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SECTION 14A- some important aspects not yet considered by courts. Some suggested contentions / questions for appeal

Income Tax - Direct Tax Code - DTC - By: - CA DEV KUMAR KOTHARI - Dated:- 20-10-2015 - Section 14A was inserted in relation to income not taxed in any manner : S.14A was inserted to avoid deduction of expenses, where tax exemptions were allowed in respect of some type of incomes which did not form part of gross total income as well as total income under income-tax Act and such incomes were not taxed by any other alternate method of tax on income. In other words income was not at all taxable. Sec .....

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adras Versus Indian Bank Limited 1964 (10) TMI 14 - SUPREME Court- relating to tax free bonds - interest income was altogether exempt and was not taxed under any other system of tax on income. Rajasthan State Warehousing Corporation Versus Commissioner of Income-Tax 2000 (2) TMI 5 - SUPREME Court relating to total exemption from income -tax of eligible incomes. In this cases also the income was exempted u/s 10 and was not taxed under any other scheme of tax on income. Therefore, it is clear that .....

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uneration, Interest on capital and current account. Commission, guarantee commission, rent, any other income. Only share in profit of firm, when firm has paid tax is exempted in hands of partner. From same investment taxable income are earned which have more probability than earning tax free income. The ratio of exempted income will also be very low. Investment in securities Short-term capital gains, Trading gains, Arbitrage gains, Security lending gains. Remuneration received from companies as .....

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.14A: Provision of section 14A. In sub-section words used are as follows: For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. unquote The expression … in relation to income which does not form part of the total income under this Act. is used in other sub-sections of section 14A and relevant Rules also. In the Inc .....

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his expression is used in relation to total income of assessee which is computed as per provisions of the Chapter IV that is Sections 14- 59. which does not form part of the total income under this Act. Here total income under this Act means any income on which tax is not imposed under the entire Act whether directly or indirectly. The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act The AO .....

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ome under this chapter or which does not form part of total income of assessee instead of words which does not form part of the total income under this Act. The Income tax Act is a self-contained and integrated code. As per scheme of the Act, some incomes are taxable in hands of the recipient of income whereas some incomes are taxable in hands of person who pays or distribute income. When a tax is finally collected at distribution stage, then the income in respect of which such tax is collected .....

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e are income-tax, finally collected. Therefore, all such income on which tax is imposed indirectly are income which form part of total income under the Income-tax Act for the purpose of levy of tax on income. It cannot be said that such income do not form part of total income under this Act to which S. 14A apply. Decided cases: As per understanding of author on reading of various important judgments on Section 14A, author observe that the above aspect of two different expressions used in S.14A h .....

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o different expressions used in S.14A namely (i) computing the total income under this Chapter and (ii … in relation to income which does not form part of the total income under this Act ? The language in first phrase in S.14A that is (i) is in relation to computation of income of assessee under Chapter IV. There can be exclusion of income in this computation but the same income can be included in chargeable income in other provisions e.g. S.115JB, 115O, 115R and provisions for Security T .....

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re in nature of income-tax imposed in lieu of income-tax in hands of shareholder. The exemption allowed to shareholder/ investor is only because DDT and STT are imposed and not in other situation. It can be said that S.14A will be applicable only in cases of income which is not taxed in any direct or indirect manner under any scheme of taxation e.g. S. 115JB, S 115O, S. 115R , tax paid by firms, and simplified tax on transactions in securities, by way of imposing STT. Only income like agricultur .....

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emption for dividend is allowed only when DDT is paid. When DDT is not paid dividend is taxable in hands of shareholder (e.g. in case of deemed dividend, and dividend by co-operative societies and also in period when DDT was not in force). Long-term capital gains are exempted only when STT is paid , at the time of transfer of security, and not when STT is not paid. For example, in case of off market transactions in any shares whether listed or not STT is not paid and gains are not exempt but tax .....

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