Somnath Vaijanath Sakre, Aurangabad V. Assistant Commissioner of Income tax,

ITA 2605/PUN/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2508 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 16-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Earning of tax free income; Cost of acquisition; Revenue expenditure
• Section: 10; 14A; 115JB

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO.2986/PUN/2016 / ASSESSMENT YEAR : 2012-13 THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE 3, AURANGABAD. . / APPELLANT V/S SHRI SOMNATH VAIJANATH SAKRE, 167, SHREE PRABHU, N-3, CIDCO, AURANGABAD 431 003. PAN : ALNPS6479B. . / RESPONDENT . / ITA NO.2605/PUN/2016 / ASSESSMENT YEAR : 2012-13 SHRI SOMANTH VAIJANATH SAKRE, 167, SHREE PRABHU, N-3, CIDCO, AURANGABAD 431 003. PAN : ALNPS6479B. . / APPELLANT V/S THE ASST. COMMISSIONER OF INCOME TAX, RANGE -3, AURANGABAD. . / RESPONDENT ASSESSEE BY : SHRI S.N. PURANIK. REVENUE BY : SHRI PANKAJ GARG. / ORDER PER ANIL CHATURVEDI, AM : 1. THESE CROSS-APPEALS FILED BY ASSESSEE AND REVENUE A RE EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (A) 2, AURANGABAD DT.19.10.2016 FOR A.Y. 2012-13. / DATE OF HEARING : 19.02.2019 / DATE OF PRONOUNCEMENT: 08.03.2019 2 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS AN INDIVIDUAL AND IS STATED TO BE PROPRIETOR O F SHRI MARUTI UDYOG, WHICH IS IN THE BUSINESS OF MANUFACTURING OF PLA STIC WATER TANKS. ASSESSEE IS ALSO STATED TO BE PROPRIETOR O F SAI VENKATESHWARA MINERALS AND PARTNER IN SAI VENKATESWA RA POLYMERS, RANJANGAON BESIDES BEING ENGAGED IN THE TRADING IN F & O SHARES. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. ON 2012-13 ON 30.09.2012 DECLARING TOTAL INCOME OF RS.6,19,630/-. THE CASE WAS SELEC TED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143 (3) OF THE ACT VIDE ORDER DT.27.03.2015 AND THE TOTAL INCOME WAS DETER MINED AT RS.6,19,630/- AFTER ASSESSING THE LONG TERM CAPITAL GAINS A ND SHORT TERM CAPITAL LOSS. AGGRIEVED BY THE ORDER OF AO, ASSESSE E CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.19.10.2016 (IN APP EAL NO.ABD/CIT(A)-2/187/2015-16) GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED FOLLOWING GROUNDS : 1. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143( 3) BY MAKING DISALLOWANCE OF A SUM OF RS.1,07,42,039/- THAT WAS CLAIMED AS COST OF IMPROVEMENT COMPRISING OF INTEREST EXPENSES. THE C OMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING THE SUM OF R S.1,07,42,039/-. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), AURANGABAD MAY BE VACATED AND THE ORDER OF THE AO MAY BE RESTORED. 3. ON THE OTHER HAND, ASSESSEE HAS RAISED THE FOLLOWING E FFECTIVE GROUND. THE LOWER AUTHORITIES HAVE ERRED IN NOT ALLOWING S ET OFF OF LONG TERM CAPITAL LOSS ON SALE OF SHARES OF LISTED COMPANIES RS.62,45,117/- AGAINST LONG TERM CAPITAL GAINS ON SALE OF SHARES O F UNLISTED COMPANIES AND HENCE IT IS PRAYED THAT SAME INTRA HEAD SET OFF MAY PLEASE BE ALLOWED. 3 4. WE FIRST TAKE UP REVENUES APPEAL IN ITA NO.2986/PUN/ 2016 FOR A.Y. 2012-13. 4.1. DURING THE CURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE HAS SOLD A HOUSE PROPERTY SITUATED AT JUHU, MUMBAI FOR RS.11 CRORES, IN WHICH ASSESSEES SHARE WAS 50% AND A SSESSEE HAD RECEIVED RS.5,50,00,000/- BEING HIS SHARE OF SALE PROCEED S. AO NOTICED THAT IN THE COMPUTATION OF INCOME, ASSESSEE HAD S HOWN SHORT TERM CAPITAL LOSS OF RS.2,98,62,599/- WITH RESPECT TO TH E SALE OF THE AFORESAID PROPERTY. WHILE COMPUTING THE LONG TERM CAPITAL LO SS, ASSESSEE HAD CONSIDERED COST OF IMPROVEMENT AMOUNTING T O RS.1,07,42,039/- BEING THE INTEREST PAID TO PUNJAB NATIONAL BANK FOR THE ACQUISITION OF THE PROPERTY. AO WAS OF VIEW THAT INTER EST PAID ON BORROWED FUNDS WHICH WERE UTILIZED FOR ACQUISITION OF AN ASSE T CANNOT BE CONSIDERED AS COST OF IMPROVEMENT AS ACCORDING TO HIM ON ACCOUNT OF SPECIFIC PROVISIONS