By Jagdish D. Shah
Jagdish T. Punjabi
Chartered Accountants
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New Page 1Part B : UNREPORTED DECISIONS
(Full texts of the following Tribunal decisions are
available at the Society’s office on written request. For members desiring that
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10 Smt. Neera Jain v. ACIT
ITAT ‘B’ Bench, Mumbai
Before R. S. Syal (AM) and R. S. Padvekar (JM)
ITA No. 1861/Mum./2009
A.Y. : 2005-06. Decided on : 22-2-2010
Counsel for assessee/revenue : Dharmesh Shah/S. S. Rana and
Peeyush Jain
S. 48 — When interest-bearing borrowed funds are utilised for
making an application for allotment of shares and the number of shares allotted
is less than the number of shares applied for, the entire interest (including
interest on funds borrowed for shares applied for but not allotted) is to be
treated as cost of acquisition of shares allotted.
Per R. S. Padvekar :
Facts :
The assessee applied for 1,26,000 shares of Punjab National
Bank. For this purpose she borrowed Rs.4 crores @ 15% p.a. for 15 days and paid
interest of Rs.2,63,015. She was allotted 4,635 shares. The entire amount of
interest of Rs.2,63,015 was capitalised as cost of shares allotted. Similarly,
the assessee applied for 8,76,000 shares of NTPC Ltd. For this purpose she
borrowed Rs.4.88 crores @ 17% p.a. for 17 days and paid interest of Rs.3,87,317.
She was allotted 73,403 shares. The entire amount of interest of Rs.3,87,317 was
capitalised as cost of shares allotted.
The assessee sold the shares allotted. While computing
capital gains on sale of shares allotted the entire amount of interest
capitalised was regarded as cost of acquisition and claimed as deduction.
The Assessing Officer (AO) disallowed the entire interest of
Rs.6,50,330 (Rs.2,63,015 + Rs.3,87,317).
The CIT(A) allowed the claim of deduction for interest to the
extent of borrowed amount utilised for the purpose of payments of shares
allotted by Punjab National Bank and NTPC. The assessee preferred an appeal to
the Tribunal.
Held :
The Tribunal noted that there was no dispute that the entire
loan was borrowed for the purpose of acquiring the shares of Punjab National
Bank and NTPC and also that immediately after allotment of shares, money
refunded by both the companies was refunded to the financiers. The Tribunal held
that the fact that applied shares were not allotted in full will not deprive the
assessee from claiming the entire interest paid as part of the cost of
acquisition of the shares allotted, as money borrowed has direct nexus with
acquisition of shares. The Tribunal directed the AO to treat the interest paid
by the assessee to both the financiers as part of cost of acquisition of shares
and allow the same as a deduction.
This appeal of the assessee was allowed.
