In a recent ruling in favour of the Income Tax Department, a Division Bench of the Delhi High Court has held that, dividends of investments held as stock-in-trade are not deductible from the business income and dismissed the appeal of the Punjab National Bank Housing Finance Ltd.
On behalf of the appellant-revenue, Mr. Zoheb Hossain and Mr. ParthSemwal stated that the Income Tax Appellate Tribunal (ITAT) has erred in setting aside the disallowance made under Section 14A of the Income Tax Act,1961 holding that since the assessee earned the exempt income from investments held as stock-in-trade, the provision of Section 14A of the Act will apply. The provision of Section 14A of the Act does not make any differentiation between expenses incurred on exempt income earned from investments held as stock-in-trade or other forms of exempt income.
It was further stated that the ITAT has erred in deleting the disallowance made under Section 36(1)(viii) of the Income Tax Act, 1961 by not considering the total receipt of business for the purpose of working out the proportion to be used in calculating the ratio for a deduction under the said provision.
The perusal of paper books by the court revealed that the ITAT has observed that the said methodology has been adopted by the assessee consistently for the last eight years and the same was accepted by Revenue without any objection with respect to the deletion of disallowance made under Section 36(1)(viii) of the Act.
With respect to the challenge of the deletion of the disallowance made under Section 14A, it was observed in the light of the precedents by the Bench comprising of Justice Manmohan and Justice Manmeet Pritam Singh Arora that, that shares and securities held by a bank are stock-in-trade, and all income received on such shares and securities must be considered to be business income. That is why Section 14A would not be attracted to such income.
The court made this observation on the basis of a case, CIT v. State Bank of Patiala of which the facts were found to be similar to the present case. The reasoning that, stock-in-trade, the dividend earned on the said shares is incidental and would not attract the provisions of Section 14 was applied in the instant case by the Bench.
In respect to the settled position of law in this matter and for the lack of any substantial question of law that demanded consideration of the court, the Income Tax Appeal filed by the assessee was dismissed.
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