OF SEC.24(B) OF THE ACT WHICH ALLOWS THE A SSESSEE TO GET THE BENEFIT OF DEDUCTION OF INTEREST PAID ON BORROW ED FUNDS UTILIZED FOR THE ACQUISITION OF ASSETS. HE, ACCORDINGLY REJE CTED THE CLAIM OF COST OF IMPROVEMENT OF RS.1,07,42,039/- AND RE-WORKE D THE LONG TERM CAPITAL LOSS. AGGRIEVED BY THE ORDER OF AO, ASSE SSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE BY RELYING ON THE VARIOUS DECISIONS OF HIGH COUR TS NOTED IN PARAS 7 TO 11 BY OBSERVING AS UNDER : 12. RESPECTFULLY, FOLLOWING THE RATIO OF DECISIONS IN THE ABOVE MENTIONED CASE, I HOLD THAT THE ASSESSEE IS ENTITLE D TO CAPITALIZE THE INTEREST PAID ON BORROWED FUNDS AND TREAT IT AS COS T OF ASSET ESPECIALLY WHEN THERE IS NO DOUBT ON THE FACT THAT THE IMPUGNE D AMOUNT HAS NOT BEEN CLAIMED AS A DEDUCTION OR AN EXPENSE AND HAS B EEN CAPITALIZED IN THE BOOKS OF ACCOUNTS. GROUND NO.1 IS ALLOWED. 4 AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPE AL BEFORE US. 5. BEFORE US, LD.D.R. TOOK US THROUGH THE FINDINGS OF AO AND SUBMITTED THAT IN VIEW OF THE SPECIFIC PROVISIONS OF SEC.24(B) OF THE ACT WHEREIN THE ASSESSEE IS ALLOWED THE BENEFIT OF DEDUCTION ON THE INTEREST PAID, THE CLAIM OF ASSESSEE FOR CONSIDERING THE INT ERESTS PAID ON BORROWED FUNDS AS COST OF IMPROVEMENT CANNOT BE ACC EPTED. HE THUS SUPPORTED THE ORDER OF AO. ON THE OTHER HAND, LD .A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) A ND SUPPORTED THE ORDER OF LD.CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESP ECT TO ALLOWABILITY OF INTEREST PAID ON BORROWED FUNDS FOR THE PURPO SE OF ACQUISITION OF CAPITAL ASSET AS PART OF ACQUISITION. WE FIND TH AT LD.CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS NOTED THE FACT THAT THE AMOUNT WAS BORROWED FOR THE PURPOS E OF ACQUISITION OF PROPERTY, THE INTEREST ON BANK LOAN WAS DEBITED TO TH E ASSET ACCOUNT AND ASSESSEE HAD NOT CLAIMED THE DEDUCTION OF INTEREST IN RESPECT OF THE RESPECTIVE YEARS UNDER ANY HEAD OF INCOM E. WE FIND THAT LD.CIT(A) AFTER CONSIDERING THE VARIOUS DECISIONS NAMEL Y, CIT VS. MITHILESH KUMARI (1973) 92 ITR 9 (DEL), ACIT VS. K.S.GUPTA (1979 ) 119 ITR 372 (AP) AND OTHER DECISIONS CITED IN HIS ORDER HA S DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. BEFORE US, REVENUE H AS NOT POINTED OUT ANY CONTRARY BINDING DECISION IN ITS SUPPORT N OR HAS POINTED OUT ANY FALLACY IN THE FINDINGS OF LD.CIT(A). IN VIEW O F THESE FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.C IT(A) AND THUS THE GROUNDS OF THE REVENUE ARE DISMISSED. 5 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. 8. NOW WE TAKE UP ASSESSEES APPEAL IN ITA NO.2605/PUN /2016 FOR A.Y. 2012-13. 8.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE HAD SHOWN NET LONG TERM CAPITAL GAINS ON SALE O F SHARES AT RS.81,26,027/- WHICH WAS AFTER SETTING OFF OF LOSSES ON SALE O F LOSS ON SHARES OF LISTED SHARES AGAINST THE PROFIT ON SALE OF UNLIST ED SHARES. AO NOTED THAT THE TRANSACTION OF SALE OF SHARES OF THE LISTED COMPANIES ARE CHARGEABLE TO SECURITY TRANSACTION TAX UN DER CHAPTER VII OF FINANCE (NO.2) ACT, 2004, AND HENCE, AS PER THE PROV ISIONS OF SEC.10(38) OF THE ACT, ANY INCOME ARISING FROM THE SALE OF TR ANSFER OF SHARES ARE EXEMPT. IN CASE OF SALE OF SHARES OF A NON-LIS TED COMPANY, SINCE SECURITY TRANSACTIONS TAX IS NOT LEVIABLE, THE INCOME FROM TRANSFER OF SUCH NON-LISTED COMPANIES ARE TAXABLE AS LONG TERM CAPITAL GAINS. IN THE CASE OF ASSESSEE, HE NOTICED THAT ASSESSE E HAS INCURRED LOSS ON SALE OF SHARES OF LISTED COMPANIES AND HAD EARNED PROFIT ON SALE OF SHARES OF NON-LISTED COMPANY. HE WAS THEREFORE OF THE VIEW THAT SET OFF OF LOSS WITH RESPECT TO SALE OF LISTED COMPANIES SHARES WITH THE PROFITS ON SALE OF SHARES OF NON-LISTED COMPANIES WAS NOT ALLOWABLE. HE ACCORDINGLY DENIED THE SET OFF OF LOSS OF RS.62 ,45,117/- AS CLAIMED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF A O, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF KISHOREBHAI VIR ANI VS. ACIT REPORTED IN (2014) 367 ITR 261 DECIDED THE ISSUE A GAINST THE ASSESSEE BY OBSERVING AS UNDER : 6 15. I HAVE GIVEN A CONSIDERATION TO THE ISSUE IN QUEST ION AND THE SUBMISSION MADE BY THE ASSESSEE. THOUGH THE DECISIO N IN THE CASE OF RAPTAKOS BRETT & COMPANY LTD VS. DCIT CENTRAL CIRCLE 46, MUMBAI WAS IN RELATION TO NOT ALLOWING THE CLAIM OF SET OF F OF LONG-TERM CAPITAL LOSS ON THE SALE OF SHARES ON WHICH SECURIT Y TRANSACTION TAX WAS DEDUCTED AGAINST THE LONG-TERM CAPITAL GAIN ARISING ON SALE OF LAND AT CHENNAI AND THE ISSUE WAS HELD IN FAVOUR OF THE ASS ESSEE APPELLANT, I FIND THAT THERE IS A DIRECT DECISION ON THIS ISSUE GIVEN BY THE HONOURABLE GUJARAT HIGH COURT IN THE CASE OF KISHOREBHAI VIRANI VS. ACIT (2014) 367ITR 261 (GUJARAT) IN WHICH THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE. IN THIS DECISION IT H AS BEEN HELD: 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US. HAVING HEARD THE LEARNED COUNSEL FOR THE ASSESSEE, WE SEE NO ERROR IN THE DE CISION OF THE TRIBUNAL. SECTION 74 OF THE ACT PERTAINS TO LOSSES UNDER THE HEAD CAPITAL GAINS AND CLAUSE (B) OF SUB-SECTION (1) O F SECTION 74 OF THE ACT PROVIDES INTER ALIA THAT WHERE IN RESPECT OF ANY AS SESSMENT YEAR, THE NET RESULT OF THE COMPUTATION UNDER THE HEAD CAPIT AL GAINS IS A LOSS, THE WHOLE LOSS SHALL, SUBJECT TO THE OTHER PROVISIO NS OF CHAPTER VI, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AN D INSOFAR AS IT RELATES TO A LONG-TERM CAPITAL ASSET, IT SHALL BE S ET OFF AGAINST INCOME, IF ANY, UNDER THE HEAD OF CAPITAL GAINS ASSESSABLE F OR THAT ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET NOT BEIN G A SHORT-TERM CAPITAL ASSET. IT IS THIS PROVISION THAT THE LEARNED COUNSE L FOR THE ASSESSEE HAS PLACED HEAVY RELIANCE ON. FOR THE APPLICATION OF TH E SAID PROVISION, WHAT IS NECESSARY IS THAT THERE SHOULD BE A LOSS SU FFERED BY THE ASSESSEE UNDER THE HEAD OF CAPITAL GAINS. IN SUCH A SITUATION, IF SUCH LOSS RELATES TO LONG TERM CAPITAL ASSET, IT IS PERM ITTED TO BE CARRIED FORWARD FOR THE FOLLOWING ASSESSMENT YEAR AND BE SE T OFF AGAINST INCOME, IF ANY, UNDER THE HEAD OF CAPITAL GAINS A SSESSABLE FOR THAT ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASS ET OTHER THAN A SHORT-TERM CAPITAL ASSET. FOR THE REASONS MENTIONED HEREINAFTER, IN VIEW OF THE FACTS OF THIS CASE, IT WAS NOT OPEN FOR THE ASSESSEE TO CLAIM SET OFF OF THE LOSS IN SALE OF SHARES OF SUASHISH DIAMOND L IMITED. PERHAPS SECTION 74 OF THE ACT MAY HAVE OTHERWISE ALSO NO AP PLICABILITY BECAUSE IT REFERS TO CARRY FORWARD OF THE CAPITAL LOSS SET OFF AGAINST CAPITAL GAIN OF THE SUBSEQUENT YEAR, WHICH IS NOT THE CASE IN TH E PRESENT CASE. SECTION 70 OF THE ACT REFERS TO INCOME FROM ANY OTH ER SOURCE UNDER THE SAID HEAD OF INCOME. SUB-SECTION (3) THEREOF WHIC H IS RELEVANT FOR OUR PERSPECTIVE READS AS UNDER: 70(3): WHERE THE RESULT OF THE COMPUTATION MADE FO R ANY ASSESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY CAPITAL ASSET (OTHER THAN A SHORT-TERM CAPITAL ASSE T) IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SU CH LOSS SET OFF AGAINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A S IMILAR COMPUTATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET NOT BEING A SHORT-TERM CAPITAL ASSET. 5. UNDER SECTION 70(3) OF THE ACT, THEREFORE, WHERE IN RESPECT OF ANY CAPITAL ASSET OTHER THAN SHORT-TERM CAPITAL ASSET T HERE IS A LOSS, THE ASSESSEE IS ENTITLED TO HAVE THE AMOUNT OF SUCH LOS S SET OFF AGAINST THE INCOME IN RESPECT OF ANY ANOTHER CAPITAL ASSET NOT BEING A SHORT-TERM CAPITAL ASSET. WHAT IS, THEREFORE, SIGNIFICANT IS T HAT THE ASSESSEE SHOULD HAVE SUFFERED A LOSS IN RESPECT OF ANY CAPITAL ASSE T, WHICH IS NOT A SHORT-TERM CAPITAL ASSET. 