Dividend Income Earned on Shares are Exempted u/s 10(34), No Tax Liability: ITAT [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) held that disallowance under section 14A of the Income Tax Act,1961 does not apply to interest income earned from the negative capital of the partnership.

Shri Dipakbhai Harishchandra Shah, the assessee challenged the order passed by the Commissioner of Income Tax(Appeals), Gandhinagar (CIT(A)) under section 250(6) of the Income Tax Act, 1961.

The assessee had earned dividend income amounting to Rs.2,63,064/- and claimed as exempt income under section 10(34) of the Income Tax Act.  The AO denied the exemption noting that it was earned on shares which were the stock-in-trade of the assessee and that he held and therefore qualified as business income which as per him was taxable and did not qualify for exemption under section 10(34) of the Income Tax Act.

By the CBDT Circular No.6 of 2016 it was directed that the assessee had the option to treat some shares as stock-in-trade and some as investments, and the shares so treated as stock-in-trade, income arising from the transfer of shares would be treated as business income. 

The AO interpreted the aforesaid circular to mean that the income from trading shares included dividend income earned on shares held as stock-in-trade and referring to the said CBDT Circular, he held that the dividend income earned by the assessee was taxable. The CIT(A) upheld the denial of exemption to the dividend income earned by the assessee finding that the AO had followed relevant instructions of the Board in this regard. 

A Coram comprising of Smt Annapurna Gupta, Accountant Member observed that the provisions of section 10(34) of the Act exempting the dividend income earned by the assessee nowhere restrict the dividend income as about that earned on shares held as an investment only and precluding the benefit to dividend earned on shares held as stock-in-trade. 

The Tribunal viewed that the AO has rightly pointed out that Section 10(34) makes no distinction whatever between the dividend income earned on shares held as stock-on-hand and that held as an investment. In light of the Judicial precedents, the Tribunal held that the assessee is entitled to claim an exemption of dividend income of Rs.2,63,064/-. 

To Read the full text of the Order CLICK HERE

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