ITO vs. Daga Capital (ITAT Mumbai – Special Bench) (1.7MB)

COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: October 22, 2008 (Date of publication)
AY:
FILE:
CITATION:

Where the Special Bench had to consider whether s. 14A applied with respect to dividend earned by an assessee trading in shares and holding shares as stock-in-trade, HELD:

By the Bench:

(i) S. 14A has an overriding effect and applies to all expenditure in relation to exempt income even though such expenditure would have been allowable under other provisions such as 36 (1) (iii);

(ii) Sub-sections (2) and (3) of s. 14A, though inserted by the F. A. 2006 w.e.f. 1.4.2007, read with Rule 8D, are procedural and clarificatory in nature and apply to pending matters;

By the Majority:

(iii) The words “in relation to” in s. 14A encompass not only the direct expense but also the indirect expense which has any relation to the exempt income. The argument that the words contemplate a “direct and immediate connection” between the expenditure and the exempt income cannot be accepted. Accordingly, the argument that s. 14A cannot apply to shares held as stock-in-trade cannot be accepted. The fact that the dividend income is “incidental” to the purchase of shares is also irrelevant. The question as to whether the onus is on the assessee or the AO for bringing an item of expenditure within s. 14A is also irrelevant in view of Rule 8D;

By the VP, dissenting:

(iv) The words “in relation to” in s. 14A mean a “dominant and immediate connection” between the expenditure and the exempt income. To determine whether there is such a connection, one has to see the object with which the expenditure is incurred. If the expenditure is incurred mainly to earn taxable income and the tax-free income is incidental, there is no such connection and s. 14A does not apply. The onus is on the AO to establish that there is a “dominant and immediate connection” between the expenditure and the exempt income;

(v) In the case of a dealer in shares, the dominant object of acquiring shares is not to earn dividend and consequently s. 14A does not apply.

0 comments on “ITO vs. Daga Capital (ITAT Mumbai – Special Bench) (1.7MB)
4 Pings/Trackbacks for "ITO vs. Daga Capital (ITAT Mumbai – Special Bench) (1.7MB)"
  1. […] Tribunal the department argued that in view of the judgement of the Special Bench of the ITAT in Daga Capital 26 SOT 603 the matter had to be remanded to the AO for applicability of Rule 8D and the judgement […]

  2. […] amount has to be worked out by the AO as per Rule 8D as held the Special Bench judgement in ITO Vs. Daga Capital Management Pvt. Ltd. (2008) 119 TTJ (Mum) (SB) 289. However, the disallowance u/s 14A in the fresh proceedings cannot […]

  3. […] Boyce vs. DCIT, the lead matter challenging the judgement of the Special Bench of the Tribunal in ITO vs. Daga Capital 117 ITD 169 on the applicability of s. 14A & Rule […]

  4. […] I.T.O vs Daga Capital Management (P) Ltd 117 ITD 169 (SB) […]

Discover more from itatonline.org

Subscribe now to keep reading and get access to the full archive.

Continue reading