Law:

Section:

Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income - Assessment year 2001-02 - Assessee was engaged in trading of goods - During relevant assessment year, she paid interest on funds borrowed for purchase of shares in a company in which she had acquired 90 per cent controlling interest during a period of ten years - She claimed deduction of interest paid contending that utilization of borrowed funds for acquisition of shares of said company was for business purpose - Whether so far as acquisition of shares was in form of investment and only benefit assessee derived therefrom was dividend income which was not assessable under Act, disallowance under section 14A was squarely attracted and, therefore, interest paid by assessee on borrowed funds utilized for acquisition of shares could not be allowed as deduction - Held, yes FACTS The assessee was running a business as proprietor engaged in trading of goods. During the relevant assessment year, she paid interest of Rs. 17.44 lakhs on funds borrowed for purchase of shares in a company of which she had acquired 90 per cent controlling interest in the course of ten years. The assessee claimed that said company was engaged in leasing of household articles and she sold such articles to the said leasing company and, therefore, the utilization of borrowed funds for acquisition of shares of that company was for business purpose entitling her to deduction of interest. The Assessing Officer held that the only benefit, the assessee got from the investment was dividend income which was exempt under section 10(33) and, therefore, in view of section 14A interest paid for earning said income could not be allowed. The Commissioner (Appeals) dismissed the assessee's appeal. On second appeal, the Tribunal substantially allowed the claim but made a disallowance of Rs. 2 lakhs being the interest stated to be attributable to the dividend income of Rs. 3 lakhs received by the assessee from the leasing company during the previous year. HELD It was on record that the assessee had received only a dividend income of Rs. 3 lakhs and no other benefit was derived from the company…

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