The rule is very simple. See in Income tax you must always think in favour of revenue first and then it will be more clear. See in Mutual Funds what happens is teh dividend is exempt as per IT and there is also an allowance of Short Term Capital Loss for loss in excess of Income.
Now if you see the persons with malified intentions shall buy the MF Units and earn huge dividends and immediately may sell of the units to claim loss. This is because once the dividend is declared the value of Units also comes down.
So thereby the Assessee gets dual benefit which unjust from the revenue perspective. Accordingly Sec.94(7) and also the circular issued on its applicability provides that the STCL shall not be allowed when there is Dividend stripping and for this holding teh units for 9 months is proposed.
Now you read the details in this link and then also see the case law given in the link. Though the case law is big, you can learn more from the facts. SO you can see and revert to me. I am also posting this reply to your experts query for benefit of others.
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