The Tax PublishersITA No. 6219/Del./2016
2020 TaxPub(DT) 5609 (Del-Trib)INCOME TAX ACT, 1961
Section 14A Rule 8D(2)(iii)
if expenditure was incurred on earning the dividend income, that much of the expenditure which was attributable to dividend income was to be disallowed and could not be treated as business expenditure, though assessee might have made investment in order to gain control over investee company.
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Disallowance under section 14A - Expenditure against exempt income - Assessee pleading for no disallowance on account of exempt income earned on shares held as investments -
Assessee company earned Rs. 1,79,87,000 by way of dividend and claimed the same as exempt. Assessee pleaded that assessee company earned Rs. 1,79,87,000 by way of dividend and claimed the same as exempt. Assessee pleaded that since no dividend income was earned by assessee on shares held as investment, no disallowance was called for under section 14A. However, AO relying upon CBDT Circular No. 5/2014, dated 11-2-2014 which makes distinction between dividend earned from investment and income from investment/stock-in-trade, invoked the provisions contained under section 14A read with rule 8D and proceeded to make disallowance of Rs. 88,28,814 under section 14A read with rule 8D(2)(iii). Held: Dominant purpose for which investment into shares was made by assessee could not be relevant. No doubt, assessee might have made investment in order to gain control over investee company. However, that did not appear to be a relevant factor in determining the issue. Fact remains that such dividend income was non-taxable. In this scenario, if expenditure was incurred on earning the dividend income, that much of the expenditure which was attributable to dividend income was to be disallowed and could not be treated as business expenditure. Admittedly, assessee company earned dividend income of Rs. 1,79,87,005 and incurred administrative and operative expenses and share trading expenses to the tune of Rs. 3,14,48,275 as against total trading of shares carried out during the year from which profits was earned to the tune of Rs. 2,39,19,454, apportionment of the expenditure qua strategic and non-strategic investment in shares was to be done and disallowance by way of applying rule 8D(2)(iii) on average value of stock-in-trade was not applicable. So, AO was directed to compute disallowance by way of apportionment of expenditure incurred by assessee in relation to exempt income by segregating expenditure qua strategic and non-strategic investment in shares.
Followed:Maxopp Investment Ltd. v. CIT Civil Appeal Nos. 104-109 of 2015 judgment dated 12-2-2018 : 2018 TaxPub(DT) 1403 (SC).
REFERRED :
FAVOUR : Partly in assessee's favour.
A.Y. : 2008-09
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