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Income Tax Appellate Tribunal, DELHI BENCH ‘G’: NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWAL
Assessee by Shri Mahender Gohel, CA Department by Shri Manish Gupta, Sr. DR Date of Hearing 16.09.2025 Date of Pronouncement 12.12.2025 O R D E R
PER MANISH AGARWAL, AM:
This appeal is filed by the Assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (‘the CIT(A)’ in short) dated 30.01.2025 passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) in Appeal No. CIT(A), Delhi-17/10854/2019-20 against the assessment order dated 30.12.2019 passed u/s 143(3) of the Act for Assessment Year 2017-18.
Brief facts of the case are that assessee is a Trust having registration u/s 12A of the Act and filed its return of income declaring total income at Nil. The case of the assessee trust was selected for scrutiny wherein the AO has made the additions Del/2025 Jasmina Trust vs. DCIT of Rs. 25,51,286/- towards the dividend income as unexplained and further disallowed expenditures claimed u/s 57(1) of the act at Rs.30,05,665/- and the total income of the assessee trust was assessed at Rs. 55,56,950/-.
Against the said order, the assessee preferred an appeal before the Ld. CIT(A), who partly allowed the appeal of the assessee wherein disallowance of expenditure claimed u/s 57 of the Act stood deleted and the addition of Rs. 25,51,286/- towards dividend income is upheld with the direction to allow the basic exemption of Rs. 10.00 lacs and charge tax @10% in the remaining amount as provided us 115BBDA of the Act.
Aggrieved by the said order, the assessee is in appeal before us by taking the following grounds of appeal:
1. EXEMPTION UNDER SECTION 10(34) OF THE ACT: RS.25,51,286/-: 1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-Tax (Appeals) [CIT(Appeals)] erred in confirming denial of the exemption claimed by the Appellant in respect of Dividend Income of Rs.25,51,286/-, under Section 10(34) of the Act and levy of tax at the maximum marginal rate by the learned Assessing Officer. 1.2 The learned CIT(Appeals) and the learned Assessing Officer failed to appreciate the information/explanation given and submissions made by the Appellant during the course of assessment proceedings in support of its claim for exemption of Dividend Income. 1.3 The learned CIT(Appeals) erred in partly denying the claim of the appellant for exemption of dividend income on the ground that since dividend income exceeds Rs.10,00,000/-, tax at the rate of 10% on the amount exceeding Rs.10,00,000 is to be calculated in respect of dividend income earned during the financial year as per Section 115BBDA of the Act. 1.4 The Learned CIT(Appeals) failed to appreciate that the above referred amended provisions of Section 115BBDA of the Act are effective from 1st April, 2018 (AY 2018-19) and hence do not apply to the Assessment Year 2017-18. The appellant prays that the learned Assessing Officer be directed to grant exemption under Section 10(34) of the Act for a sum of Rs.25,51,286/- in respect of Dividend Income as the denial thereof is unwarranted, unjustified and unreasonable.
Del/2025 Jasmina Trust vs. DCIT I, Shyamsunder Maniyar, the Principal Officer of the Appellant, do hereby declare what is said above is true to the best of my information and belief.”
Ground of appeal Nos. 1 to 1.3 are with respect to the confirmation of the addition of Rs.25,51,286/- subject to allowance of basis exemption of Rs. 10,00,000/- and Ground of appeal No. 1.4 is respect to charge of tax @10% on the remaining amount of dividend income as per section 115BBDA of the Act.
Before us, the Ld. AR for the assessee submits that proviso to section 10(34) is inserted vide Finance Act, 2016 w.e.f. 01.04.2017 and therefore, the same is applicable from Assessment Year 2018-19 and onwards and is not applicable in the year under appeal which is AY 2017-18. He further submits that the dividend income being exempt income u/s 10(34) of the Act in the instant assessment year, thus the same should not be taxed in the hands of the assessee company.
On the other hand, the Ld. Sr. DR vehemently supports the order of lower authorities and submits that the proviso to section 10(34) is inserted by Finance Act, 2016 w.e.f. 01.04.2017 and therefore, is applicable from Assessment Year 2017-18 and onwards. He thus, requested for the confirmation of the orders of the lower authorities.
Heard both the parties and perused the materials available on record. The solitary issue before us is that whether dividend income received by the assessee in this year is taxable or not and if taxable, whether the provisions of section 115BBDA are applicable to it or not. The claim of the assessee is that dividend income is exempt u/s 10(34) of the Act and the first proviso in section 10(34) is inserted w.e.f. 01.04.2017 by Finance Act 2016 and thus the same is applicable from Assessment Del/2025 Jasmina Trust vs. DCIT Year 2018-19 and onwards and could not be applied in Assessment Year 2017-18. The first proviso to section 10(34) of the Act, reads as under:
“Provided that nothing in this case clause shall apply to any income by way of dividend chargeable be tax in accordance with the provisions of section 115BBDA of the Act.”
