case of CIT-II vs Hero Cycles Ltd. (323 ITR 518). A similar view was taken in Metalman Auto P Ltd. (336 ITR 434) (P&H HC). the phrase 'in relation to' is of However, the Delhi HC held that wide import and found 'the context (in Sec14A) does not suggest that a narrow meaning ought to be given to the said expression'. Accordingly, the expression 'in relation to' does not imply any dominant and immediate purpose in the earning of exempt income and it will be understood in the normal, natural sense without any restriction. Also, the expression 'in relation to' does not have It simply means 'in connection with' or any embedded object. 'pertaining to'. Accordingly, if the expenditure in question has a relation or connection with or pertains to exempt income, it cannot be allowed as deduction even if it otherwise qualifies under other provisions of the Act. What constitutes exempt income? Yet another issue is what constitutes exempt income. If a particular income like dividend has already been taxed u/s 115-0 of the Act, can it be called exempt income or income not forming part of the total income? Courts and Tribunals have given very wide meaning to the scope of disallowance u/s 14A. Accordingly, income covered in Sections 10, 10A, 10AA, 10B, 10BA, 10C as well as Chapter VIA, where 100% exemption is allowable, will get covered u/s 14A for disallowance of expenditure relating to such income. Reassessment / revision / rectification & Sec. 14A disallowance:-
case of CIT-II vs Hero Cycles Ltd. (323 ITR 518). A similar view was taken in Metalman Auto P Ltd. (336 ITR 434) (P&H HC). However, the Delhi HC held that the phrase 'in relation to' is of wide import and found 'the context (in Sec14A) does not suggest that a narrow meaning ought to be given to the said expression'. Accordingly, the expression 'in relation to' does not imply any dominant and immediate purpose in the earning of exempt income and it will be understood in the normal, natural sense without any restriction. Also, the expression 'in relation to' does not have any embedded object. It simply means 'in connection with' or 'pertaining to'. Accordingly, if the expenditure in question has a relation or connection with or pertains to exempt income, it cannot be allowed as deduction even if it otherwise qualifies under other provisions of the Act. What constitutes exempt income? Yet another issue is what constitutes exempt income. If a particular income like dividend has already been taxed u/s 115-0 of the Act, can it be called exempt income or income not forming part of the total income? Courts and Tribunals have given very wide meaning to the scope of disallowance u/s 14A. Accordingly, income covered in Sections 10, 10A, 10AA, 10B, 10BA, 10C as well as Chapter VIA, where 100% exemption is allowable, will get covered u/s 14A for disallowance of expenditure relating to such income. Reassessment / revision / rectification & Sec. 14A disallowance:-
COMPILATION-OF-PRONOUNCEMENTS-US-14A-OF-THE-INCOME-TAX-ACT1961-CA.Satish-Trivedi-18-8-12.docx