A division bench of the Delhi High Court has held that the dividend received by the assessee from OMIFCO, Oman is chargeable to tax in India under the head “Income from other sources” and forms part of the total income and therefore, the disallowance under section 14A of the Income Tax Act, 1961 cannot be made.
The assessee, IFFCO LTD, contended that the expenditure incurred for earning dividend income of Rs.113.86 crores from OMIFCO-OMAN, an overseas company in Oman, cannot be disallowed under Section 14A of the Income Tax Act, 1961, as no tax is payable on the said dividend in Oman and India, as tax sparing credit of notional tax on the Dividend is allowed under Article 25 of India-Oman DTAA.
Earlier, the ITAT Delhi accepted the above contentions and allowed relief to the assessee. The department approached the High Court against the order.
Accepting the above contentions, Justice Manmohan and Justice Manmeet Pritam Singh Arora observed that in view of Section 14A(1), no deduction is to be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act.
Upholding the ITAT order, the Court held that “As per Section 2(45) of the Act, “total income” means the total amount of income referred to in Section 5, computed in the manner laid down in the Act. Therefore, Section 14A pertains to disallowance of deduction in respect of income which does not form part of the total income. Since the dividend received by the assessee from OMIFCO, Oman is chargeable to tax in India under the head “Income from other sources” and forms part of the total income, the same is included in taxable income in the computation of income filed by the assessee. However, rebate of tax has been allowed to the assessee from the total taxes in terms of Section 90(2) of the Income Tax Act read with Article 25 of the Indo Oman, DTAA and thus, the dividend earned can be said to be in the nature of excluded income and, therefore, the provisions of Section 14A would not be attracted in this case.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to TaxscanPremium. Follow us on Telegram for quick updates.