That the provision is inserted from 01.04.2017, and is applicable from Assessment Year 2017-18. The relevant extract of clause 7(iv) through which this amendment was proposed in the Finance Bill, 2016 is reproduced as under: 7. In section 10 of the Income-tax Act,— (1)……. …….. (IV) in clause (34), the following proviso shall be inserted, namely:— “Provided that nothing in this clause shall apply to any income by way of dividend chargeable to tax in accordance with the provisions of section 115BBDA 10. Further in terms of clause 50 of the Finance Bill, 2016 section 115BBDA is inserted reads as under: 50. After section 115BBD of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2017, namely:— ‘115BBDA. (1) Notwithstanding anything contained in this Act, where the total income of an assessee, being an individual, Hindu undivided family or a firm, resident in India, includes any income exceeding ten lakh rupees, by way of dividends declared, distributed or paid by a domestic company, the income-tax payable shall be the aggregate of— (a) the amount of income-tax calculated on the income by way of such dividends, at the rate of ten per cent.; and (b) the amount of income-tax with which the assessee would have been chargeable had the total income of the Del/2025 Jasmina Trust vs. DCIT assessee been reduced by the amount of income by way of dividends. (2) No deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the assessee under any provision of this Act in computing the income by way of dividends referred to in clause (a) of sub-section (1). (3) In this section, “dividends” shall have the same meaning as is given to “dividend” in clause (22) of section 2 but shall not include sub-clause (e) thereof.’.
The relevant extract of The Notes on Clauses to Finance Bill, 2016 for clause 7(iv) and clause 50 reads as under: Clause 7 of the Bill seeks to amend section 10 of the Income Tax Act relating to incomes not included in total income It is also proposed to amend clause (34) of the said section so as to provide that any income by way of dividend in excess of ten lakh rupees shall not be exempt from tax in the case of an individual, Hindu undivided family or a firm. ………… These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 20172018 and subsequent years. Clause 50 of the Bill seeks to insert a new section 115BBDA in the Income-tax Act relating to tax on certain dividends received from domestic companies. The provisions of the Income-tax Act provide that dividend income shall be exempt if dividend distribution tax is paid on such income. It is proposed to insert a new section 115BBDA in the said Act so as to provide that any income by way of dividend declared, distributed or paid by a domestic company, in excess of ten lakh rupees shall be chargeable to tax at the rate of ten per cent. in the case of an individual, Hindu undivided family or a firm who is a resident in India.
Del/2025 Jasmina Trust vs. DCIT It is further proposed to provide that no deduction in respect of any expenditure or allowance or set off of loss shall be allowed in computing the income by way of dividend and to define the term dividends. This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to assessment year 2017-2018 and subsequent years.
The Memorandum explaining the Finance Bill, 2016 has further clarified that this amendment is applicable from Assessment year 2017-18 and onwards: Rationalization of taxation of income by way of dividend Under the existing provisions of clause (34) of section 10 of the Act, dividend which suffer dividend distribution tax (DDT) under section 115-O is exempt in the hands of the shareholder. Under section 115-O dividends are taxed only at the rate of fifteen percent at the time of distribution in the hands of company declaring dividends. This creates vertical inequity amongst the tax payers as those who have high dividend income are subjected to tax only at the rate of 15% whereas such income in their hands would have been chargeable to tax at the rate of 30%. With a view to rationalise the tax treatment provided to income by way of dividend, it is proposed to amend the Income-tax Act so as to provide that any income by way of dividend in excess of Rs. 10 lakh shall be chargeable to tax in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India, at the rate of ten percent. The taxation of dividend income in excess of ten lakh rupees shall be on gross basis. These amendments are proposed to be made effective from the 1stday of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years. [Clause 7 & 50] Del/2025 Jasmina Trust vs. DCIT 13. In view of the above, it is clear that the amendment in section 10(34) is applicable from Assessment Year 2017-18 and onwards. However, from the perusal of newly inserted provisions of section 115BBDA, it is seen that the special rate of tax as provided in this section is applicable to Individual, HUF and / or Firm and is not applicable to Trust. Since the provisions of section 115BBDA is applicable to Individual, HUF and firm thus the proviso to section 10(34) inserted vide Finance Act, 2016 is not applicable in the case of the Trust. Accordingly, the action of the Ld. CIT(A) is holding the dividend income as taxable in the case of assessee and further holding the same is taxable as per the provisions of section 115BBDA of the Act is contrary to the provisions of section 10(34) r.w.s. section 115BBDA of the Act and, accordingly, the addition made is hereby deleted and all the grounds of appeal are allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 12.12.2025.