Disallowance u/s 14A: Navigating the Interplay of Exempt Income and Expenditure

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....and court rulings related to the disallowance of expenditure u/s 14A of the Income Tax Act, 1961. The core issue pertains to the treatment of expenditure incurred in relation to exempt income, particularly dividend income. ARGUMENTS PRESENTED The assessees contended that the word "incurred" in Section 14A should be interpreted literally, implying that only actual expenditure directly r....

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....se in the context of deeming provisions. The Supreme Court in Maxopp Investment Limited v. CIT held that the dominant purpose for investing is not relevant. The principle of apportionment of expenses between taxable and non-taxable income is engrained in Section 14A, as affirmed in Walfort Share and Stock Brokers P. Ltd. v. CIT. ANALYSIS AND DECISION The courts concluded that Section 14A is con....

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....ominant purpose for investing is not relevant; the principle of apportionment of expenditure between taxable and non-taxable income must be applied. * The expenditure claimed by an assessee can only be that which has been expended to earn taxable income; the assessee cannot claim the benefit of exempt income and set off the related expenditure against taxable income. * The existence of exempt ....