INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Expenditure against exempt income - Assessee pleading non-applicability of section 14A to share of profit received from partnership-firm -

Assessee was a partner in certain firm and received share of profit from the firm but offered no disallowance under section 14A. AO invoked rule 8D and made disallowance. Assessee contended that as share of profit received by assessee company from the partnership firm had already suffered taxes in the hands of firm, therefore, same could not be treated as an income which was exempt from tax within the meaning of section 14A.Held: A plain reading of section 14A would go to show that the income must not be includible in the total income of assessee. Once said condition is satisfied, expenditure incurred towards earning said income cannot be allowed to be deducted. The section does not template a situation where even though the income is taxable in the hands of the profit paying firm the same to be treated as not includible in earning that income must be allowed on the basis that no tax on such income was paid by assessee. Such a meaning, if ascribed to section 14A, would be plainly beyond what the language of section 14A can be understood to reasonably convey. Accordingly expenditure incurred for earning of share of profit in a partnership firm, being exempt under section 10(2A), would be liable for disallowance under section 14A.

Relied:Vishnu Anant Mahajan v. ACIT, ITA No. 3002/Ahd/2009, dated 25-5-2012 : 2012 TaxPub(DT) 2246 (Ahd-Trib)(SB), Godrej & Boyce Manufacturing Company Ltd. v. Dy. CIT (2017) 394 ITR 449 (SC) : 2017 TaxPub(DT) 968 (SC) and Minal Industries Ltd. v. Dy. CIT ITA No. 7419/Mum/2019, dated 31-7-2019 : 2019 TaxPub(DT) 6416 (Mum-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2016-17

INCOME TAX ACT, 1961

Section 14A(2)

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