6. IN THIS CONTEXT, SECTION 10(38) OF THE ACT BECOM ES RELEVANT. AS IS WELL- KNOWN, SECTION 10 PERTAINS TO INCOME NOT INCLUDED I N THE TOTAL INCOME. SUB-SECTION (38) THEREOF READS AS UNDER: 7 10. IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEA R OF ANY PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOW ING CLAUSES SHALL NOT BE INCLUDED - XXX XXX XXX (38): ANY INCOME ARISING FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, BEING AN EQUITY SHARE IN A COMPANY O R A UNIT OF AN EQUITY ORIENTED FUND WHERE - (A) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE OR UNIT IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VII OF T HE FINANCE (NO. 2) ACT, 2004 COMES INTO FORCE; AND (B) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TR ANSACTION TAX UNDER THAT CHAPTER: PROVIDED THAT THE INCOME BY WAY OF LONG-TERM CAPITAL GAIN OF A COMPANY SHALL BE TAKEN INTO ACCOUNT IN COMPUTING TH E BOOK PROFIT AND INCOME-TAX PAYABLE UNDER SECTION 115JB . 7. THE FACT THAT THE CAPITAL ASSET IN QUESTION, NAM ELY, THE SHARES OF SUASHISH DIAMOND LTD. WAS COVERED UNDER SECTION 10( 38) OF THE ACT WAS NOT IN DISPUTE. THAT BEING THE POSITION, BY VIR TUE OF SECTION 10(38) OF THE ACT, IN COMPUTING THE TOTAL INCOME OF PREVIO US YEAR, ANY INCOME COVERED UNDER SUCH CLAUSE SHALL NOT BE INCLUDED. IF THAT BE SO, THE LOSS ALSO ARISING OUT OF SUCH AN ASSET AND COVERED BY TH E SAID CLAUSE WOULD LIKEWISE BE NOT INCLUDABLE IN COMPUTATION OF THE IN COME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT FOR THE PURPOSE OF SECTION 10 (38) OF THE ACT, THE TERM INCOME WOULD NOT INCLUDE LOSS, CANNOT BE A CCEPTED AND RIGHTLY REJECTED BY THE TRIBUNAL. IF THIS IS THE CONCLUSION , IT CAN IMMEDIATELY BE SEEN THAT ANY LOSS IN RESPECT OF ANY SUCH CAPITAL A SSET WOULD NOT BE AVAILABLE FOR SET OFF. THE TRIBUNAL RIGHTLY RELIED ON THE DECISION IN THE CASE OF HARPRASAD (SUPRA ) TO COME TO A CONCLUSION THAT THE TERM INCOME UNDER SECTION 10(38) OF THE ACT WOULD ALSO INCLUDE THE LOSS. IN THE SAID DECISION, THE APEX COURT OBSERVED THAT THE CONCEPT OF CARRY FORWARD OF LOSS DOES NOT STAND IN VACUO. IT INVOLVE S THE NOTION OF SET OFF. IT POSTULATES PERMISSIBILITY AND POSSIBILITY OF THE CARRIED FORWARD LOSS BEING ABSORBED OR SET OFF AGAINST THE PROFITS AND G AINS OF THE SUBSEQUENT YEAR. SET OFF IMPLIES THAT THE TAX IS EX IGIBLE AND THE ASSESSEE WANTS TO ADJUST THE LOSS AGAINST PROFIT TO REDUCE THE TAX DEMAND. IT WAS HELD THAT IF SUCH SET OFF IS NOT PER MISSIBLE OR POSSIBLE OWING TO THE INCOME OR PROFITS OF THE SUBSEQUENT YE AR BEING FROM A NON- TAXABLE SOURCE, THERE WOULD BE NO POINT IN ALLOWING LOSS TO BE CARRIED FORWARD. CONVERSELY, IF THE LOSS ARISING IN THE PR EVIOUS YEAR WAS UNDER A HEAD NOT CHARGEABLE TO TAX, IT COULD NOT BE ALLOW ED TO BE CARRIED FORWARD AND ABSORBED AGAINST INCOME IN A SUBSEQUENT YEAR, FROM A TAXABLE SOURCE. 8. THIS BEING THE POSITION, WE SEE NO QUESTION OF L AW ARISING. TAX APPEAL IS DISMISSED. 16. RESPECTFULLY FOLLOWING THE DECISION OF THE HONO URABLE GUJARAT HIGH COURT (SUPRA), I HOLD THAT THERE IS NO INFIRMITY IN THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING THE LOSSES ARISIN G OUT OF SALE OF SCRIPTS ON WHICH SECURITIES TRANSACTION TAX WAS PAID/PAYABL E TO BE SET OFF AGAINST THE INCOME ARISING FROM SALE OF UNLISTED SC RIP ON WHICH LONG TERM CAPITAL GAINS WAS PAYABLE. THEREFORE GROUND N O.2 IS DECIDED AGAINST THE ASSESSEE. 8 AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APP EAL BEFORE US. 9. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFOR E AO AND LD.CIT(A) AND FURTHER RELIED ON THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF RAPTAKOS BRETT & CO., LTD., VS. DCIT (IN ITA NO.3317/MUM/2009 & ITA NO.1692/MUM/2010 DATED 10.06.20 15). HE ALSO PLACED ON RECORD THE COPY OF THE SAID DECISION. H E THEREAFTER SUBMITTED THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL OF M UMBAI HAS ALSO CONSIDERED THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF KISHOREBHAI VIRANI (SUPRA) AND AFTER FOLLOWING THE DECISION O F HONBLE KOLKATA HIGH COURT IN THE CASE OF ROYAL CALCUTTA T URF CLUB VS. CIT REPORTED IN (1983) 144 ITR 709 AND OTHER DECISION S HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE THEREAFTE R RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. M/S. VEGETABLE PRODUCTS LTD. REPORTED IN 88 ITR 192 SUBMITT ED THAT IF A STATUTORY PROVISION IS CAPABLE OF MORE THAN ONE VIEW THEN THE VIEW WHICH FAVOURS THE ASSESSEE SHOULD BE PREFERRED. LD.D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND LD.CIT(A) AND FURTHE R SUBMITTED THAT ON THE FACTS OF THE PRESENT CASE, THE DECISION OF H ONBLE GUJARAT HIGH COURT IN THE CASE OF KISHOREBHAI VIRANI (SUPRA) ARE APP LICABLE. HE THEREFORE SUBMITTED THAT NO INTERFERENCE TO THE ORDER OF LD.CIT (A) IS CALLED FOR. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESP ECT TO THE SETTING OFF OF LONG TERM CAPITAL LOSS FROM SALE OF SHARES OF LIS TED COMPANIES ON WHICH SECURITY TRANSACTIONS TAX HAS BEEN P AID / PAYABLE AGAINST THE LONG TERM CAPITAL GAINS ARISEN OUT OF SALE OF A PRIVATE LIMITED COMPANY ON WHICH NO SECURITY TRANSACTION T AX IS 9 PAID / PAYABLE. IT IS REVENUES CASE THAT PROFITS ARISEN FROM TRANSFER OF LISTED COMPANIES ON WHICH SECURITY TRANSACTION IS PAID IS EXEMPT U/S 10(38) OF THE ACT AND THEREFORE LOSS ARISING FROM SUCH SOURCE ALSO CANNOT BE SET OFF AGAINST ANY OTHER INCOME WHICH IS CHARG EABLE TO TAX. WE FIND THAT LD.CIT(A) FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF KISHOREBHAI VIRANI (SUPRA) HAS UPHE LD THE ORDER OF AO IN NOT ALLOWING THE LOSSES ARISING OUT OF SALE OF SCRIPS ON WHICH SECURITY TRANSACTION TAX WAS PAID TO BE SET OFF AGAINST T HE INCOME ARISING FROM SALE OF UNSOLD SCRIP ON WHICH LONG TERM CAPITAL GAINS WAS PAYABLE. WE HOWEVER FIND THAT THE CO-ORDINATE BENCH OF T HE MUMBAI TRIBUNAL IN THE CASE OF RAPTAKOS BRETT & CO., LTD., (SUPRA) A FTER CONSIDERING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF KISHOREBHAI VIRANI (SUPRA), WHICH HAS RELIED UPON BY LD.CIT(A ) AND OTHER DECISIONS HAS DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE BY OBSERVING AS UNDER : 7. IN THE CASE OF CIT VS. MITHILESH KUMARI [1973] 92 ITR 9 (DELHI) THE PURCHASED THE PERPETUAL LEASEHOLD RIGHTS IN AN OPEN PLOT OF LAND. SHE HAD RAISED A LOAN FROM HER MOTHER-IN-LAW FOR PA YING THE PRICE OF LAND. THE ASSESSEE PAID CERTAIN AMOUNT TO HER MOTH ER-IN-LAW BY WAY OF INTEREST ON AMOUNT BORROWED AND ALSO PAID GROUND RENT IN RESPECT OF LAND. ULTIMATELY, SHE SOLD THE LAND TO HER MOTHER - IN-LAW AND A F T E R INCL UD I NG THE AMOUNT PAID TO WA RDS INTEREST ON LOAN AND GROUND RENT IN T HE ACTU AL COST, DISCLOSED THE REMAINING AMOUNT AS CAPITAL GAI N ON SALE OF LAND. T HE IT O HELD THAT AMOUNT PAID TOWARDS INTEREST AND GROUND RENT COULD NOT BE ADDED T O T HE COST OF T HE LAND. THE A A C UPHELD THE ITO'S ORDER. THE TRIBUNA L, HO WEVE R , A L L OWED THE ASSESSEE'S CLA I M. THE ORDER OF THE ITAT WAS UPHELD BY THE H O N ' BLE HI GH COURT. IT WAS HELD B Y T HE HON'BLE COURT : WE ARE IN RESPECTFUL AGREEMENT WITH THE OBSERVATIO NS OF THE CALCUTTA AND THE BOMBAY HIGH COURT IN THE DECISIONS REFERRED TO ABOVE. IN THE PRESENT CASE, WE FIND THAT THE ASSESS ED IN ORDER TO PURCHASE THE LAND HAD NOT ONLY TO BORROW THE AMOUNT OF RS. 95,000.00 WHICH WAS THE CONSIDERATION FOR THE PURCH ASE OF THE LAND BUT ALSO HAD TO PAY INTEREST OF RS. 16, 878.00 ON THE AMOUNT BORROWED BY HER. THE AMOUNT OF RS. 95,000.00 PLUS THE INTEREST PAID BY THE ASSESSED CONSTITUTES THE ACTUA L COST TO THE ASSESSED OF THE LAND. THE FACT THAT THE AMOUNT OF R S. 95,000.00 WAS PAID BY THE ASSESSED TO THE VENDOR AND THE AMOU NT OF INTEREST OF RS. 16,878.00 WAS PAID TO A DIFFERENT P ERSON, NAMELY, HER MOTHER-IN-LAW, DOES NOT MAKE ANY DIFFERENCE SO FAR AS THE ASSESSED IS CONCERNED IN RESPECT OF THE ACTUAL COST OF THE LAND TO HER. IT WILL