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Facts
The assessee filed her return of income reporting dividend income from mutual funds, claiming exemption under Section 10(35) of the Income Tax Act. The CPC processed the return, allowing only Rs. 10 lacs as exempt under Section 115BBDA and taxing the balance, treating it as dividend from domestic companies. The assessee appealed this decision.
Held
The Tribunal held that dividend income earned from mutual funds falls within the provisions of Section 10(35) and is therefore exempt in its entirety, not restricted to Rs. 10 lacs as per Section 115BBDA. The addition made by the AO was deleted. The second ground regarding disallowance of capital loss was allowed for statistical purposes as per the CIT(A)'s direction.
Key Issues
Whether dividend income from mutual funds is fully exempt under Section 10(35) or restricted to Rs. 10 lacs under Section 115BBDA. Whether disallowance of capital loss is justified.
Sections Cited
10(34), 10(35), 115BBDA, 143(1), 46A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: SHRI PAWAN SINGH & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of ADDL/JCIT (A)-2, Bengaluru, vide order no. ITBA/APL/S/250/2024- 25/1071060919(1), dated 10.12.2024 passed against the intimation issued by Centralized Processing Center, by DCIT, Bengaluru (CPC), u/s. 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 13.03.2019 for AY 2017-18.
Grounds taken by assessee are reproduced as under:
1. 1. In law and in the facts and circumstances of the Appellant case, the learned Commissioner of Income-tax (Appeals) has grossly erred in confirming the addition of Rs. 34,34,698/- made by Ld. AO treating as dividend u/s. 10 (34) of IT Act. However appellant earned income from mutual fund which is exempt u/s. 10(35) of IT Act.
2. In law and in the facts and circumstances of the Appellant case, the learned Commissioner of Income-tax (Appeals) has grossly erred in confirming the 2.1. First issue raised in the present appeal is in respect of treatment of dividend which is claimed to be exempt u/s.10(35), but has been treated as dividend u/s.10(34). The second issue raised is in respect of disallowance of loss of capital gain incurred by the assessee.
Brief facts of the case are that assessee filed her return of income on 16.03.2018, reporting total income at Rs. 16,88,720/- after adjustment of current year as well as, brought forward losses. The return was processed by the Centralized Processing Centre (CPC) of the Income Tax Department, Bengaluru by issuing intimation u/s. 143(1) dated 13.03.2019. In the return so processed, income of the assessee was determined at Rs. 55,03,310/-. Claim of the assessee is that, she had made investment in mutual funds and earned dividend income thereon which is claimed exempt u/s. 10(35). This was reported in Schedule EI at Sr. No.2. This Schedule in the return form is for the purpose of disclosing details of exempt income i.e. income not to be included in total income.
3.1. In this respect, it is asserted that there is no separate column in the return form to disclose dividend income from mutual funds. In other words, there is no separate column to report dividend income from shares separately and that from mutual funds, because of which assessee reported her dividend income from mutual funds in Schedule EI at Sr. No.
2. While processing the return, CPC allowed dividend income of Rs. 10 lacs as exempted in terms of provisions of Section 115BBDA considering it as dividend earned on shares. To prove her claim, assessee furnished documentary evidences about this dividend being earned from mutual funds only. These were furnished before the ld. CIT(A) by filing an application under Rule 46A of the Income-tax
According to her, addition has been sustained merely on the premise that assessee has earned dividend income from domestic companies and therefore, provisions of Section 115BBDA applies. Ld. CIT(A) also confirmed the addition made while processing the return despite all the documentary evidences placed on record by the assessee.
4.1. In this respect, ld. Counsel for the assessee reiterated the facts and asserted that statement of mutual funds and details in respect dividend income earned thereon is undisputed and verifiable from the material on record. Claim of the assessee squarely falls within the provisions of Section 10(35) which deals with dividend income from mutual funds, exempting it from taxability under the Act. According to the ld. Counsel, provisions of Section 115BBDA does not apply in the present case. Reference was made to the decision of Co-ordinate Bench of ITAT Ahmedabad in the case of Rajalben Hirenbhai Patel vs DCIT (2023) 157 taxmann.com 489 (Ahd), wherein it was observed that: “from a bare reading of the provisions of sections 115BBDA. 10(34) and 10(35) that section 115BBDA levies a special rate of tax only on dividend income earned from domestic companies if it exceeds Rs. 10 lakhs. This dividend income is exempt up to Rs. 10 lakhs under section 10(34). The assessee has claimed to have earned dividend income from mutual funds, which are exempt under section 10(35). Evidence to this effect was also filed by way of statement of Mutual Fund. The assessee had clearly demonstrated the inapplicability of section 115BBDA 10 the facts of her case.”
We have heard both the parties and considered the material placed on record including paper book containing 426 pages along with written submission by the assessee. Assessee has earned dividend income from mutual funds which has been reported in the return form
Indu Maheshwari AY 2017-18 in Schedule EI. Assessee had constrain to furnish this detail in the Schedule only as there was no other place to bifurcate the earning of the dividend income from shares and from mutual funds. Such a constrain laid to invoking of provisions Section 115BBDA at the time of processing of return by CPC, whereby income to the extent of Rs.10 lacs was allowed as exempted and the balance was subjected to tax, for which the assessee is in appeal before the Tribunal.
Assessee has furnished all the documentary evidences to substantiate her claim and demonstrate evidently that the dividend earned is from mutual funds which is exempt u/s. provision of Section 10(35), not forming part of the total income. Having considered the provisions of Section 10(35) and Section 115BBDA coupled with decision of the Co-ordinate Bench of ITAT Ahmedabad (supra), we are in agreement with the claim of the assessee that the dividend income earned by her from mutual funds falls within the provisions of Section 10(35) and, therefore, is exempt in entirety without restricting it to Rs.10 lacs u/s. 115BBDA. Accordingly, addition so made in this respect is deleted. In the result, Ground No.1 raised by the assessee is allowed.
In respect of Ground No.2 which relates to disallowance of loss on capital gain suffered by the assessee, ld. CIT(A) has given direction to the ld. AO to verify the claim and allow it if found correct in accordance with the provisions of the Act. In this respect, assessee has furnished relevant documentary evidences forming part of the paper book. Having perused the same, we do not find any reason to interfere with the finding arrived at by the ld. CIT(A). Accordingly, Ground No.2 raised by the assessee is allowed for statistical purposes.
In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 31st December, 2025