Section 10(34) of the Income Tax Act
The decision most relied on for Section 10(34) is CIT v. Reliance Utilities & Power Ltd. (313 ITR 340), cited in 2,114 of the 238 judgments on BharatTax that turn on this section.
Leading authorities on Section 10(34)
When an assessee has sufficient interest-free funds available, and investments are made from mixed funds, it is presumed that the investments are made from the interest-free funds, thus precluding the disallowance of interest expenditure.
When an assessee possesses interest-free funds sufficient to cover investments yielding tax-free income, it is presumed that such investments were made from these interest-free funds, precluding disallowance of interest expenditure under Section 14A.
Disallowance computed under Section 14A, read with Rule 8D, cannot be added to book profits under Section 115JB for Minimum Alternate Tax (MAT) purposes. Additionally, for Section 14A disallowance, only investments that yielded exempt income during the year are considered for calculating their average value.
When an assessee has both interest-free and interest-bearing funds, there is a presumption that investments were made from interest-free funds, eliminating the need to separately identify if investments were from own funds for disallowance under Section 14A.
The amount of provision for bad and doubtful debts is reduced from loans for tax purposes.
The case concerns the allowability of deductions for provisions made under Section 36 of the Income Tax Act, 1961, especially those related to bad and doubtful debts. It distinguishes such deductions from the recognition of interest income on non-performing assets (NPAs).
Liabilities accrued on a notional basis are allowable as deductions under the mercantile system of accounting even if their exact quantification or discharge is deferred to a future date or if the demand itself is disputed.
A provision for doubtful debts cannot be added back while computing book profits under Section 115JB of the Income-tax Act for Minimum Alternate Tax (MAT) purposes.
The gain from delivery-based share transactions, where shares are consistently treated as investments and valued at cost in the books, is assessable as capital gains and not business income. An assessee's consistent stand on classifying share transactions should generally be followed by the assessing officer in subsequent years.
Under the mercantile system of accounting, interest income accrues and is taxable in the year it arises, even for "sticky" or doubtful loans, as the right to receive the income is paramount, not its actual receipt, provided there is an agreement for payment.
Judgments on Section 10(34)
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