NOT ALSO MAKE ANY DIFFERENCE WHETHER T HE INTEREST 10 WAS PAID ON THE DATE OF THE PURCHASE OR WHETHER IT IS PAID SUBSEQUENTLY. TO EXCLUDE THE INTEREST AMOUNT FROM T HE ACTUAL COST OF THE ASSETS WOULD LEAD TO ANOMALOUS RESULTS. SUPPOSING SHE HAD PURCHASED THE LAND FOR RS. 1,00,000.00 BY R AISING A LOAN OF THAT AMOUNT AND HAD PAID INTEREST OF RS. 20 ,000.00 ON THE SAID LOAN AND HAD SOLD THE LAND FOR RS. 1,20,00 0.00. IT WOULD BE UNREASONABLE TO HOLD UNDER SUCH CIRCUMSTAN CES BY EXCLUDING THE INTEREST AMOUNT FROM THE ACTUAL COST OF THE LAND THAT SHE HAD MADE A CAPITAL GAIN OF RS. 20,000.00 W HEN, AS A MATTER OF FACT, SHE HAD NOT MADE ANY PROFIT AT ALL BY THE TRANSACTION. APPLYING THE SAID OBSERVATIONS OF THE CALCUTTA AND THE BOMBAY HIGH COURTS TO THE PRESENT CASE, WE HOLD THAT THE TRIBUNAL WAS RIGHT IN ADDING THE INTEREST AMOUNT OF RS. 16,878.00 TOWARDS THE ACTUAL COST OF THE LAND. 8. IN THE CASE OF ADDL.COMMISSIONER OF INCOME-TAX VS. K.S. GUPTA [19791 119 ITR 372 (ANDHRA PRADESH) THE ASSESSEE PURCHASED CERTAIN LANDS WITH BORROWED MONEY. DURING THE RELEVANT ASSESSMENT YEAR, THE LANDS WERE SOLD. THE ASSESSEE CLAIMED THAT THE INTEREST PAID ON BORROWINGS SHOULD BE INCLUDED. IN THE COST OF ACQUISITION, FOR PURPOSE OF DETERMINING CAPITAL GAI NS. THE INCOME-TAX OFFICER DID NOT INCLUDE THE AMOUNT OF INTEREST IN T HE COST OF ACQUISITION. THE AAC ALLOWED THE ASSESSEE'S APPEAL. THE TRIBUNAL UPHELD THE ORDER OF THE AAC. ON AN APPEAL THE HON BLE HIGH COURT, REFERRING TO THE DECISION IN THE CASE OF CHALLAPALL I SUGARS LTD. VS. CIT [1975] 98 ITR 167 (SC) HELD : IN THE INSTANT CASE, FROM THE CONCESSION MADE BY TH E DEPARTMENT'S REPRESENTATIVE BEFORE THE TRIBUNAL, IT IS CLEAR THAT THE INTEREST OF RS. 11,344 PAID BY THE ASSESSEE FRO M JANUARY 1, 1957, TO AUGUST 11, 1966, WAS NEITHER CLAIMED BY THE ASSESSEE NOR ALLOWED BY THE DEPARTMENT YEAR AFTER YEAR. UNDE R THESE CIRCUMSTANCES, IN ORDER TO FIND OUT WHAT WAS THE CO ST OF ACQUISITION TO THE ASSESSEE IN RESPECT OF THESE PLO TS ONE HAS TO TAKE INTO ACCOUNT NOT ONLY THE ORIGINAL PRICE PAID BY THE ASSESSEE FOR THESE TWO PLOTS OF LAND AT ADARSHNAGAR, BUT ALS O TO INCLUDE IN THAT COST OF ACQUISITION THE CAPITALISED INTEREST P AID BY HIM ON THE BORROWINGS BY HIM FOR PAYING THE PURCHASE PRICE OF RS. 9,138 WHEN HE ORIGINALLY PURCHASED THE TWO PLOTS IN 1957. 7. IN CIT V. MITHLESH KUMARI , THE DELHI HIGH COURT HAS ALSO TAKEN A VIEW SIMILAR TO THE ONE WHICH WE ARE TAKING IN THIS CASE. THE DELHI HIGH COURT THERE HAS HELD THAT THE INTERE ST PAID BY THE ASSESSEE ON MONEY BORROWED FOR THE PURCHASE OF AN O PEN PLOT OF LAND CONSTITUTED PART OF ACTUAL COST OF THE ASSESSE E WITHIN THE MEANING OF SECTION 12B(2)(II) OF THE INDIAN I.T. ACT, 1922, FOR THE PURPOSE OF DETERMINING THE CAPITAL GAIN DERIVED FRO M THE SALE OF THE LAND. THE BASIC PRINCIPLE, IN CASES OF THIS KIN D, IS TO ASCERTAIN THE ACTUAL COST OF ACQUISITION TO THE ASSESSEE AND IN ARRIVING AT THE FIGURE OF ACTUAL COST OF ACQUISITION THE INTERE ST WHICH HAS BEEN CAPITALISED MUST BE INCLUDED; OTHERWISE, FROM THE COMMERCIAL POINT OF VIEW AND THE PRINCIPLES OF ACCO UNTANCY, ONE CANNOT GET A CORRECT IDEA OF THE COST OF ACQUISITIO N. THE TRIBUNAL, IN THE INSTANT CASE, HAS, THEREFORE, APPLIED THE CO RRECT PRINCIPLE AND COME TO THE CORRECT CONCLUSION. UNDER THESE CIRCUMSTANCES, IT IS OBVIOUS THAT THE A MOUNT OF RS. 11,344 WAS PART OF THE ACTUAL COST OF ACQUISITION F OR PURPOSES OF DETERMINING THE CAPITAL GAINS FOR THE ASSESSMENT YE AR 1967-68. 11 9. IN THE CASE OF S.BALANALIAS SHANMUQAM VS. DCIT [2009]120 ITD 469 (PUNE), THE ASSESSEE FILED HIS RETURN OF INCOME SHOWING LOS S ON SALE OF SHARES. WHILE WORKING OUT CAPITAL GAIN, ASSESSEE INCLUDED AMOUNT OF INTEREST PAID ON FUNDS BORROWED FOR INVES TMENT IN SHARES TO COST OF SHARES AND ALSO CAPITALIZED SAID INTEREST I N COST. