AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 745
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....f the I.T. 1962. The assessee explained that assessee company was engaged in the business of trading in shares and securities and main motive of the company was not to earn exempt income and the income earned is incidental income to the main income. The assessing officer has not accepted the explanation of the assessee and computed the disallowance u/s. 14A r.w. Rule 8D to the amount of Rs. 2,93,06,231/- and added to the total income of the assessee. 4. The assessee has preferred appeal before the ld. CIT(A). The ld. CIT(A) deleted the addition stating that the assessee received the dividend on shares that were held as stock in trade and not as investment. 5. We have heard the rival contentions and perused the material on record. The assessing officer has made disallowance u/s. 14A of Rs. 2,93,06,231/-. The assessing officer has made aforesaid disallowance after applying section 14A r.w. Rule 8D of IT Rule, 1962. The assessee has claimed before the ld. CIT(A) that he was engaged in the business of trading in shares and securities and the provisions of the section 14A were not applicable to it. It was also submitted that as the assessee was engaged in the business of trading in sh....
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..... CIT (2012) 20 taxmann.com 196. We consider that Hon'ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT (2018) 91 taxmann.com 154 has considered the judgment in the case of Pr. CIT vs. State Bank of Patiala and in the case of CCI Ltd. vs. Jt. CIT for applicability of section 14A of the Act where the shares/stocks were purchased of a company for the purpose of gaining control over the said company or as 'stock in trade'. The Hon'ble Supreme court in the case of Maxopp Investment Ltd. vs. CIT has held that where the shares are held as 'stock in trade' the main purpose is to trade in those shares and earn profits therefrom, in such cases as well, if dividend is also earned though incidentally and it will trigger the applicability of section 14A of the Act and the expenditure in acquiring these shares will have to be apportioned. The relevant of the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT. (2018) 91 taxmann.com 154 is reproduced as under:- "31. We have given our thoughtful consideration to the argument of counsel for the parties on both sides, in the light of various judgments which have been cited before us, some of which hav....
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....stment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section 14A of the Act in mind, the said provision has to be interpreted, particularly, the word 'in relation to the income1 that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act. This is so held in Walfort Share & Stock Brokers (P.) Ltd., relevant passage whereof is already reproduced above, for the sake of continuity of discussion, we would like to quote the following few lines therefrom. "The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total income, then the r....
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....the decision of the Board that no appeal would be filed on this ground by the officers of the Department and if the appeals are already filed, they should be withdrawn. A reading of this circular would make it clear that the issue was as to whether income by way of interest on securities shall be chargeable to income tax under the head 'income from other sources' or it is to fall under the head 'profits and gains of business and profession'. The Board, going by the decision of this Court in Nawanshahar case, clarified that it has to be treated as income falling under the head 'profits and gains of business and profession'. The Board also went to the extent of saying that this would not be limited only to co-operative societies/Banks claiming deduction under Section 80P(2)(a)(i) of the Act but would also be applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies. 38. From this, Punjab and Haryana High Court pointed out that this circular carves out a distinction between 'stock-in-trade' and 'investment' and provides that if the motive behind purchase and sale of shares is to earn profit, then the same would be....
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....d as 'stock-in-trade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenu....