DCIT 12(2), MUMBAI V. FRITZ D SILVA, MUMBAI

ITA 236/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92518 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Department
• Bench Allotted: E
• Next Hearing Date: 27-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 11-01-2010
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Cost of acquisition; Revenue expenditure
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K ** BZ U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI JH TH + ,L + IUUW] YS[KK LNL; ,OA JH VFER KQDYK] U;KF;D LNL; DS LE{KA BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER VK;DJ VIHY LA[;K@ ITA NO 236 /MUM/ 2010 ( FU/KKZJ.K OKZ / ASSESSMENT YEAR: - 2005 - 06 ) D.C.I.T 12(2) ROOM NO. 114, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. 400 020. VS.` SHRI FRITZ D. SILVA C/O M/S NANUBHAI DESAI & CO. CHARTERED ACCOUNTANTS SIR VITHALDAS CHAMBERS 16, MUMBAI SAMACHAAR MARG, MUMBAI 400 001. LFKK;H YS[KK LA[;K@TH VKB VKJ LA[;K@ PAN/GIR NO. AEEPD3225Q APPELLANT RESPONDENT ORDER PER G.S. PANNU, AM THE CAPTIONED APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [ HEREINAFTER REFERRED TO AS THE CIT(A) ] DATED 27.10.2009 , WHICH IN TURN HAS ARISEN FROM AN ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961( HEREINAFTER REFERRED TO AS T HE ACT ) DATED 31.12.2007 PERTAINING TO A SSESSMENT Y EAR 2005 - 06 . JKTLO FD VKSJ LS @ REVENUE BY SMT. N. V. NADKARNI. FU/KZKFJFR FD VKSJ LS @ ASSESSEE BY SHRI ANUJ KISNADWALA LQUOKBZ FD RKJH[K @ DATE OF HEARING 27.4.2015 ?KKSK.KK FD RKJH[K@ DATE OF PRONOUNCEMENT 08 .5.2015 VK;DJ VIHY LA[;K@ ITA NO 236/MUM/2010 ( FU/KKZJ.K OKZ / ASSESSMENT YEAR: - 2005 - 06) 2 | P A G E IN THIS APPEAL, THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE INTEREST ON BORROWED FUNDS USED FOR ACQUIRING SHARES CANNOT BE CAPITALIZED WITH THE PURCHASE COST OF SHARES AND INDEXATION ALSO CANNOT BE CLAIMED ON THE ABOVE CAPITALIZED COST FOR THE PURPOS E OF COMPUTATION OF CAPITAL GAIN AT THE TIME OF SALE OF SHARES AS PER THE DECISION OF THE FOLLOWING TRIBUNALS. A) MACINTOSH FINANCE ESTATES LTD. VS. ADDL. CIT SPECIAL RANGE - 36, MUMBAI REPORTED IN (2007) 12 SOT 324 (MUMBAI) B) MOHANLAL M. SHAH VS. DCIT CENTRAL CIRCLE - 11, MUMBAI REPORTED IN (2007) 105 ITD 669 (MUMBAI) C) HARISH KRISHNAKANT BHATT VS. ITO REPORTED IN (2004) 91 ITD 311 (AHD). 2. IN BRIEF, THE RELEVANT FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL WHO F ILED HIS RETURN OF INCOME FOR A SSESSMENT Y EAR 20 05 - 06 DECLARING A TOTAL INCOME OF RS. 1,19,63,100/ - WHICH , INTER - ALIA INCLUDED A LONG TERM CAPITAL LOSS ON SHARES SOLD DURING THE Y EAR UNDER CONSIDERATION. THE ASSESSING OFFICER DIFFERED WITH THE ASSESSEE ON THE COMPUTATION OF CAPITAL GAINS ON SALE OF SHARES WHICH WERE