Where shares are held as stock-in-trade no part of interest on borrowed funds can be disallowed u/s 14A as incurred in relation to Dividend income

Yatish Trading Co.P ltd. Vs ACIT (ITAT Mumbai), ITA No. 456 /Mum/2009, (Assessment Year: 2004 -05)

Summary of Findings:-

In the case of a trader where shares are held as stock-in-trade no part of interest on borrowed funds can be disallowed u/s 14A as incurred in relation to Dividend income. The interest on borrowed funds used for trading activity is an allowable expenditure under section 36(1)(iii) and the same cannot be treated as the expenditure for earning the dividend income which is incidental to the trading activity.

If the real purpose was to use borrowed funds for trading purposes and incidentally there is tax-free dividend, it cannot be said that the interest has been incurred for earning the dividend income.

When it is possible to determine the actual expenditure “in relation to” the exempt income or where no expenditure is incurred “in relation to” the exempt income, the principle of apportionment embedded in Section 14A has no application;

Please become a Premium member. If you are already a Premium member, login here to access the full content.