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TMI Blog2006 (8) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... t represented an expenditure incurred for the purposes of earning dividend and earning profits on sale of shares. (c) Your appellant pleads that the said interest be allowed as a deduction. 2. Interest under sections 234B and 234C (a) The Ld. CIT(A) once again erred in confirming the levy of interest under sections 234B and 234C, which was levied by the learned Assessing Officer without giving any opportunity of hearing and was levied without passing any speaking orders to that effect. (b) Your appellant submits that he has paid interest as per law and that no opportunity of hearing was given before levy of interest. (c) Your appellant pleads that the interest should be deleted." 3. Shri Pradeep Kapasi, learned counsel appeared for the assessee and Shri Sunil Kumar Singh, Departmental Representative appeared for the revenue and put forward their contentions. 4. The brief facts of the case are that the assessee had claimed deduction of interest which is paid on borrowings made for investment in shares and debentures. The claim of the assessee was that the borrowings have been made with effect from financial year 1993-94 onwards for the purpose of investment in shares and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome which do not form part of total income. Reliance was placed on the decision of Hon'ble Calcutta High Court in Royal Calcutta Turf Club v. CIT [1983] 144 ITR 709. The learned AR for the assessee further placed reliance on the under-mentioned decisions: (i) Mafatlal Holdings Ltd. v. Asstt. CIT [2004] 85 TTJ (Mum.) 821 (ii) Harish Krishnakant Bhatt v. ITO [2004] 91 ITD 311 (Ahd.) (iii) P. Jayantilal & Co. (P.) Ltd. v. Dy. CIT [2005] 97 TTJ (Mum.) 100. The learned AR for the assessee made an alternate claim of allowing the aforesaid interest as part of cost of investment and not as cost of improvement to the asset. Reliance was further placed on the under-mentioned decisions for the abovesaid propositions: (i) CIT v. Mithlesh Kumar [1973] 92 ITR 9 (Delhi) (ii) Addl. CIT v. K.S. Gupta [1979] 119 ITR 372 (AP) (iii) CIT v. Maithreyi Pai [1985] 152 ITR 247 (Kar.). The learned DR for the revenue vehemently argued that with the retrospective introduction of section 14A of the Income-tax Act, the provision of law is clear that while computing the income of the person, no deduction of expenditure incurred for earnings exempt income is to be allowed. 6. We have heard the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and no tax is charged in the hands of the recipient by virtue of section 10(33) of the Income-tax Act. 7. Section 14A inserted by Finance Act, 2001 with retrospective effect from 1-4-1962 provides for disallowance of expenditure in relation to income which does not form part of total income. In view of the provisions of section 14A, while allowing the claim of the expenditure, it is to be seen whether the aforesaid expenditure is relatable to any income forming part of total income assessable in the hands of the assessee. 8. In the facts of the present case before us, the assessee had invested borrowed funds for the purchase of shares in the domestic companies in the previous year. The interest paid on such borrowings was claimed and allowed as a deduction against the dividend income earned by the assessee from year to year. By virtue of insertion of section 10(33) with effect from 1-4-1998 by Finance Act, 1997 such dividend income received by the assessee became exempt. During the year under consideration, the assessee had claimed the interest paid on the borrowed funds as a deduction though the dividend income was exempt. The issue before us was considered at length by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income. Section 115-O levies the additional tax on the company and it would be the additional tax within the meaning of and mentioned in section 4. ...Therefore, the amount declared or distributed or paid by way of dividend had not suffered any tax in the hands of the assessee. It was fully exempted in his hand by virtue of section 10(33). Even otherwise the company and shareholder are two different entities and tax paid or payable by the company is not the tax paid or payable by the assessee shareholder." The Ahmedabad Bench of Tribunal concluded by holding that income being exempt from tax, no part of expenditure attributable to earning of such exempted income was to be allowed after the insertion of section 14A and it was held: Section 14A provides for disallowance of expenditure in relation to income which does not form part of the total income. It is assessee's own total income that is to be seen for applying the provisions of section 14A and not that of somebody else. Admittedly by virtue of section 10(33) dividend income is not includible/included in total income of an assessee shareholder. In other words by virtue of section 10(33) it does not form part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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