TaxTMI 
TaxTMI 
2022 (7) TMI 451
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....n restricting the disallowance of Rs.10,62,10,110/- under Section 14A of the Income Tax Act, 1961 to the extent of income claimed exempt for the AY under consideration. (ii) The appellant craves leave to add, alter or amend any or all of the grounds of appeal before or during the course of appeal. 2. The brief facts of the case are that during the assessment proceedings, the Assessing Officer noticed that apart from other income the assessee during the year earned tax exempt dividend income of Rs.37080750/- arisen on the investments made by the assessee. However, the assessing officer noticed that the own funds of the assessee were not sufficient to meet the investments in question. Assessing officer, therefore, applied the provisions of section 14A read with rule 8D of the Income Tax Rules and computed the expenditure relatable to the aforesaid tax exempt dividend income at Rs.1 0621 0110. Since the assessee in its computation of income had suo moto disallowed an amount of Rs.2 254 8285 on account of expenditure relatable to the tax exempt dividend income earned by the assessee, the assessing officer, therefore, disallowed the balance amount of Rs.8 366 1625/- and adde....
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.... legislation clear and to make it free from misinterpretation and to give effect to the CBDT's Circular No. S/2014 dated 11/02/2014, the Legislature has made two changes to section 14A through the Finance Act, 2022, which are as follows: a. Insertion of Non-obstante clause by way of substitution and, b. Insertion of an Explanation to re-enforce by way of clarification the contents of the CBDT's Circular No.05/2014 dated 11/02/2014 a. Insertion of Non- obstante clause: The main objective to substitute a non-obstante clause in sub-section 1 appended to section 14A which reads as follows "Notwithstanding anything to the contrary contained in this Act, for the purpose of is to overcome the observations made by the Hon'ble Madras High Court in Redington (India) Ltd v. Addl.CIT, (2017) 392 ITR 633, 640 (Mad), wherein it was observed that an assessment in terms of the Act is specific to an assessment year and related previous year as per section 4 read with section 5 of the Act. And if any contrary intention would have been there it would have been expressly stated therein (section 14A) therefore, the language of section 14A should be read in that co....
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....2022 is prospective in nature and cannot be applied to the pending appeals. He has further submitted that the law settled prior to the exertion of the aforesaid Explanation that the disallowance of expenditure u/s 14A cannot exceed the tax exempt income earned by the assessee during the year. He, in this respect, has made the following written submissions: "The Finance Act, 2022 has brought in amendment into Section 14A of the Income-tax Act, 1961 (Act'). Section 14A of the Act was introduced in the year 2001 with retrospective effect from the year 1962 to state that no deduction shall be granted towards an expenditure incurred in relation to an income which does not form part of the Total Income. The method for identifying the expenditure incurred is prescribed under Rule 8D of the Income-tax Rules, 1962 (Rules). From its inception, the applicability of this provision has always been a subject matter of litigation and one such point that has been oftdebated is regarding the disallowance of expenditure in the absence of exempt income. In the year 2009, a Delhi Special Bench Tribunal in Cheminvest Ltd. v. CIT, 317 ITR 86 took a view that when an expenditure is ....
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....the requirement to record satisfaction by the AO as provided in the second limb to Section 14A of the Act is still required to be adhered to? Should disallowance be restricted to exempt income even after the amendment? Among many other issues that skulked in on the introduction of Section 14A, the issue pertaining to expenditure disallowance being higher than exempt income has been a point of litigation before various fora and decided in favour of the taxpayers holding that disallowance under Section 14A cannot exceed the exempt income earned. With this being the position, now a question may arise as to whether the proposed amendment will have its application only in a situation where exempt income is NIL. If the answer to this is in the affirmative, the next question would be whether the position laid down by the Courts as mentioned supra would continue to have authority? Going by the plain reading of the explanation inserted, it appears to the naked eye that disallowance would be suffered only in cases where exempt income is not at all accrued or incurred in a particular year. That being the case, it can be asserted that a position that disallowance of ....
