TMI Blog2006 (8) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(33) it does not form part of the total income of shareholder and, therefore, the expenditure incurred by the shareholder in earning that income would not be allowable. We hold that the interest paid on borrowed funds utilized for the purpose of investment in shares is not to be allowed as either an expenditure or as part of cost of acquisition of the shares in view of the provisions of section 14A of the Act. The appeal of the assessee is rejected. In the result, the appeal filed by the assessee is dismissed. - HON'BLE K. K. BOLIYA., ACCOUNTANT MEMBER AND SUSHMA CHOWLA, JUDICIAL MEMBER For the Appellant : Pradeep Kapasi For the Respondent : T. M. Shivkumar ORDER Ms. Sushma Chawla, Judicial Member 1. This appeal by the assessee is against the order of CIT(A), Central-III, Mumbai dated 23-10-2002 relating to assessment year 1999-2000 against the order under section 143(3) of the Income-tax Act, 1961. 2. The assessee has raised the following grounds of appeal: 1. Disallowance of interest: (a) The Ld. CIT(A) erred in law and on facts in upholding the order of the Assessing Officer for disallowing interest of Rs. 2,81,889/- while assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d income is exempt during the year under consideration. With regard to the interest on funds borrowed for investment in house property, the assessee claimed that the same was fully deductible under the provisions of section 24(1) of the Income-tax Act. The claim of the assessee, with regard to the interest paid on borrowings for investment in house property amounting to Rs. 40,300/- was allowed by the CIT(A) and the balance disallowance of interest of Rs. 2,81,889/-, in view of the provisions of section 14A of the Income-tax Act was confirmed by the CIT(A). The assessee is aggrieved and hence this appeal. 5. The learned AR for the assessee submitted that the borrowings for acquiring the shares were made in 1993 and the interest on such borrowings was claimed and allowed as a deduction from year to year. The claim of interest was also allowed to the assessee in assessment year 1998-99 by way of an order under section 143(3) of the Income-tax Act, though the order is a non-speaking order. The dividend income, which was taxable in earlier years was exempted from tax under the provisions of section 10(33) of the Income-tax Act, by way of subsequent legislations. The exemption provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. Section 2(24) defines income which in addition to all the other incomes also includes dividend as per clause (ii) to section 2(24) of the Income-tax Act. Section 2(45) defines total income as total amount of income referred to in section 5 and computed in the manner laid down in this Act. Section 10 of the Income-tax Act specifies the incomes which shall not be included in total income. Section 10(33) provides that income received by way of dividend as referred to in section 115-O of the Income-tax Act are exempt from tax. Section 115-O of the Income-tax Act talks of tax on distributed profits of domestic companies. In other words, the dividend distributed by domestic companies is not taxable in the hands of the recipient, i.e., the shareholder of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n computing the income of the assessee under Chapter IV of the Act, namely, under the five heads stated therein for computation of total income. Regarding the claim of deduction of interest paid on borrowed funds utilized for investment in shares, it was held by Ahmedabad Tribunal as under: ...It was, thus, clear that when the dividend is not taxable at all, the interest pertaining to that would also not be allowable because there is no taxable income of the assessee against which such interest can be allowed. The another way to consider the issue might be that if interest is allowable, it would be allowable against dividend income and the net dividend income after allowing that alone would be excluded from total income under section 10(33). Section 14A was inserted to clarify this intention of the Legislature to set the existing controversy on this issue at rest. With regard to chargeability of additional tax on companies distributing dividend, it was further held by Ahmedabad Tribunal as under: ...The first contention of the assessee was that the dividend had been assessed in the case of the company and, therefore, section 14A did not apply. Income-tax is a levy on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of acquisition of shares onwards. In the instant case before us, it is an admitted position that the borrowed money was utilized for the purpose of investment in shares, from which dividend income is received, which is exempt from tax. In view of the decision of Ahmedabad Bench in the case of Harish Krishnakant Bhatt, the expenditure being interest paid on such borrowings utilized for the purpose of investment in shares is not to be allowed as an expenditure in view of the provisions of section 14A of the Income-tax Act. Though, the learned AR for the assessee had during the course of argument relied upon the aforesaid decision but on the perusal of the same it transpires that the said decision is against the assessee, but does cover the total legal position raised in the instant appeal before us. The learned AR for the assessee had also relied upon the decision of Mumbai Bench in Mafatlal Holdings Ltd.'s case, which has been considered by the Ahmedabad Bench of Tribunal and the reliance on P. Jayantilal Co. (P.) Ltd.'s case is misplaced. 9. The alternate claim of the assessee to allow the interest paid on borrowings for investment in shares as part of its c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
