| The Tax Publishers2021 TaxPub(DT) 2458 (Hyd-Trib) INCOME TAX ACT, 1961
Section 14A Rule 8D
The Supreme Court in the case of Maxopp Investment Ltd. v. CIT (2018) 91 taxmann.com 154 (SC) : 2018 TaxPub(DT) 1403 (SC), held that though stock-in-trade in shares cannot be considered as investment, however, since dividend earned on shares held as stock-in-trade was incidental to business activity of assessee, the expenditure to the extent incurred in acquiring those shares yielding dividend income had to be disallowed under section 14A on some reasonable basis, i.e., by applying theory of apportionment of expenditure between taxable and non-taxable income. Accordingly, the instant issue was remanded to AO with a direction to decide the same following the said case of the Supreme Court.
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Disallowance under section 14A - Expenditure against exempt income - Assessee engaged in business of trading in securities/derivatives and commodities - Dividend income on stocks
Assessee-firm was engaged in business of trading in securities/derivatives and commodities. AO observed that the assessee received dividend income on some stocks, which was claimed as exempt income. AO further, observed that the assessee claimed that no expenditure was incurred towards earning of exempt income, but, according to the AO, some portion of other expenses attributable and related to earning of dividend income were required to be disallowed under section 14A read with section rule 8D. Accordingly, the AO made disallowance under section 14A read with rule 8D(2)(ii) and 8D(2)(iii). On appeal, CIT(A) restricted such disallowance by holding that the entire interest expenditure was eligible for deduction under section 36(1)(iii). Aggrieved, Revenue was in appeal. Held: The Supreme Court in the case of Maxopp Investment Ltd. v. CIT (2018) 91 taxmann.com 154 (SC) : 2018 TaxPub(DT) 1403 (SC), held that though stock-in-trade in shares cannot be considered as investment, however, since dividend earned on shares held as stock-in-trade was incidental to business activity of assessee, the expenditure to the extent incurred in acquiring those shares yielding dividend income had to be disallowed under section 14A on some reasonable basis, i.e., by applying theory of apportionment of expenditure between taxable and non-taxable income. Accordingly, the instant issue was remanded to AO with a direction to decide the same following the said case of the Supreme Court. Further, the AO was directed that the disallowance under rule 8D(2)(iii) should be made @0.5% on average value of the investments from which the exempt income had been received.
Followed:Maxopp Investment Ltd. v. CIT (2018) 91 taxmann.com 154 (SC) : 2018 TaxPub(DT) 1403 (SC)
REFERRED :
FAVOUR : Matter remanded
A.Y. :
IN THE ITAT, HYDERABAD BENCH
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