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....ounded and cogent reasons as to why he thinks that an assessee has incurred any expenditure relating to exempt income. As per subsection (2) of section 14A the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. The AO should be in a position to pinpoint, with an acceptable degree of accuracy, that the expenditure which was incurred is related to the income which is not subject to tax. The Hon'ble ITAT Delhi Bench "E" (Third Member) in the case of Wimco Seedlings Ltd Vs. Deputy Commissioner of Income-tax (Asst.), Special Range, Moradabad reported in [2007] 107 ITD 267 (Delhi) (TM) has observed that only expenditure which has been proved to have been incurred in relation to the earning of tax-free income, can be disallowed and the section cannot be extended to disall....
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....3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act." It is by the above sub-sections which come into force from the assessment year 2007-08 onwards that authority is given to the Assessing Officer to determine, on the basis prescribed, the amount of expenditure incurred in relation to income which is exempt from income tax. Even here the Assessing Officer has to first record a finding that he is not satisfied with the correctness of the assessee's claim regarding such expenditure. Sub-section (3) clinches the position by saying that the Assessing Officer can determine the amount of expenditure incurred in relation to exempted income on the prescribed basis even where the assessee claims that no such expenditure was incurred by him as a matter of fact. Whether the provisions of Section 14A will have a retroactive application? Another possible issue that can arise is the retroactive application of the provision. Though the Act says that the amendment is going to be made effective fro....
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....he decision of the Hon'ble Delhi High Court in the case of CIT Vs Moderate Leasing and Capital Services Pvt. Ltd in ITA 102/2018 dated 31/01/2018 wherein it was held that disallowance u/s 14A should not exceed the exempt income Itself and the SLP filed by the Revenue against this judgment was dismissed by the Hon'ble Supreme Court of India in the case of Pr. CIT Vs Moderate Leasing and Capital Services Pvt. Ltd [Special Leave Petition (Civil) Diary No(s). 38584/2018 dated 19/11/2018], the order of CIT(A) in the Appellant's case in holding that disallowance u/s 14A read with Rule 8D cannot exceed the income claimed exempt aligns with the said order. Therefore, the amendment in Sec. 14A by the Finance Act 2022 by inserting an Explanation to Sec. 14A clarifying that no exempt income is earned in any year, disallowance u/s 14A will still be attracted, alters the position of law adversely to the assessee. Hence, such an amendment cannot be held to be retrospective in nature. In arguendo, it is the submission that if the amendment for disallowance of expenditure even where no exempt income is earned is retroactively applied, then as a corollary the dividend income wh....
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....appeals of the Revenue be dismissed." 6. First we take up the issue as to what is the effect of the insertion of the explanation to section 14A vide Finance Act of 2022 and whether the same shall operate prospectively or with retrospective effect. At this stage, we shall have to peek into the legislative history of section 14A. Section 14 of the Income Tax Act specifies that all income shall be classified under five heads i.e. Salaries, Income from house property, Profits and gains of business or profession, Capital gain and Income from other sources except as otherwise provided. There are specific provisions governing the allowance of deductions from income chargeable under these heads of income. However, since the issue in this appeal is related to disallowance of expenditure incurred to earn dividend income either out of the expenditure claimed under business head or out of the expenditure claimed in respect of income from other sources, hence, the provisions section 37 and section 57 being general sections relating to allowance of expenditure in computing the net taxable income of the assessee under the heads "Income from business and profession" and "Income from other so....
