DCIT vs. Fritz D. Silva (ITAT Mumbai)

The controversy before us is as to whether the interest paid by the assessee on loans taken for acquiring the shares in the past can be allowed as a deduction u/s 48 as cost of acquisition while computing capital gain on sale of such shares. On this aspect, the Ld. Representative for the respondent assessee relied upon the Judgment of Hon’ble Madras High Court in the case of Trishul Investments Ltd. 305 ITR 434 (Madras) which is directly on the point. In the case before the Hon’ble Madras High Court, the assessee was carrying on the business of investment in shares/securities and the profit derived from sale of shares was held subject to capital gains. Apart from other issues, the Revenue had contested the order of the Tribunal wherein the assessee was allowed the interest liability incurred on borrowings utilized to acquire the shares, while determining the cost of acquisition of shares for the purpose of computing capital gain. As per the Hon’ble High Court, the Tribunal was correct in holding that the interest paid for acquisition of shares would partake of the character of cost of shares and, therefore, the same was rightly capitalized along with the cost of acquisition of shares. The Hon’ble High Court affirmed the decision of this Tribunal that the interest payable on moneys borrowed for acquisition of shares should be added to the cost of acquisition of shares for the purpose of computing capital gains. The aforesaid legal position propounded by the Hon’ble Madras High Court fully covers the conclusion drawn by the CIT(A) in the present case. Notably, it is not disputed by the Revenue that the interest costs in question were incurred on the funds utilized for acquisition of shares in the past. In fact, as per the Statement of Facts filed before the CIT(A), the assessee had tabulated the amount of interest capitalized along with the cost of shares, which were purchased in the past. The assessee had also asserted before the CIT(A) without rebuttal, that the interest cost so incurred in the past was not claimed as a deduction against any other income. Be that as it may, in so far as the factual position is concerned, there is no denial by the Revenue that monies borrowed have been utilized for acquisition of shares in question. Therefore, having regard to the factual findings of the CIT(A), in our view, the legal position as propounded by the Hon’ble Madras High Court in the case of Trishul Investments Ltd (supra) supports the plea of the assessee that interest paid for acquisition of the shares would partake the character of cost of shares and, therefore, assessee had rightly capitalized the interest along with the cost of acquisition for the purpose of computing capital gains.

(Macintosh Finance Estates Ltd vs. ACIT (2007) 12 S0T 324 (Mum) (Trib) not followed, CIT vs. Trishul Investments Ltd (2008) 305 ITR 434 (Mad) (HC) followed)