ACQUIRED BY THE ASSESSEE IN THE PAST. THE ASSESSING OFFICER NOTED THAT THE INTEREST COST INCURRED BY THE ASSESSEE FOR ACQUISITION OF SHARES IN THE PAST WAS TREATED AS PART OF THE COST OF SUCH SHARES AND THE SAME WAS CONSIDERED BY THE ASSESSEE WHILE COMPUTING THE INCOME UNDER THE HEAD CAPITAL GAINS. AS PER THE ASSESSING OFFICER , THE INTEREST PAID BY THE ASSESSEE ON ACQUISITION OF SHARES COULD NOT BE CONSIDERED AS AN EXPENDI TURE WHILE COMPUTING THE INCOME UNDER THE HEAD CAPITAL GAINS AND THAT THE ASSESSEE COULD CLAIM DEDUCTION FOR THE INTEREST EXPENDITURE ONLY IF THE INCOME FROM SALE OF SHARES WAS DECLARED AS INCOME FROM BUSINESS. AS A CONSEQUENCE, THE ASSESSING OFFICER DET ERMINED THE LONG TERM CAPITAL GAIN O N SALE OF SHARES AT RS. 1,98,58,101/ - AS AGAINST LONG TERM CAPITAL LOSS OF RS. 62,469/ - COMPUTED BY THE ASSESSEE. THE CIT(A) HAS SINCE ACCEPTED THE PLEA OF THE ASSESSEE, AS ACCORDING TO VK;DJ VIHY LA[;K@ ITA NO 236/MUM/2010 ( FU/KKZJ.K OKZ / ASSESSMENT YEAR: - 2005 - 06) 3 | P A G E HIM , ALL THE EXPENSES INCURRED FO R THE ACQUISITION OF AN ASSET WOULD CONSTITUTE ITS COST AND, THEREFORE, THE ASSESSEE WAS JUSTIFIED IN TAKING INTO ACCOUNT NOT ONLY THE ORIGINAL PRICE PAID FOR THE SHARES BUT ALSO THE INTEREST PAID BY HIM ON BORROWINGS MADE FOR PAYING THE PURCHASE PRIC E I N ORDER TO CALCULATE THE COST OF ACQUISITION OF SHARES FOR THE PURPOSE OF COMPUTING CAPITAL GAINS. IN COMING TO SUCH CONCLUSION, THE CIT(A) RELIED UPON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MITHILESH KUMARI 92 ITR 09 (DEL) , WHERE IN IT HAS BE E N HELD THAT THE INTEREST PAID BY THE ASSESSEE ON MONIES BORROWED FOR PURCHASE OF AN OPEN PLOT OF LAND CONSTITUTED A PART OF THE ACTUAL COST OF THE ASSESSEE FOR THE PURPOSE OF DETERMINING THE CAPITAL GAIN DERIVED FROM THE SALE OF LAND. AGAINST THE AFORESAID DECISION OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US . 3. WE HAVE CONSIDERED THE RIVAL STANDS . TH E 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 HONBLE MADRAS HIGH COURT IN THE CASE OF TRISH U L INVESTMENT S LTD. 305 ITR 434 (MADRAS ) WHICH IS DIRECTLY ON THE POINT . IN THE CASE BEFORE THE HONBLE M ADRAS HIGH COURT, THE ASSESSEE WAS CARRYING ON THE BUSINESS OF INVESTM ENT 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 LIABILI TY INCURRED ON BORROWING S UTILIZED TO ACQUIRE THE SHARES, WHILE DETERMINING THE COST OF ACQUISITION OF SHARES FOR THE PURPOSE OF COMPUTING CAPITAL GAI N. AS PER THE HONBLE HIGH COURT, THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE INTEREST PAID FOR ACQUISITI ON OF SHARES WOULD PARTAKE OF THE CHARACTER OF COST OF SHARES AND, THEREFORE, VK;DJ VIHY LA[;K@ ITA NO 236/MUM/2010 ( FU/KKZJ.K OKZ / ASSESSMENT YEAR: - 2005 - 06) 4 | P A G E THE SAME WAS RIGHTLY CAPITALIZED