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....ing one and indivisible. The facts were that the Assessee, a State Govt. Corporation, which derived its income from interest and letting out the warehouses, filed its return for the relevant AY and claimed deduction of expenditure of Rs.38,13,555.17 u/s 37 of the Act. However, the AO allowed only so much of the expenditure as could be allocated to the taxable income and disallowed the rest of it which was relatable to the non-taxable income, being exempt u/s 10(29) of the Act.TheHon'ble Supreme court referring to the provisions of section 37 of the Act, observed, "A plain reading of the above provision makes it clear that it is a residuary provision and allows an expenditure, not covered under ss. 30 to 36, in computing the income chargeable under the head "Profits and gains of business or profession", provided its other requirements are satisfied. They are: (i) the expenditure should not be in the nature of capital expenditure or personal expenses of the assessee; (ii) it should have been laid out or expended wholly and exclusively for the purposes of the business or profession, and (iii) it should have been expended in the previous year." The Hon'ble Supreme court ....
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.... is of fulfilment of the requirements of that provision i.e. unless otherwise provided, it must be incurred wholly and exclusively for business as per the provisions of section 37 or else it must be incurred for earning of taxable income under the head Income from other sources. 9. It was pursuant to the judgement in Rajasthan State Warehousing rendered on 23.02.2000 and other judgments laying down the same ratio decidendi that the Legislature inserted section 14A by the Finance Act 2001 with retrospective effect from 1.4.1962, which read as under: "14A.For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act." (This section has been inserted by the Finance Act 2001 with retrospective effect from 1.4.1962. At the time of insertion there were no sub-sections.) 10. In the Memorandum explaining the above provision in the Finance Bill, 2001, it has been stated as under: "No deduction for expenditure incurred in respect of exempt income against taxable income - Certain income....
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....e Act, 2001, a new section 14A has been inserted to as to clarify the intention of the Legislature since the inception of the Income-tax Act, 1961, that no deduction shall be made in respect of any expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income-tax Act. 25.3 It is also being clarified that the assessments where he proceedings have become final before the first day of April, 2001 should not be reopened under section 147 of the Act to disallow expenditure relatable to the exempt income by applying the provisions of section 14A of the Act. 25.4 This amendment takes effect retrospectively from 1st April, 1962, and accordingly, applies in relation to the assessment year 1962-1963 and subsequent assessment years." 12. This section was enacted to overcome the decision of Hon'ble Supreme Court in the case of Rajasthan State Warehousing Corporation vs. CIT (supra) wherein, it was held that if the exempted income and the taxable income are earned from one and indivisible business then the apportionment of expenditure could not be made. However, the legal position as provided under section 37 an....
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....by the assessee may be relatable partly to the exempt income and partly to the taxable income. In the absence of Section 14A, the expenditure incurred in respect of exempt income was being claimed against taxable income. The mandate of Section 14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of Section 14A is that certain incomes are not includible while computing total income as these are exempt under certain provisions of the Act. In the past, there have been cases in which deduction has been sought in respect of such incomes which in effect would mean that tax incentives to certain incomes was being used to reduce the tax payable on the non-exempt income by debiting the expenses, incurred to earn the exempt income, against taxable income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net in....
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....ble has, in principle, been now widened under section 14A. Reading section 14 in juxtaposition with sections 15 to 59, it is clear that the words "expenditure incurred" in section 14A refers to expenditure on rent, taxes, salaries, interest, etc. in respect of which allowances are provided for (see sections 30 to 37). Every pay-out is not entitled to allowances for deduction. These allowances are admissible to qualified deductions. These deductions are for debits in the real sense. .......... Therefore, one needs to read the words "expenditure incurred" in section 14A in the context of the scheme of the Act and, if so read, it is clear that it disallows certain expenditures incurred to earn exempt income from being deducted from other income which is includible in the "total income" for the purpose of chargeability to tax. As stated above, the scheme of sections 30 to 37 is that profits and gains must be computed subject to certain allowances for deductions/expenditure. The charge is not on gross receipts, it is on profits and gains. Profits have to be computed after deducting losses and expenses incurred for business." (emphasis supplied) 16. The Hon'ble Supreme Cou....
