In Brief
A manufacturing company claimed full deduction of dividend income exempt under Section 10(33) without corresponding disallowance of interest expenditure. The Assessing Officer disallowed part of the interest expense as attributable to earning the dividend. The Supreme Court held that Section 14A applies to disallow deductions for expenditure incurred in earning dividend income under Section 115-O, even though the company must pay additional tax on distributed dividends rather than the shareholder. However, the Court found no adequate reasoning by the Assessing Officer for departing from its consistent position in earlier years or for disregarding available interest-free funds. The appeal was allowed, and the company was entitled to full benefit of the dividend income claim without deduction for that assessment year.
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