ALONG WITH THE COST OF ACQUISITION OF SHARES. THE HONBLE HIGH COURT AFFIRMED THE DECISION OF THIS TRIBUNAL THAT THE INTEREST PAYABLE ON MONEYS B ORROWED 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 HONBLE 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 F ACTS FILED BEFORE THE CIT(A), THE ASSESSEE HAD TA BULATED 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 AGA INST 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 MON IES 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 HONBLE 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. THE CONCLUSION OF THE CIT(A) THUS DESERVES TO BE AFFIRMED. 4. BEFORE US, THE LD. DR H OWEVER REF ERRED TO THE DECISIONS OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MACINTOSH FINANCE ESTATES LIMITED VS. ADDITIONAL COMMISSIONER OF INCOME TAX (2007) 12 SOT 324 . THE QUESTION BEFORE THE TRIBUNAL IN THE CASE OF MACINTOSH FINANCE ESTATES LIMITED (SUPRA) WAS AS TO WHETHER INTEREST EXPENSES INCURRED FOR HOLDING SHARES AS INVESTMENT CAN BE ADDED VK;DJ VIHY LA[;K@ ITA NO 236/MUM/2010 ( FU/KKZJ.K OKZ / ASSESSMENT YEAR: - 2005 - 06) 5 | P A G E TO THE COST OF INVESTMENT. THE TRIBUNAL NOTED THE FACTUAL MATRIX OF THE CASE BEFORE IT AND FOUND THAT THE ASSESSEE THEREIN WAS EARNING DIVIDEND INCOME FROM THE I NVESTMENT IN SHARES AND IT OBSERVED THAT IT WAS A SETTLED POSITION THAT THE INTEREST WAS ALLOWABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, THE TRIBUNAL DID NOT DEEM IT FIT TO ALLOW THE INTEREST UNDER THE HEAD INCOME FROM OTHER SOURCES BECAUS E OF SECTION 14A, UNDER WHICH ANY EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME CANNOT BE CLAIMED AS DEDUCTION. THE TRIBUNAL DECIDED TO DENY THE CLAIM OF ASSESSEE ON THE GROUND THAT INTEREST EXPENDITURE WAS AN ALLOWABLE EXPENDITURE ONLY UNDER THE HEAD INCOME FROM OTHER SOURCES AND THAT THE SAME CANNOT BE ALLOWED TO BE ADDED TO THE COST OF INVESTMENT ONLY BECAUSE IN THE YEAR BEFORE THE TRIBUNAL NO DEDUCTION COULD BE ALLOWED TO THE ASSESSEE WITH RESPECT TO INTEREST BECAUSE THE DIVIDEND INCOME WAS EXEMP T FROM TAX. AS PER THE TRIBUNAL IT WOULD RESULT INTO DOUBLE DEDUCTION. IN FACT, WE FIND THAT THE QUESTION WHICH IS PRESENTLY BEFORE US, AROSE FOR CONSIDERATION DIRECTLY BEFORE THE HONBLE MADRAS HIGH COURT IN THE CASE OF TRISHUL INVESTMENTS LTD. (SUPRA). O STENSIBLY, THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MACINTOSH FINANCE ESTATES LIMITED (SUPRA), DID NOT HAVE THE BENEFIT OF THE JUDGMENT OF HONBLE MADRAS HIGH COURT BECAUSE THE JUDGMENT OF HONBLE MADRAS HIGH COURT WAS RENDERED ON 12.07.2007, WHEREA S, THE DECISION IN THE CASE OF MACINTOSH FINANCE ESTATES LIMITED (SUPRA), WAS RENDERED BY THE TRIBUNAL ON AN EARLIER DATE I.E. ON 27.02.2006. THEREFORE, THE JUDGMENT OF HONBLE MADRAS