dividend paid was at Rs 13 per share on July 10, 2003. I sold them on July 16, 2003 at Rs 285 ex-dividend at Rs 280 resulting in a short term capital loss of Rs 5,000.  Can this short-term capital loss be set off against any other short-term capital gain from other shares? Will the dividend of Rs 13,000 be tax-free?  I am making the above query because a few years ago there was a provision that shares had to be held for at least six months to make the dividend tax free.  Kindly let me know how the current provisions on dividends work (i.e. whether shares have to be held for a period of time to make the dividend tax free).

Sunil Kapoor

 After a dividend is issued by a company of UTI/MF, the ex-dividend price normally comes down approximately to the extent of the dividend payout.

 Some assessees used to indulge in dividend stripping, meaning that just before the record date for dividend, purchase securities or units, pocket the dividend and immediately afterwards sell the instrument to earn short-term capital loss.  To curb this practice FA01 introduced Section 14A with effect from FY 61-62 i.e., since the inception of ITA, so as to clarify the intention of the legislature that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act.  The dividend, if tax-free, so is the capital gain, since the word used is