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....ere an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act." [Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.]" (The proviso was inserted earlier by the Finance Act of 2002 with retrospective effect from 11-5-2001). 18. The purpose of introduction of the provisions of sub-sections (2) and (3) has been explained in - Circular 14 of 2006 of the CBDT. It has been explained that in the existing provisions of section 14A no method for computing the expenditure incurred in relation to income which does not form part of the total income had been provided. As a result there was a considerable dispute between taxpayers and the revenue on the method of determining such expenditure. In this background, sub-section (2) was inserted so as to make it mandatory for the Assessing Officer to determine t....
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....ome are to be considered. Similarly in Rule 8(2) (iii) the words 'does not' and 'shall not" have been used in respect of exempt income for calculating the disallowance @0.5 % of the value of investments. In our view, the words "does not" and "shall not" have their own significance. The words "does not" refer to the income which has already been received and the words "shall not" refers to the income which may be received. 20. A perusal of the provisions of section 14A would show that section 14A does not seek to confer or provide for allowance of any expenditure as a deduction which, otherwise, is not allowable or in other words has not been incurred for earning of taxable income.The provisions of section 14A in no manner advance any favour to an assessee for the purpose of allowance of an expenditure. It only craves to make a disallowance of expenditure related to exempt income. Allowance of deduction is subject to the condition of fulfilment of requirements of the respective provisions under each head of income. Thus, as per the provisions of section 14A, if an investment has been made for the purpose of earning of tax exempt income (either dividend income or long term capital....
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.... only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial-year or not. 4. The above position is further clarified by the usage of term 'includible' in the Heading to section 14A of the Act and also the Heading to Rule 8D of I.T. Rules, 1962 which indicates that it is not necessary that exempt income should necessarily be included in a particular year's income, for disallowance to be triggered. Also, section 14A of the Act does not use the word "income of the year" but "income under the Act". This also indicates that for invoking disallowance under section 14A, it is not material that assessee should have earned such exempt income during the financial year under consideration. 5. The above position is further substantiated by the language used in Rule 8D(2(ii) & 8D(2)(iii) of I.T. Rules which are extracted below: "(ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is no....
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....nsidered the object of insertion of Section 14A in the Income Tax Act by Finance Act, 2001, details of which have already been noticed. Noticing the objects and reasons behind introduction of Section 14A of the Act this Court held that: "Expenses allowed can only be in respect of earning of taxable income." In paragraph 17, this Court went on to observe that: "Therefore, one needs to read the words "expenditure incurred" in section 14A in the context of the scheme of the Act and, if so read, it is clear that it disallows certain expenditure incurred to earn exempt income from being deducted from other income which is includible in the "total income" for the purpose of chargeability to tax." The views expressed in Walfort Share and Stock Brokers (P.) Ltd. (supra), in our considered opinion, yet again militate against the plea urged on behalf of the Assessee." 24. The Hon'ble Supreme Court further reiterated the above principle in the case of Maxopp Investment Ltd. v. Commissioner of Income Tax, New Delhi reported in 2018] 91 taxmann.com 154 (SC), observing as under: . "In the first instance , it needs to be recognised that as per secti....
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....e case of 'Cheminvest Ltd Vs. ITO' (2015) 378 ITR 33 (Delhi) and of the Hon'ble Gujarat High Court in the case of 'Corrtech Energy P. Ltd. (2014) 45 Taxman.com 116' and further of the Hon'ble Allahabad High Court in the case of 'CIT Vs. M/s Shivam Motors (P) Ltd' (2014) 272 CTR (All) 277. The Hon'ble High Courts based their findings in this respect laying the proposition that as if the disallowance of expenditure u/s 14A is dependent upon the actual earning of exempt income. That if the expenditure incurred for taxable income has the potential of earning of exempt income, the disallowance relatable to exempt income can be attracted only if the exempt income is actually earned during the year. However, in our view, the above interpretation cannot be widened/extended to hold that disallowance of expenditure relatable to exempt income cannot be made if no exempt income is earned or that the disallowance u/s 14A cannot exceed the exempt income received irrespective of the fact that the expenditure claimed is not relatable to earning of chargeable income of the assessee under the relevant provisions of the Act. That, in our view, would be against the respective provisions gov....