HIGH COURT BEING DIRECTLY ON THE POINT, WE PREFER TO FOLLOW THE SAME. 5. THE NEXT DECISION WHICH HAS BEEN RELIED UPON BY THE LD. DR BEFORE US, IS THE DECISION OF AHMADABAD BENCH OF THE TRIBUNAL IN THE CASE OF HARISH KRISHNAKANT BHATT VS. ITO [91 ITD 311] . THE SAID DECISION OF AHMADABAD BENCH OF THE TRIBUNAL IS NOT RELEVANT IN THE PRESENT CONTEXT BECAUSE THE ISSUE THEREIN WAS NOT RELATING TO VK;DJ VIHY LA[;K@ ITA NO 236/MUM/2010 ( FU/KKZJ.K OKZ / ASSESSMENT YEAR: - 2005 - 06) 6 | P A G E THE TREATMENT OF INTEREST PAID AS COST OF ACQUISITION BUT IT WAS A CASE WHERE INTEREST PAID WAS CLAIMED AS A REVENUE EXPENDITURE AGAINST DIVIDEND INCOME WHICH WAS NOT TAXABLE IN THE RELE VANT A SSESSMENT Y EAR. THE TRIBUNAL OPINED THAT SINCE THE DIVIDEND WAS THE EXEMPT FROM TAX , THE INTEREST EXPENDITURE COULD NOT BE CLAIMED AS A DEDUCTION THEREOF. QUITE CLEARLY, THE CONTROVERSY IN THE PRESENT CASE STANDS ON A DIFFERENT FOOTING THAN IN THE CA SE OF HARISH KRISHNAKANT BHATT (SUPRA) WE ALSO FIND THAT THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. MR. VISHNU KANT INANI [ITA NO. 1787/HYD/2013] DATED 13.08.2014, IN SIMILAR CIRCUMSTANCES AS ARE BEFORE US, DISTINGUISHED THE DECISION OF AHMADABAD BENCH OF THE TRIBUNAL IN THE CASE OF HARISH KRISHNAKANT BHATT (SUPRA), AND APPLIED THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF TRISHUL INVESTMENTS LTD. (SUPRA). THEREFORE, THE DECISION OF THE AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF HARISH KRISHNAKANT BHATT (SUPRA) DOES NOT HELP THE REVENUE IN THE PRESENT CASE . T HE THIRD DECISION RELIED UPON BY THE LD. DR WAS IN THE CASE OF MOHANLAL M. SHAH. VS. DCIT [105 ITD 669(MUM)] WHICH IS ALSO INAPP LICABLE IN THE PRESENT SITUATION IN AS MUCH AS THE SAME IS MERELY A REITERATION OF THE DECISION OF AHMADABAD BENCH OF TRIBUNAL IN THE CASE OF HARISH KRISHNAKANT BHATT (SUPRA), WHICH WE HAVE FOUND TO BE INAPPLICABLE IN THE FACTS OF THE PRESENT CASE. THEREFORE, THE DECISION OF THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF MOHANLAL M. SHAH (SUPRA) ALSO DOES NOT HELP THE CASE OF R EVENUE IN THE PRESENT APPEAL. 6. IN VIEW OF THE ABOVE DISCUSSION AND HAVI NG REGARD TO THE JUDGMENT RENDERED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF TRISHUL INVESTMENTS LTD. (SUPRA), WE FIND NO ERROR IN THE CONCLUSION DRAWN BY THE CIT(A), WHICH WE HEREBY AFFIRM. VK;DJ VIHY LA[;K@ ITA NO 236/MUM/2010 ( FU/KKZJ.K OKZ / ASSESSMENT YEAR: - 2005 - 06) 7 | P A G E 7 . IN THE RESULT , APPEAL OF THE R EVENUE IS DISMISSED. ORD ER PRONOUNCED IN THE OPEN COURT ON THIS 08 TH DAY OF MAY 2015. SD/ - SD/ - (AMIT SHUKLA) (G.S. PANNU) (JUDICIAL MEMBER / U;KF;D LNL; ) (ACCOUNTANT MEMBER / YS[KK LNL; ) MUMBAI DATED 8 - 05 - 2015 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI