Law:

Section:

Section 14A of the Income-tax Act, 1961, read with rule 8 of the Income-Tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income - Assessment year 2002-03 - Whether provisions of sub-sections (2) and (3) of section 14A are constitutionally valid - Held, yes - Whether provisions of rule 8D as inserted by Income-tax (Fifth Amendment) Rules, 2008 are not ultra vires provisions of section 14A, more particularly sub-section (2) and do not offend article 14 of Constitution - Held, yes - Whether provisions of rule 8D which have been notified with effect from 24-3-2008 are not retrospective in nature and shall apply with effect from assessment year 2008-09 - Held, yes - Whether even prior to assessment year 2008-09, when rule 8D was not applicable, Assessing Officer had to enforce provisions of sub-section (1) of section 14A and for that purpose, Assessing Officer was duty bound to determine expenditure which had been incurred in relation to income which did not form part of total income under Act by adopting a reasonable basis or method consistent with all relevant facts and circumstances - Held, yes Section 14A, read with sections 10(33) and 115-O, of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income - Assessment year 2002-03 - Whether dividend income and income from mutual funds falling within ambit of section 10(33) as was applicable for assessment year 2002-03 were not includible in computing total income of assessee and, consequently, no deduction would be allowed in respect of expenditure incurred by assessee in relation to such income by virtue of section 14A(1) - Held, yes FACTS For the assessment year 2002-03, the assessee claimed certain dividend as exempt from tax under section 10(33) and contended that it had not incurred any expenditure for earning the dividend income and, therefore, no disallowance was warranted under section 14A. The Assessing Officer, however, made certain disallowance towards expenses attributed to the earning of the dividend income. On appeal, the Commissioner (Appeals), following earlier decisions in the case of the assessee for the assessment…

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