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....hasis supplied by us) 28. The Hon'ble Supreme Court thus has distinguished between two type of cases; firstly, where the assessee knows that the investment made by him has the potential of earning of exempt income, though, such investment is made by the assessee for business purposes or to say for earning of taxable income; secondly, about those cases where there is as such no such potential but it would be a quirk of fate that the assessee earns some incidental exempt income. This triggers the applicability of section 14A of the Act and which is based on the theory of apportionment of expenditure and between taxable and non-taxable income and to that extent in such cases depending upon the fact of each case, the expenditure incurred in acquiring those shares will have to be apportioned. The Hon'ble Supreme Court, however, held that the disallowance u/s 14A would be attracted in both type of cases rejecting the dominant purpose theory. 29. In order to remove theprevailing doubts about the interpretation of the provisions of section 14A and to overcome the interpretation given by the various High Courts as noted above regarding the applicability of provisions of section 14A an....
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....previous year in relation to such income not forming part of the total income.] 30. In the memorandum explaining the provision of Finance Act 2022, it has been explained as under: "Clarification in respect of disallowance under section 14A in absence of any exempt income during an assessment year: Section 14A of the Act provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income that does not form part of the total income as per the provisions of the Act (exempt income). (2) Over the years, disputes have arisen in respect of the issue whether disallowance under section 14A of the Act can be made in cases where no exempt income has accrued, arisen or received by the assessee during an assessment year. (3) CBDT issued Circular No. 5/2014, dated 11/02/2014, clarifying that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income. However, still some courts have taken a view that if there is no exempt income during a year, no 32 disallowance under section 14A of the Act can be made for tha....
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....at this amendment will apply in relation to A.Y 2022-23 and subsequent years. 32. Now the question arises whether the aforesaid explanation will be applicable retrospectively or prospectively. The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Deputy Commissioner of Income-tax [2010] 194 Taxman 203 (Bombay) has extensively discussed the legal position on this issue and has summarised the law on the issue of retrospective or prospective operation of a provision while relying upon the various decisions of the hon'ble Supreme Court. The Hon'ble Bombay high Court after analysing the legal position held that the rule 8D of the Income Tax rules would apply prospectively. The relevant part of the order discussing the legal position and judicial precedents is reproduced as under: "63. The fundamental principle of law is that Parliament has plenary power to legislate, on matters falling within its legislative competence and that power extends to the enactment of legislation with prospective and retrospective effect. Legislative competence of Parliament to enact the law is not in dispute. Law raises a presumption that an amendment which affects substanti....
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....uage employed in the statutory provision which may in express terms or by necessary implication empower the authority concerned to make a rule or regulation with retrospective effect. But where no such language is to be found it has been held by the courts that the person or authority exercising subordinate legislative functions cannot make a rule, regulation or bye-law which can operate with retrospective effect (see SubbaRao, J. in Dr.IndramaniPyarelal Gupta v. W.R. Natu [1963] 1 SCR 721 - the majority not having expressed any different opinion on the point; Modi Food Products Ltd. v. Commissioner of Sales Tax [1955] 6 STC 287, India Sugars Refineries Ltd. v. State of Mysore AIR 1960 Mys. 326 and General S. Shivdev Singh v. State of Punjab [1959] PLR 514 (FB)." (ii) In Allied Motors (P.) Ltd. v. CIT [1997] 91 Taxman 205 , the Supreme Court considered the provisions of section 43B of the Income-tax Act, 1961 which were aimed at curbing activities of those taxpayers who did not discharge their statutory liability towards payment of excise duty, employer's contribution to provident fund etc., for long periods of time, but claimed deductions on the ground that the liabil....
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.... word "owner" in section 22 and was therefore, declaratory or clarificatory. (iv) CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306, the Supreme Court considered the provisions of section 43B of the Income-tax Act, 1961. By way of the first proviso an incentive/relaxation was given in respect of tax, duty, cess or fee by stating that if this was paid before the date of filing of the return under the Income-tax Act, the assessee would be entitled to a deduction. This relaxation, however, did not apply to contributions to labour welfare funds. By the Finance Act of 2003 uniformity was brought about by equating the payment of tax, duty, cess and fee with contributions to welfare funds. The Finance Act of 2003 was made applicable only with effect from 1-4-2004. Hon'ble Mr. Justice S.H. Kapadia (as the Learned Chief Justice then was) speaking for the Supreme Court held that it was curative in nature and would apply retrospectively with effect from 1-4-1988; (v) In Sharvan Kumar Swarup& Sons' case (supra), rule 1BB of the Wealth-tax Rules, 1958 came up for consideration. Prior to its amendment on 1-4-1989 section 7(1) of the Wealth-tax Act provided that subject to ....
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....r intent of the Legislature to make the charge levied effective. (vii) SedcoForex International Drill Inc. v. CIT [2005] 279 ITR 310 was a case where the Supreme Court considered whether the salary of an employee payable for field breaks outside India would be subjected to tax under section 9(1)(ii) read with the Explanation thereto in the Income-tax Act, 1961. Under section 5(2) the scope of total income as regards a non-resident was defined with reference to the receipt or accrual in India, whether deemed or actual. Section 9 defines income deemed to accrue or arise in India. By clause (ii) of sub-section (1) of section 9, income which falls under the head 'Salaries', if it is earned in India is included in such income. The Gujarat High Court had held that the words "earned in India" had to be interpreted as "arising or accruing in India" and not "from service rendered in India". Hence, as long as the liability to pay an amount under the head 'Salaries' arose in India, clause (ii) could be invoked. To overcome this decision, section 9(1)(ii) was amended by the Finance Act of 1983 with effect from 1-4-1979 to include an Explanation. The Explanation provide....
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....o assessment years 1992-93 to 1997-98. (ix) CIT v. Gold Coin Health Food (P.) Ltd. [2008] 304 ITR 308, the question which arose before a larger Bench of the Supreme Court was whether a penalty under section 271(1)(c) of the Income-tax Act, 1961 could be levied if the returned income was a loss. This question had to be considered in the background of the amendment made by the Finance Act of 2002 with effect from 1-4-2003 in Explanation 4 to section 271(1)(c)(iii ). In its earlier decision in the case of Virtual Soft Systems Ltd. v. CIT [2007] 159 Taxman 155, the Supreme Court had rejected the contention of the revenue that the amendment was clarificatory and retrospective holding that the amendment was stated to take effect from 1-4-2003. In Gold Coin Health Food (P.) Ltd.'s case (supra) the larger Bench held that the Court has to analyze the nature of the amendment to come to a conclusion whether it is in reality a clarificatory or declaratory provision. Hence, the date from which the amendment is made operative does not conclusively decide the question. The Court would have to examine the scheme of the statute prior to the amendment and subsequent to the amendment to ....
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.... (v) Where an amendment essentially provides a rule of evidence such as a method for the valuation of the property by adopting one among a set of well known and well accepted methods of valuation with a view to achieve uniformity in valuation and avoiding disparate valuations resulting from the application of different methods in respect of properties of a similar nature and character, the Court would place a construction on the statutory provision, giving the retrospective effect. 33. The above principles which have culled out by the Ho'ble High Court from various decisions of the Hon'ble Supreme Court it has been settled that in determining as to whether an amendment is to take effect prospectively or with retrospective effect, the date from which the amendment is made operative does not conclusively decide the question. The Court has to examine the scheme of the statute prior to the amendment and subsequent to the amendment to determine whether an amendment is clarificatory or substantive. Further that an amendment which is clarificatory is regarded as being retrospective in nature and would date back to the original statutory provision which it seeks to amend. A clarificator....
