Income Tax Act, 1961 – Can the Assessee claim deduction for expenditure incurred for such income which is exempt from Tax ?
Brief facts
Assessee was a dealer in Shares and Securities. 63 % of the Shares, which were purchased were sold and the income derived therefrom was offered to Tax as Business income. The remaining 37 % of the Shares were retained. It had remained unsold with the assessee, for which assessee had yielded Dividend and didn’t incur any expenditure towards it.
Decision & Reason
As per Section 14A of the Income Tax Act, 1961, the Karnataka High Court held that when no expenditure is incurred by the assessee in earning Dividend Income, which is exempt from payment from Tax no notional expenditure could be deducted from the said income.
Therefore, it cannot be said that the expenditure incurred in acquiring the Shares had to be apportioned to the extent of Dividend Income and that should be disallowed from deductions.