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| The Tax Publishers2020 TaxPub(DT) 2254 (Kol-Trib) INCOME TAX ACT, 1961
Section 14A
Though shares were held as stock-in-trade, however, dividend earned thereon was exempt under section 10(34) and accordingly, disallowance under section 14A was required to be made.
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Disallowance under section 14A - Expenditure against exempt income - Assessee pleading to have held shares as stock-in-trade -
Assessee earned tax free dividend income on shares but claimed no disallowance under section 14A. AO invoked section 14A read with rule 8D and made disallowance. Assessee contended that main business of assessee was to purchase and sale of shares therefore shares held as stock-in-trade should not be taken to compute disallowance under section 14A. Held: When the shares are held as 'stock-in-trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of section 10(34) this dividend income is not to be included in total income and is exempt from tax. This triggers the applicability of section 14A which is based on the theory of apportionment of expenditure between taxable and non-taxable income. Accordingly, AO was directed to compute disallowance under section 14A read with rule 8D in respect of shares held in 'stock-in-trade' by applying theory of apportionment of expenditure and taking into account only those shares which yielded dividend income.
Relied:Maxopp Investment, (2018) 402 ITR 640 (SC) : 2018 TaxPub(DT) 1403 (SC).
REFERRED :
FAVOUR : Matter remanded.
A.Y. : 2011-12
INCOME TAX ACT, 1961
Section 14A Rule 8D(2)(ii)
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