INCOME TAX ACT, 1961

Section 48

Capital gains - Computation of cost of acquisition - Disallowance of indexed interest cost while computing capital gains -

Assessee had sold shares of ANS and it had reduced the indexed cost of acquisition and further a sum on account of indexed interest cost. Assessee submitted that the aforesaid investment was made in financial year 2010-11 out of the interests bearing Inter-Corporate Deposits taken by the assessee. For purchase of shares, on the ICD's the assessee had paid interest. Assessee had identified the interest cost to the investment and had offered the said interest cost in the computation of income of the respective assessment years for taxation by adding it in the computation. AO noted that though the claim of the assessee to the extent of funds having been received as ICDs was correct but assessee had not placed any material to demonstrate that the ICDs have been only utilized for acquiring the shares of ANS. He accordingly denied the claim of assessee on account of indexed interest cost while computing Capital Gain on sale and held it to be not allowable. Held: Court in the case of Trishul Investments Ltd. (2008) 305 ITR 434 (Mad.) : 2008 TaxPub(DT) 0811 (Mad-HC) held that interest paid for acquisition of shares would partake the character of cost of shares and therefore, the interest would be considered as cost of acquisition for the purpose of computing of capital gains. Submissions of the assessee about the interest paid for acquisition of the shares having not been claimed as deduction in any of the earlier years has been found false or was controverted by Revenue by bringing any contrary material on record. Interest payable by the assessee for acquisition of shares should be added to the cost of acquisition and therefore be considered while computing capital gains. Thus, AO was directed to allow the indexed cost on account of interest on shares.

Followed:CIT v. Trishul Investments Ltd. (2008) 305 ITR 434 (Mad-HC) : 2008 TaxPub(DT) 811 (Mad-HC), CIT v. Maithreyi Pai (1985) 152 ITR 247 (Karn-HC) : 1985 TaxPub(DT) 269 (Karn-HC), Dy. CIT v. Fritz D. Silva [ITA No. 236/Mum/2010 for assessment year 2005-06] : 2016 TaxPub(DT) 2117 (Mum-Trib)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

INCOME TAX ACT, 1961

Section 14A

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