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S.14A may not be applicable even if some dividend is earned incidentally when commercially expedient investment in shares for business purposes is made

Income Tax - By: - CA DEV KUMAR KOTHARI - Dated:- 7-11-2016 - Recent judgment on issue: Assistant Commissioner of Income-tax, Circle-36, Kolkata Versus Shri Rikhab Chand Jain and Vica-Versa 2016 (7) TMI 613 - ITAT KOLKATA 2016 (7) TMI 613 Cases referred to their in: Hero Cycles (P.) Ltd. Versus Commissioner of Income-tax (Central) , Ludhiana - 2015 (11) TMI 1314 - SUPREME COURT OF INDIA on issue of business purposes / expediency and non-business purposes. SA BUILDERS LTD. Versus COMMISSIONER OF .....

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NER OF INCOME-TAX - 2006 (12) TMI 82 - SUPREME COURT on issue of business purposes / expediency and non-business purposes. Madhav Prasad Jatia Versus Commissioner of Income-Tax, Uttar Pradesh - 1979 (4) TMI 2 - SUPREME Court - on issue of business purposes / expediency and non-business purposes. Commissioner of Income-Tax, West Bengal I Versus Birla Cotton Spinning 1971 (8) TMI 9 - SUPREME Court - on issue of business purposes / expediency and non-business purposes. Commissioner Of Income-Tax, K .....

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ses. Decision in case of Shri Rikhab Chand Jain on S.14A: On reading of the judgment we find the following important aspect: When investment has been made for business purposes/ strategic investment from which other taxable income has also been derived, S. 14A is not applicable. When investment in shares has been made out of own funds and not out of borrowed funds, a portion of interest expenditure cannot be disallowed by invoking S.14A merely because dividend has been earned incidentally. What .....

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en considered. As per author dividend is not an income which does not constitute total income under the Act. Dividend which is taxed u/s 115O and 115R is not an income not taxable under the Act. Therefore, S.14A is not applicable in relation to dividend earned by shareholders or unit holders, in respect of which tax is levied as finally collected tax under simplified scheme of tax on income by way of dividend. Secondly, declaration of dividend is totally under discretion of management of company .....

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f S.14A not contended: We find two sets of wordings in the sub-section (1) these are given in first column and in second column significance is discussed: Words uses Significance total income under this Chapter, This 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 impo .....

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is used in relation to 'total income of assessee' which is to be computed under Chapter IV. We find that the second expression 'total income under this Act' used in sub-section (1) and (2) both, this expression means chargeable or taxable income under the entire Income-tax Act. If it was intended only in relation to the assessee whose income is to be computed, then similar expression could have been used that is 'which does not form part of total income under this chapter or .....

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tribution stage, then the income in respect of which such tax is collected is nothing but tax on income. Therefore, it cannot be said that such income does not form part of total income under this Act. Once it is found that dividend forms part of 'total income under this Act', and a taxable income is computed, and tax is imposed and collected, then S.14A will not at all be applicable in relati)on to such income which has already been include in taxable income in some other scheme of impo .....

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