TaxTMI 
TaxTMI 
2014 (5) TMI 12
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.... Act is available? (iii) Whether the words 'income which does not form part of total income under this Act' used in section 14A of the Income Tax Act, 1961 include the income which is not chargeable to tax pursuant to provisions of Chapter VIA (section 80A to 80U) of the Income Tax Act?" 2. We have heard learned counsel Mr. Varun Patel for the Revenue and with his assistance scrutinized the material on record. Questions proposed though are three in numbers, essentially lead to a single issue as to whether provision of section 14A read with Rule 8D of the I.T. Act and Rules would be applicable to income, not chargeable to tax by virtue of provisions of Chapter VIA (sections 80A to 80U) of the Act? Brief facts necessary for adjudication are as follows: 3. For the the assessment year 2005-06, the assessee filed the return of income. The assessee is a cooperative society engaged in the business of procuring, processing and manufacturing milk and milk products and supply of the same and claimed deduction under section 80IB. In the scrutiny assessment, it was noticed by the assessing officer that the assessee claimed deduction of Rs.2,28,90,110/-under s....
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....10. On the basis of these figures, the vehement contention is that the assessee had sufficient own funds and, therefore, there was no reason to invoke the provisions of Section 14A of the IT Act. The other plank of argument before us is that the assessee has not claimed that any part of income was totally exempt from the Income Tax. But the fact was that the profit as per P & L A/c was Rs.7,80,29,871/- against which the assessee has claimed deduction u/s 80IB and u/s.80P(2) (d) of the IT Act. The total assessable income was computed at Rs.4,00,68,881/-. The assessee has, therefore, argued before us that the provisions of Section 14A cannot be applied to the provisions of Chapter-VIA, i.e., in respect of deductions u/s.80A to Section 80U of the IT Act. The argument of the assessee is that the deduction under the said Chapter is to be made out of the computation of the total income. Those deductions are not like exempted income. So the argument in relation to income which does not form part of the total income, i.e. as income exempt under the Act. In this regard, a decision of ITAT Chennai Bench pronounced in the case of Tamil Nadu Silk Producers Federation Ltd.(supra) has been cited....
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....ded in sections 10 to 13A under Chapter III of the Act. Section 14A was introduced retrospectively with effect from 1.4.1962 by Finance Act, 2001, for the purpose of computing the total income under Chapter IV. And, any expenditure incurred by the assessee in relation to exempted income, for the purpose of computing the total income, while applying section 14A, no deduction shall be allowed. However, there is a clear absence of any reference of deduction to be made in computing the total income as per provision of Chapter IVA in section 14A. Undoubtedly, as provided under Chapter VIA while computing the total income of the assessee from his gross total income in accordance with and subject to the provision of this chapter, the deductions specified are permissible. As a resultant effect, the taxable income of the assessee would surely get reduced and yet there is marked difference between the exempted income and the deduction provided under Chapter VIA. We notice that the investment in shares made by the assessee which earned him the dividend was from his own income. Moreover, from the very provision of section 14A, the same would have no application in respect of the income not be....
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....n of the Revenue that once deduction stands allowed, the "income" in view of the deduction ceases to be a part of the total income, was rejected by the Division Bench of this Court in Dalmia Cement (Bharat) Ltd. [1980] 126 ITR 736 (Delhi), for the following additional reasons:- (1) The word "part" used in the Rule was to describe income fulfilling the description i.e. the category or class of the income. In other words it should indicate an identifiable section, category or class of income rather than mere portion or amount of such income. The question raised should be "whether this income was included" and not "whether any deduction was allowed". The use of the word "part" contemplates a type of income which by its very nature does not form part of the total income. The word "includible" supports that reference to the general nature and class of income rather than factual inclusion. (2) It is not the actual quantification of the income which matters but whether or not income was excluded from the total income. It is the class of incom....
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.... by applying provisions of Chapter IV, V and VI. From this income, deductions are permitted and allowed in terms of Chapter VIA. Deductions do not mean that deduction allowed has the effect that the income, on which deduction is allowed, ceases to be part of the total income. This is not the scheme, effect and purport of the Act. The expression "income which does not form part of the total income" refers to the nature, character or type of income and not the quantum. 34. Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under this Act. It does not state that income which is entitled to deduction under Chapter VIA has to be excluded for the purpose of the said Section. The words "do not form part of the total income under this Act" is significant and important. As noticed above, before allowing deduction under Chapter VIA we have to compute the income and include the same in the total income. In this manner, the income which qualifies for deductions under....