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE ASSESSEE HAD DIS CLOSED INCOME UNDER HEAD CAPITAL GAIN, IMPUGNED COMPUTATION WAS C OVERED UNDER PROVISION OF SECTION 48 WHEREIN EXPENDITURE INCURRE D WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER AND COST OF IMPROVEMENT HAD TO BE ALLOWED. HE FURTHER HELD THAT COMPONENT OF INTE REST HAPPENED TO BE NOT COVERED UNDER SAID SECTION AND, ACCORDINGLY , REDUCED CAPITAL LOSS ON SALE OF SHARES B Y COST SO ENHANCED. ON APPEAL, COMMISSIONER (APPE A LS) UPHELD ORDER OF ASSESSI N G OFFICER AND HELD THAT SINCE INTENTION OF INVESTMENT IN SHARES WAS EARNING OF DI VIDEND AND AS SAID DIVIDEND INCOME HAPPENED TO BE EXEMPT, ANY EXPENDIT URE IN THAT REGARD HAD NOT TO BE TAKEN INTO ACCOUNT IN V IE W OF PROVISIONS OF SECTION 14A . THE ISSUE BEFORE THE HON'BLE IT AT WAS WHETHER SINCE ASSESSEE HAD BORROWED FUNDS FOR ACQUISITION OF THOSE SHARE S C R IP T S AND BURDEN OF INTEREST HAD BEEN CAPITALIZED, INTEREST BURDEN C OULD NOT BE SEGREGATED FROM AMOUNT OF IN V ESTMENT AND W HETHER, THEREFORE, ASSESSEE W AS ENTITLED TO TAKE INTO ACCOUN T INTEREST LIABILITY TOWARDS COST OF CAPITAL ASSET FOR PURPOSE OF COMPUTATION O F CAPITAL GAIN. THE ITAT ALLOWED THE APPEAL OF THE ASSESSEE IN THE FOLL OWING WORDS : 7. TO DEAL WITH THE FIRST QUESTION, IT IS WORTH MEN TIONING IN THE BEGINNING ITSELF THAT THE ADMITTED POSITION IS AS P ER THE STATEMENT MADE BY THE LEARNED AUTHORISED REPRESENTA TIVE THAT THE BURDEN OF INTEREST HAS NEVER BEEN CLAIMED BY TH E ASSESSEE AS A REVENUE EXPENDITURE, BUT IT WAS ALWAYS BEING C APITALIZED IN THE PAST. THE REVENUE AUTHORITIES HAVE ALSO MENTION ED THAT THE INVESTMENT IN SHARES WAS OUT OF THE CASH CREDIT ACC OUNT SHOWING A DEBIT BALANCE, NATURALLY BURDENED WITH THE INTERE ST AMOUNT. IT HAS NOT BEEN DENIED BY THE REVENUE AUTHORITIES THAT THE MONEY WAS NOT BORROWED FOR ACQUIRING THE CAPITAL ASSETS I .E. THE SHARE SCRIPS IN QUESTION. WITHIN THIS NARROW COMPASS OF A DMITTED FACTS, WE HAVE EXAMINED THE RELEVANT SECTION I.E. S EC.48 OF IT ACT AS DISCUSSED BY THE REVENUE AUTHORITIES. THIS SECTI ON SAYS THAT THE CAPITAL GAIN IS TO BE COMPUTED BY DEDUCTING FRO M THE CONSIDERATION THE PRESCRIBED TWO AMOUNTS, FIRST EXP ENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND SECOND, THE COST OF ACQUISITION OF THE ASSET AN D THE COST OF ANY IMPROVEMENT THERETO. THE ISSUE IN HAND FALLS UN DER THE SECOND CATEGORY. ONCE IT IS AN ESTABLISHED FACT THA T THE APPELLANT HAD BORROWED THE FUNDS FOR ACQUISITION OF THOSE SHA RE SCRIPS AND THE BURDEN OF INTEREST HAD BEEN CAPITALIZED, THEREF ORE, THAT INTEREST BURDEN CANNOT BE SEGREGATED FROM THE AMOUN T OF INVESTMENT. AT THIS JUNCTURE, WE MAY ALSO LIKE TO M ENTION AN OBSERVATION OF LEARNED CIT (A) THAT, QUOTE 'THUS, T HE EXPENDITURE BY WAY OF INTEREST IS PART OF COST ONLY ON THE DATE PURCHASE OF SHARE IS MADE AND AFTER THAT WHATEVER IS INTEREST C OST, IS INCURRED BY THE APPELLANT FOR RETAINING OR MAINTAIN ING THE CAPITAL ASSET AND THEREFORE CANNOT BE ALLOWED AS DEDUCTION' UNQUOTE. THIS OBSERVATION MAKES IT CLEAR THAT HE WAS AGREEAB LE THAT IN CASE INTEREST IS PART OF THE COST, THEN IT FALLS WI THIN CL. (II) OF S. 48 OF IT ACT. HOWEVER, HE WAS APPREHENSIVE, THAT IF TH E BURDEN OF INTEREST IS FOR RETAINING OR MAINTAINING A CAPITAL ASSET THEN NOT TO BE ALLOWED. ON THIS PROPOSITION OF LEARNED CIT(A), WE ARE OF THE VIEW THAT EVEN IF IT IS A SITUATION THAT A CAPITAL ASSET IS ACQUIRED OUT OF THE BORROWED FUNDS HAVING LIABILITY OF INTER EST, AND SINCE IT HAD BEEN CAPITALIZED IN THE BOOKS OF ACCOUNTS TREAT ED AS A PART OF COST OF ASSET AND NEVER CLAIMED AS A REVENUE EXP ENDITURE, THEN THAT TOO IS TOWARDS ENHANCING THE COST OF SUCH CAPITAL ASSET 12 AND CANNOT BE SEGREGATED FROM THE COST OF ACQUISITI ON. NEVERTHELESS, THIS QUESTION HAS BEEN ANSWERED BY FE W DECISIONS AS RELIED UPON BY LEARNED AUTHORISED REPRESENTATIVE NAMELY CIT VS. MITHLESH KUMARI (SUPRA) WHEREIN THE HONBLE COU