Expenditure incurred in relation to income not includible in total income -Sec 14A

Assistant Commissioner of Income-tax v. Claridges Investments & Finances (P.) Ltd. (ITAT Mumbai)

As a matter of legal proposition also it is not acceptable that even in the case of a dealer/broker in shares, as distinguished from an investor in shares, the borrowed funds utilized for acquisition of shares should be related to earning of dividends. Where the shareholding is on trading account or on behalf of a third party the interest expenditure cannot be said to have been incurred for earning of dividend. There was force in the contention of the assessee that the dividend income, in the instant case, had been to a larger extent merely incidental income for which no borrowing was made. The legal position in this regard is not altered by the provisions of section 14A that apply only when there is expenditure in relation to an exempt income. These provisions do not create any legal fiction to deem any expenditure as expenditure incurred in relation to exempt income.