2019 (11) TMI 342 - HC - Income Tax

Disallowance of contribution made to the Employees Provident Fund Trust - legitimate business expenditure - HELD THAT - Principal Commissioner of Income Tax -07 vs. Punjab and Sind Bank 2017 (9) TMI 1528 - DELHI HIGH COURT although contributions to the pension funds may not be allowable under Section 36 (1) (iv) of the Act, the same is allowable under Section 37 Disallowance of expenditure u/s 14A - HELD THAT - As decided in Maxopp Investment Ltd vs. CIT 2018 (3) TMI 805 - SUPREME COURT whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. The Tribunal has held in favour of the respondent assessee that it had earned the revenue on the shares held as stock in trade only by a quirk of fate.

Summary

Issues:
Delay in filing applications for condonation, Disallowance of contribution to Employees Provident Fund Trust, Disallowance of expenditure under Section 14A.

Delay in filing applications for condonation:
The applicant sought condonation of a 107-day delay in filing two applications, which was then condoned by the court for reasons stated in the applications.

Disallowance of contribution to Employees Provident Fund Trust:
The appeals were against the Tribunal's order dismissing the appellant's appeals regarding the disallowance of contribution to the Employees Provident Fund Trust claimed as legitimate business expenditure. The Tribunal upheld the order passed by CIT (A) in favor of the respondent assessee. The issue was found to be fully covered by a decision of the Court in a previous case. The Court declined to frame a question on this issue as it had already taken a view on the matter, stating that no question of law arises on this aspect.

Disallowance of expenditure under Section 14A:
Regarding the disallowance of expenditure under Section 14A, the ITAT relied on a Supreme Court decision which emphasized the apportionment of expenditure between taxable and non-taxable income. The Court noted that where shares are held as stock-in-trade, the main purpose is to trade and earn profits, and dividend income earned incidentally is exempt from tax. The Court clarified the law regarding the treatment of dividend income in different scenarios. The Tribunal's decision in favor of the respondent assessee was upheld, stating that no question of law arises for consideration in the present appeal.

In conclusion, the Court dismissed the appeals based on the aforementioned issues, stating that no question of law arose for consideration in the appeals.