SC upholds Delhi HC ruling
in Maxopp Investments Ltd., holds that interest paid on borrowings used for
acquiring strategic investments is subject to Sec 14A disallowance even if
earning dividend income is only incidental; Rules that the dominant or main
object of investment would not be a relevant consideration in determining as to
whether expenditure incurred is ‘in relation to’ the dividend income as
contemplated u/s. 14A; Agrees with Delhi HC that the objective behind
introduction of Sec. 14A was to cure a problem whereby the principle of
apportionment was applicable only to divisible business and in case of
composite or indivisible business, entire expenditure was deductible without apportionment;
Thus holds that “Considered in this hue, the principle of apportionment of
expenses comes into play as that is the principle which is engrained in Section
14A of the Act”, relies upon SC ruling in Walfort Share and Stock Brokers;
Disagrees with Punjab & Haryana HC’s application of dominant purpose test
in State Bank of Patiala case while holding that Sec 14A is not applicable to
investment held as stock in trade; Notes that where shares are held as
‘stock-in-trade’, certain dividend is earned, though incidentally, which is
exempt u/s 10(34), thus holds that applicability of Sec 14A is triggered which
is based on the theory of apportionment of expenditure between taxable and
non-taxable income; However, considering facts of Bank of Patiala case,
dismisses Revenue’s appeal against HC ruling:SC
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