{"id":5090,"date":"2012-06-26T10:03:00","date_gmt":"2012-06-26T10:03:00","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=5090"},"modified":"2012-06-26T10:03:00","modified_gmt":"2012-06-26T10:03:00","slug":"avshesh-mercantile-p-ltd-vs-dcit-itat-mumbai-no-s-14a-disallowance-if-tax-free-investments-capable-of-taxable-income","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/avshesh-mercantile-p-ltd-vs-dcit-itat-mumbai-no-s-14a-disallowance-if-tax-free-investments-capable-of-taxable-income\/","title":{"rendered":"Avshesh Mercantile P. Ltd. vs. DCIT (ITAT Mumbai)"},"content":{"rendered":"\n\n
Click here to download the judgement (avshesh_14A_tax_free_taxable_income.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nNo s. 14A disallowance if tax-free investments capable of taxable income
\n<\/strong><\/p>\n

The assessee, an investment company, issued optionally convertible premium notes which entitled the holder thereof to a premium on redemption. The proceeds of the issue was invested by the assessee in acquiring the shares of Reliance Utilities and Power Ltd (\u201cRUPL\u201d), the income whereof was exempt u\/s 10(23G)<\/em>. The assessee claimed a deduction of the premium paid to the holders of the notes which was rejected by the AO & CIT (A) on the ground the expenditure was incurred in respect of tax-free income and so deduction could not be allowed u\/s 14A<\/em>. Before the Tribunal, the assessee argued that s. 14A could not apply because (a) though the dividends and LTCG on the shares of RUPL were exempt u\/s 10(23G), the STCG & stock-lending income were not exempt and (b) the assessee had in fact not received any tax-free income on the shares. HELD upholding the assessee\u2019s plea:<\/p>\n

(i) Though the proceeds of the premium notes on which the redemption premium was paid had been invested in the shares\/debentures of RUPL and although the dividend income and LTCG from the said investment was exempt u\/s 10(23G), the premium cannot be regarded as expenditure incurred exclusively<\/em> in relation to earning of exempt income<\/strong> so as to invoke s. 14A because the said investment had the potential of generating taxable income in the form of STCG etc<\/strong>;<\/p>\n

(ii) Further, as no taxable income was actually earned<\/strong> by the assessee, disallowance u\/s 14A was not sustainable. (Delite Enterprises<\/a><\/strong> followed). The fact that in Delite Enterprises<\/a><\/strong>, the appeal was dismissed on the ground that no Q of law arises does not mean<\/strong> that it is not a decision on merits<\/strong>. Even a dismissal of an appeal on the ground that no Q of law arises results in a merger (Nirma Industries<\/strong> 283 ITR 402 (Guj) followed)<\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

hough the proceeds of the premium notes on which the redemption premium was paid had been invested in the shares\/debentures of RUPL and although the dividend income and LTCG from the said investment was exempt u\/s 10(23G), the premium cannot be regarded as expenditure incurred exclusively<\/em> in relation to earning of exempt income<\/strong> so as to invoke s. 14A because the said investment had the potential of generating taxable income in the form of STCG etc<\/strong><\/p>\n

Read more ›<\/a><\/div>\n

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