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....aking the disallowance of the expenditure incurred to earn exempt income. This was the legal position as declared by the Hon'ble Supreme Court in the case of Walfort (supra) that the expenses allowed can only be in respect of earning of taxable income that the basic principle of the taxation is to tax the net income and on the same analogy the exemption is also in respect of net income. The Hon'ble Supreme Court thus way back in the year 2010 has, by saying so, held that the expenditure in relation to earning of exempt income has to be disallowed and exemption is only of net income. The Hon'ble Supreme Court in the case of CIT vs. Rajendra Prasad Moody (2002-TIOL-751-SC/115 ITR 519 (SC) has held that even if there was no income, the expenditure is allowable. It is now wellsettled that income includes loss also as held by the Hon'ble Supreme Court in the case of CIT vs. Harprasad&Co. P Ltd. 99 ITR 118 (SC). As held by the Hon'ble Supreme Court in the case of Walfort (supra) that only the net of the income is taxable i.e. gross income minus expenditure and as discussed above the net income may be a loss also. Since the earning of positive net income is not a condition precedent for c....
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....is settled otherwise. The Revenue is contending same proposition that the actual or positive earning of exempt income has nothing to do with the disallowance of expenditure incurred for the purpose of earning of exempt income. Suppose, for the sake of argument, the Hon'ble Supreme Court on the interpretation of the old provision as the existed before the insertion of aforesaid explanation, holds that the disallowance is to be attracted even if no exempt income is earned by the assessee, can then it be canvassed that such verdict of the Hon'ble Supreme Court would amount to change of law or of imposing any tax liability. It is settled position that the provisions as interpreted by the Supreme Court would mean that the same had the same meaning as interpreted by the Supreme Court right from the date of their insertion in this respective statute. In this case, without waiting for any interpretation of the provisions of section 14A by the Supreme Court declaring as to what is the real purpose and object and intention of the legislature in this respect, the legislature itself has given the explanation by way of insertion of the aforesaid explanation to clarify the real intent of t....
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....t and the clarification given by the aforesaid explanation 3 w.e.f 01.04.2022 being on the same line, it cannot be said that the said explanation has proposed any new law or any new disallowance. Therefore, in view of the interpretation given by the Supreme Court, it is to be assumed that such intention of the legislature was always there to ascribe such meaning to the said provision right from the very beginning independent of the newly inserted explanation. In view of this, it cannot be said that by the insertion of explanation to section 14A has the effect of any change of law or to fasten any new liability upon the tax payers. It is only to make the intention of the legislature clear and to remove the confusion and doubts that has arisen pursuant to the aforesaid decisions of various High Courts. 37. So far as the contention of the Ld. Counsel for the assessee that in the case of CIT vs. Moderate Leasing and Capital Services Pvt. Ltd. (supra) the SLP against the order of Delhi High Court has been dismissed, therefore the said order has attained finality, it is to be noted that it has been held time and again by the apex court of the country that the dismissal of an SLP again....
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.... incurred in relation to exempt income before invoking rule 8D for disallowance of expenditure u/s 14A should still be adhered to or not, we find that the aforesaid explanation introduced vide Finance Act 2022 does not in any manner change this position. The Hon'ble Supreme Court in the case of Maxopp Investment Ltd. (supra) has clearly held that before applying the theory of apportionment, the AO need to record satisfaction that having regard to the accounts of the assessee, suomoto disallowance u/s 14A was not correct. There is no change of this legal position even after introduction of the aforesaid explanation. 39. So far as the contention of the ld. Counsel for the assessee that the aforesaid explanation talks of only those cases where no exempt income has been earned and that the said explanation is not applicable to cases where the assessee has earned some exempt income, we do not find ourselves in agreement with the aforesaid proposition. Such a proposition may place the different assessees in inequitable position. In such scenario, in a case where an assessee does not earn any exempt income, he may suffer disallowance as per the formula prescribed under Rule 8D, whereas....