Indu Maheshwari Vs Circle 19(1) (ITAT Mumbai)
Mutual Fund Dividend Is Fully Exempt u/s 10(35): CPC Can’t Apply Section 115BBDA Due to Return-Form Constraints, Holds ITAT Mumbai
The Mumbai ITAT “C” Bench allowed the appeal of Indu Maheshwari (ITA No. 715/Mum/2025, AY 2017-18), holding that dividend income earned from mutual funds is wholly exempt u/s 10(35) and cannot be subjected to tax u/s 115BBDA, merely because the return form lacked a separate disclosure column and the CPC mechanically treated it as dividend from domestic companies
The Assessee had disclosed dividend income from mutual funds in Schedule EI (exempt income), as there was no specific field in the return to separately report mutual fund dividends vis-à-vis share dividends. While processing the return u/s 143(1), CPC treated the income as dividend from domestic companies, allowed exemption only up to ₹10 lakh, and taxed the balance by invoking Section 115BBDA. The CIT(A) mechanically confirmed the adjustment.
The Tribunal held that substance prevails over form: once documentary evidence established that the dividend was received from mutual funds, Section 10(35) squarely applied, and Section 115BBDA (read with Section 10(34)) had no application at all. The ITAT noted that the Assessee had furnished complete mutual fund statements and confirmations, which remained uncontroverted. Reliance was placed on the Ahmedabad ITAT decision in Rajalben Hirenbhai Patel vs DCIT, holding that Section 115BBDA applies only to dividend from domestic companies and not to mutual fund distributions.
Accordingly, the ITAT deleted the addition of ₹34.34 lakh made towards dividend income. On the disallowance of capital loss, the Tribunal upheld the CIT(A)’s direction to verify and allow the claim in accordance with law, granting relief for statistical purposes.
The appeal was thus allowed, reinforcing that return-form limitations cannot defeat a substantive exemption expressly granted by statute
FULL TEXT OF THE ORDER OF ITAT MUMBAI
