Key takeaways from SC ruling in Maxopp Investment on Sec. 14A

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