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CA Final · Direct Tax Laws & International Taxation · Incomes which do not form part of Total Income

Arjun Ltd incurred Rs 1,20,000 of expenditure during the tax year in relation to an exempt income that has not accrued, arisen or been received in that same tax year. The company claims the expenditure is deductible because there is no exempt income in the year. Under section 14 of the Income-tax Act, 2025, what is the position?

The expenditure is not deductible. Section 14(3) makes the disallowance provision apply even where the exempt income has not accrued, arisen or been received in that tax year, so the absence of exempt income in the year does not allow the deduction.

  1. AThe expenditure is deductible because no exempt income arose in the year
  2. BThe expenditure is deductible only in the year the exempt income is received
  3. CThe expenditure is allowed, but the exempt income will be taxed when received
  4. DThe expenditure is not deductible, since section 14 applies even when the exempt income has not accrued, arisen or been received in that yearCorrect

Explanation

Section 14(3) applies the section where expenditure is incurred in a tax year in relation to income not forming part of total income, even though that income has not accrued or arisen or been received in the year. So the bar on deduction in section 14(1) still operates. The claim that no exempt income arose in the year therefore fails.

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