Tuesday, May 16, 2017

Dividend income to attract Sec. 14A disallowance even if DDT is paid on it, rules Apex Court

The issue before the Supreme Court was as under:

Whether dividend income would attract Section 14A disallowance even if Dividend Distribution Tax is paid as per Section 115-0

The Supreme Court held in favour of revenue as under:-

1) The object behind the introduction of Section 14A is clear and unambiguous. The legislature intended to check the claim of allowance of expenditure incurred on exempt income in a situation where an assessee has both exempted and non-exempted income or includible or non-includible income.

2) If the income in question is taxable and, includible in the total income, the deduction of expenses incurred in relation to such an income must be allowed. Such deduction would not be permissible on dividend income merely on the ground that the dividend distribution tax paid on dividend.

3) A plain reading of Section 14A would go to show that the income must not be includible in the total income of the assessee. Once the said condition is satisfied, the expenditure incurred in earning the said income cannot be allowed to be deducted.

4) Thus, the phrase "income which does not form part of total income under this Act" appearing in Section 14A includes within its scope dividend income on shares in respect of which tax is payable under Section 115-O. [2017] 81 taxmann.com 111 (SC)

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