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TMI Blog2003 (2) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... revolve in a narrow compass. In the computation of income the assessee claimed loss under the head "Other sources" which was arrived at after deducting interest payable to M/s. Pankaj Investments amounting to Rs. 6,41,970. The Assessing Officer called for the details of the investments and loans. Upon verification of details, the Assessing Officer noticed that the interest paid/payable to M/s. Pankaj Investments is not deductible in view of the fact that dividend income is exempt from tax in the hands of the receiver, as per the provisions of section 10(33) read with section 115-O of the Income-tax Act, 1961. Since the income is exempt from tax, the expenditure incurred for earning such income cannot be allowed as deduction under section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo years and it was not possible to link the loan amount with the purpose for which the same was utilised and it was more difficult to decide as to which loan out of several types of loans was repaid, whenever there was a repayment. Learned counsel contended that the Assessing Officer tried to attribute the repayment first towards the loan taken for the purpose of house property, so that the claim of the assessee for interest against house property gets reduced. The learned Authorised Representative further contended that merely because the dividend income from shares is exempt, interest paid/payable on investments towards purchase of shares should not have been disallowed by the Assessing Officer. In order to claim deduction of expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this ground of appeal is allowed." Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue is in appeal before the Tribunal. The learned Departmental Representative submitted that out of the total interest paid by the assessee to Pankaj Investments, a portion is attributable to the interest referable to the amount borrowed from Pankaj Investments and utilised for the purpose of purchase of shares which in turn earned dividend income. Thus, in order to allow claim of deduction of interest referable to such borrowal, the Income-tax Act mandates that the income should be assessable to tax. In other words, if the dividend income is fully exempt the assessee should not be given double advantage in the form of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee pays tax on the dividend income. The tax is collected from the company on behalf of the assessee to whom dividend was to be paid. He has taken us to the various provisions of the Income-tax Act, 1961 and also amendments made from time to time to highlight the intention of the Legislature. He has also referred to the report of the expert group to rationalise and simplify income-tax law wherein the group observed as under : "After discussion, the group came to the conclusion that the better way to realize the revenue from the dividend without causing any hardship to individual shareholder, was to levy a tax on companies, mutual funds and co-operative societies on the profit distributed by them by way of dividend/income. The tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, the first four being specific heads of income, whereas the fifth one is residuary in nature. Income or expenditure has to fall under the specific head of income in which event the claim of the assessee can be considered under such specific head. In the instant case, the assessee appears to have claimed deduction under section 57(iii) of the Income-tax Act, 1961. In order to allow deduction under section 57(iii) the assessee has to show that the dividend income is assessable under section 56 whereas in the instant case, dividend income is exempt from tax by virtue of the provisions of section 10(33) of the Act, 1961. At any rate, section 14A, which was inserted in the statute book with retrospective effect from April 1, 1962, express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders whose income falls below the taxable limit and in their case there may not be any assessable income which is liable to tax even if dividend income is held to be taxable in the hands of such assessees. Hence, if the intention of the Legislature is only to collect the tax from the recipients of the dividend through the medium of the company, then there should have been a provision whereby the company should not be made to pay tax in respect of that part of dividend, which is attributable to assessees who has no taxable income. In the absence of such a provision it cannot be said that the tax is collected from the company though the Legislature intended to collect tax from the recipients of the dividends. At any rate, section 14A is cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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