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November 2022

Disallowance u/s 14A – dividend income – from an overseas company in Oman – no tax is payable on the said dividend in Oman and India – Total income – Section 14A would not be attracted

By Ajay R. Singh, Advocate
Reading Time 3 mins
Pr. CIT - Central-1 vs. IFFCO Ltd.
ITA No. 390 of 2022
Date of order: 11th October, 2022
15 Delhi High Court
[Arising out of ITAT order dated 6th January,
2021 in ITA No.7367/DEL/2017] A.Y.: 2007-08

15. Disallowance u/s 14A - dividend income - from an overseas company in Oman - no tax is payable on the said dividend in Oman and India – Total income - Section 14A would not be attracted

The Assessee received dividend income of Rs. 113.86 crores from OMIFCO-OMAN, an overseas company in Oman, no tax was payable on the said dividend in Oman and India, as tax sparing credit of notional tax on the dividend is allowed under Article 25 of the Indo-Oman DTAA. The Revenue contended that the assessee is effectively not paying any tax on the said income either in the source country or in India and thus, dividend income for all purposes is exempted from tax. It was stated that the ITAT has erred in restricting the disallowance to the tune of Rs. 74.26 lakhs as against Rs. 9.10 crores disallowance made by the AO u/s 14A read with Rule 8D of the Act after excluding the investment in OMIFCO-Oman.

The Hon. Court held that in view of section 14A(1) of the Act, no deduction is to be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. As per section 2(45) of the Act, “total income” means the total amount of income referred to in sect
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