Section 10(35)

Section 10(35) — the law in short

What the courts have decided on section 10(35), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Mukundbhai Manubhai Patel v ACIT High CourtHelps taxpayerNo later treatment found
  I bought mutual fund units, took the dividend the same day and booked a short-term loss. The department calls it fictitious and has reopened. Can it?
  Not on that material alone. The Gujarat High Court quashed a s.148A(d) order and s.148 notice where the reopening rested on an allegation that the fund house had manipulated its distributable surplus: purchasing units and earning dividend on the same day is not impermissible, and allegations against the fund manager cannot be extended to the investor without something showing he knowingly participated.
• Sobha Developers Ltd v DCIT High CourtHelps taxpayer
  Can the Rule 8D figure be added back to book profit under clause (f) of the Explanation to s.115JB?
  The Karnataka High Court held it cannot. A disallowance under s.14A is a notional disallowance, and the amount cannot be added back to book profit under clause (f) by taking recourse to s.14A. Clause (f) can operate only on amounts actually debited to the profit and loss account.
• Kae Capital Fund v ITO — the live question whether a SEBI 1996-Regulations venture capital fund is an "investment fund" under s.115UB, and why the Tribunal never reached it ITATHelps taxpayerNo later treatment found
  The Commissioner (Appeals) has directed the Assessing Officer to allow my fund's section 10(23FB) exemption only if it proves it is not an investment fund under Explanation 1 to section 115UB, without ever hearing us. Has anyone decided whether a SEBI venture capital fund registered under the 1996 Regulations is inside section 115UB?
  Not in this order, and that is the point to take from it. The Mumbai Tribunal set the Commissioner (Appeals)' order aside and restored the appeal for de novo adjudication because a request for a personal hearing through video conferencing had been made and not granted, which clause 12 of the Faceless Appeal Scheme, 2021 does not permit — the Commissioner (Appeals) "shall allow such request". Having remitted on that ground the Tribunal expressly held that the assessee's other grievances did not call for adjudication at that stage. So the substantive question — whether a fund holding a certificate under the SEBI (Venture Capital Funds) Regulations, 1996 that has not migrated to the SEBI (Alternative Investment Funds) Regulations, 2012 is an "investment fund" within clause (a) of Explanation 1 to section 115UB, and so loses section 10(23FB) by the proviso inserted with effect from 1 April 2016 — remains undecided.
• DCIT v Business Excellance Trust — shares that were unlisted when bought fall in the main part of the section 10(38) notification ITATCuts both waysNo later treatment found
  My client bought shares off-market when the company was unlisted, sold them on the exchange after listing and paid STT on the sale. The officer denies section 10(38) because no STT was paid on purchase. Is he right?
  No, on this Tribunal's reasoning. All three carve-out clauses of the notification issued under the third proviso to section 10(38) are about listed equity shares, so a purchase of shares that were unlisted at the time of acquisition falls in the main part of the notification, and the exemption survives even though no STT was paid on acquisition.
• Statutory position — ss.196A, 196B and 196C: three fixed-rate deduction sections for non-residents, only one of which carries a treaty proviso, and none of which is in the s.197 list CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  We are remitting income on mutual fund units to a foreign company, and separately paying on Global Depository Receipts. Do we deduct under section 195 at rates in force, and can the payee get a lower deduction certificate?
  No. Where one of these three sections applies, it and not section 195 supplies the rate, and the rate is a figure fixed in the section rather than the 'rates in force'. Section 196A covers income in respect of units of a Mutual Fund specified under clause (23D) of section 10, or from the specified company referred to in the Explanation to clause (35) of section 10, paid to a non-resident not being a company or to a foreign company, at twenty per cent; it alone carries a proviso letting the rate fall to the treaty rate where an agreement under section 90(1) or section 90A(1) applies and the payee has furnished the certificate referred to in section 90(4) or section 90A(4). Section 196B covers income in respect of units referred to in section 115AB, and long-term capital gains on their transfer, payable to an Offshore Fund. Section 196C covers interest or dividends on bonds or Global Depository Receipts referred to in section 115AC, and long-term capital gains on their transfer, payable to a non-resident. Sections 196B and 196C each now carry a three-limb rate: ten per cent on the income, ten per cent on long-term capital gains where the transfer takes place before 23 July 2024, and twelve and one-half per cent where it takes place on or after that date. None of the three sections is in the list in section 197(1).
• Statutory position — the proviso to s.57: only interest, capped at twenty per cent of the dividend, from AY 2021-22 CBDT Circulars & InstructionsCuts both ways
  Dividends are taxable in my hands again. What can I actually deduct against dividend income, and is there a limit?
  Only interest expense, and not more than twenty per cent of the dividend income included in your total income for that year computed without this deduction. The proviso to s.57 was inserted by the Finance Act 2020 with effect from 1 April 2021, so it applies from AY 2021-22 onwards; the same amendment substituted the word 'dividends' in clause (i) for 'dividends, other than dividends referred to in section 115-O', which is what brought ordinary dividends back into the shareholder's assessment.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.