Dividend Income needs to treated as Exempt Income u/s.10(34), No Tax Liability: ITAT [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT)has held to treat dividend income as exempt income u/s.10(34) of the Income Tax Act,1961 and held as no tax.  

 M/s.Manmohan Textiles Limited, the assessee challenged the order by the Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC) in appeal CIT(A) against the rectification order passed u/s.154 of the Income Tax Act, 1961 (Act) dated 10/01/2022 by the ld. ADIT, CPC, Bangalore(AO).

The only issue to be decided in this appeal is as to whether the CIT(A) was justified in treating the dividend income as ‘not exempt’ u/s.10(34) of the Income Tax Act for the year under consideration. The interconnected issue involved therein is whether the ld. CIT(A) was justified in not allowing the loss claimed by the assessee in the year under consideration.

The assessee company electronically filed its return of income for the A.Y.2020-21 on 19/12/2020 admitting loss to be carried forward at Rs.1,40,712/-. The return of income was processed u/s.143(1) of the Act on 12/10/2021 determining the total income of the assessee at Rs.1,05,850/-. The assessee company claimed income from the dividend of Rs.2,46,559/- as exempt u/s.10(34) of the Income Tax Act in the return of income. But the dividend income was treated as taxable thereby converting the loss into income of Rs.1,05,850/-.

The assessee filed a rectification application u/s.154 of the Income Tax Act and the CPC upheld its earlier action and dismissed the rectification application. On appeal, the CIT(A) upheld the action of the CPC in treating the dividend income of Rs.2,46,559/- as taxable for the year under consideration.

Under Section 10(34) of the Income Tax Act,1961, the second proviso was incorporated only from 01/04/2021 i.e. commencing from A.Y.2021-22 onwards which categorically states that dividends received on or after 01/04/2020 alone would be subjected to tax.

A Coram of Shri M Balaganesh, Accountant Member & Smt Kavitha Rajagopal, Judicial Member observed that the dividend has been received by the assessee during the F.Y.2019-20 relevant to A.Y.2020-21 and there was no need for taxing the said dividend income during the year under consideration.

The Tribunal directed the AO to treat the dividend income as exempt u/s.10(34) of the Act and an appeal of the assessee was allowed. 

The assessee was represented by Shri Vimal Punamiya and the revenue was represented by Shri Manoj Kumar Singh.

To Read the full text of the Order CLICK HERE

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