Income Tax Act, 1961

--Disallowance under section 14A--Expenditure against exempt income Investment made out of own funds--Assessee earned dividend on shares from its investment in shares and the same was claimed to be exempt under section 10(33). Assessing officer made a disallowance by invoking the provisions of section 14A in respect of interest expenses incurred by assessee in relation to exempt dividend income. Commissioner (Appeals) deleted the said disallowance after accepting assessee's plea that the said investment was made by assessee out of its own funds Tribunal also upheld the decision of Commissioner (Appeals). Held: The dividend earned on shares by the respondent-assessee was from its investments in shares out of the respondent-assessee's own funds. Consequently, the question of invoking section 14A of the Income Tax Act, 1961 to disallow expenditure would not arise.

Income Tax Act, 1961, Section 14A

Income Tax Act, 1961

--Income --Accrual Guarantee commission--Assessee received commission from its client to provide guarantee in the year of agreement i.e. in the year 2000-01. It offered to tax the said commission to the extent attributable to the period ended 31-3-2001 in assessment year 2001-02 on accrual basis and balance sum attributable to the financial year ended 31-3-2002 was offered to tax in assessment year 2002-03. According to assessee, the system of offering guarantee commission on accrual basis was being consistently followed by it. Assessing officer, however, did not accept the same and brought to tax the entire guarantee commission in the hands of assessee for the assessment year 2001-02. Commissioner (Appeals) and the Tribunal held that the deferred guarantee commission should be spread over the period of the guarantee proportionately. Held: The income earned from deferred guarantee commission did not accrue or arise to an assessee in the year in which the guarantee agreements were entered into but should be spread over the period of the guarantee proportionately.