RT HAS HELD THAT THE INTEREST PAID BY THE ASSESSEE ON MONEY BOR ROWED FOR THE PURCHASE OF AN OPEN PLOT OF LAND CONSTITUTED PA RT OF ACTUAL COST OF THE ASSESSEE, FOR THE PURPOSE OF DETERMININ G THE CAPITAL GAIN DERIVED FROM THE SALE OF THE LAND. FACTS WERE THAT THE LOAN WAS RAISED FROM MOTHER-IN-LAW, FOR THE PURPOSE OF P URCHASING THE PLOT. AS THE INTEREST WAS PAID ON THIS LOAN BUT SINCE THE GENUINENESS OF THE TRANSACTION HAS NOT BEEN DISPUTE D BY THE REVENUE, THEN THE QUESTION WAS WHETHER THE INTEREST PAID BY THE ASSESSEE TO HER MOTHER-IN-LAW COULD BE INCLUDED IN THE ACTUAL COST OF THE LAND. IN THIS REGARD, AN IMPORTANT FIND ING WAS GIVEN BY THE HONBLE COURT THAT IT WILL NOT MAKE ANY DIFF ERENCE WHETHER THE INTEREST WAS PAID ON THE DATE OF PURCHA SE OR WHETHER IT IS PAID SUBSEQUENTLY. AT THIS STAGE AGAI N, WE WANT TO MAKE OURSELF CLEAR THAT THE SECTION ITSELF PRESCRIB ES THAT THE COST OF ANY IMPROVEMENT THERETO IS ALSO ADMISSIBLE UNDER SUB-CL. (II) OF S. 48. THE COURT HAS GONE TO THE EXTENT OF MAKIN G A VERY EMPHATICAL COMMENT THAT TO EXCLUDE THE INTEREST FRO M THE ACTUAL OF THE ASSET WOULD LEAD TO ANOMALOUS RESULTS. RESUL TANTLY, IT WAS HELD THAT THE TRIBUNAL WAS RIGHT IN ADDING THE INTEREST AMOUNT TOWARDS THE ACTUAL COST OF THE LAND. ALMOST IDENTICAL WAS THE OBSERVATION BY HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF K.S. GUPTA (SUPRA) BECAUSE THEREIN AS W ELL, THE LAND WAS PURCHASED WITH BORROWED MONEY AND THE HONBLE C OURT HAS HELD THAT THE EXPRESSION 'ACTUAL COST' HAS NOT BEEN DEFINED IN THE ACT, SO AS SUCH, THE EXPRESSION SHOULD BE CONST RUED IN THE SENSE WHICH NO COMMERCIAL MAN WOULD MISUNDERSTAND. ACCORDING TO THE HONBLE COURT, THE ACCEPTED PRINCI PLE OF ACCOUNTANCY IS THAT FOR DETERMINATION OF THE COST O F A FIXED ASSET, ALL THE EXPENDITURES INCURRED FOR BRINGING INTO EXI STENCE SUCH ASSET MUST BE INCLUDED IN THE COST OF ACQUISITION. IT WAS CONCLUDED THAT THE CAPITALIZED INTEREST MUST BE INCL UDED IN ACTUAL COST. WE HAVE ALSO EXAMINED ANOTHER DECISION AS CITED BY THE APPELLANT, DECIDED BY HONBLE KARNATAKA HIGH CO URT IN THE CASE OF MAITHREYI PAI (SUPRA) AND HAVE FOUND THAT T HE QUESTION WAS THE DEDUCTION OF INTEREST ON BORROWINGS UTILIZE D FOR PURCHASE OF SHARES AND WHETHER SUCH INTEREST CONSTI TUTED PART OF COST OF ACQUISITION OF SHARES FOR THE PURPOSE OF CO MPUTATION OF CAPITAL GAIN. THE ITO HAS DISALLOWED THE CLAIM ON T HE GROUND THAT THE INTEREST HAD ALREADY BEEN ALLOWED AS A DED UCTION UNDER S. 57 WHILE COMPUTING INCOME FROM DIVIDEND, SO THE REVENUE HAS CONTENDED THAT SUCH A DEDUCTION, IF ALLOWED, WOULD AMOUNT TO DOUBLE DEDUCTION. SINCE THERE WAS NO FINDING BY THE TRIBUNAL WHETHER THE DEDUCTION WOULD AMOUNT TO DOUBLE DEDUCT ION, HENCE THE MATTER WAS REMANDED BACK AS THE QUESTION REFERR ED COULD NOT BE ANSWERED BY THE HONBLE COURT. HOWEVER, THIS DECISION GIVES US CERTAIN GUIDELINES ON ACCOUNT OF THE FACT THAT IF THE REVENUE HAS NOT CONTENDED THAT THE INTEREST HAD EVE R BEEN CLAIMED AS A DEDUCTION WWW.TAXPUNDIT.ORG/ FEEDBACK.HTML WWW.TAXPUNDIT.ORG WWW.TAXPUNDIT.ORG/ LIBRARY.HTML WWW.TAXPUNDIT.ORG/ ABOUT.HTML PAGE 3 OF 4 WWW.TAXPUNDIT.ORG/ CONTACT.HTML WWW.TAXPUNDIT.ORG AND ALSO THE REVENUE HAS NOT CONTENDED THAT THE INTEREST WAS WRONGLY CAPITALIZED, THEN IN THE LIGHT OF THE SAID ACCEPTED POSITION, THE INTEREST OUGHT TO BE HELD AS PART OF THE COST OF TH E ASSET IN QUESTION. THUS, OUR VIEW GETS FORTIFIED BY THE LEGA L PROPOSITION LAID DOWN BY THE HONBLE COURT. IN THE LIGHT OF THI S DISCUSSION, WE ARRIVE AT THE CONCLUSION THAT THE APPELLANT IS E NTITLED TO TAKE INTO ACCOUNT THE INTEREST LIABILITY TOWARDS COST OF THE CAPITAL ASSET FOR THE PURPOSE OF COMPUTATION OF THE CAPITAL GAIN AS 13 PRESCRIBED UNDER S. 48(II) OF IT ACT. 8. THE NEXT Q UESTION IS NEW AND ALSO INTERESTING BECAUSE OF THE INTRODUCTION OF S. 14A IN THE STATUTE. NEVERTHELESS, THE BASIC FUNDAMENTALS FOR T HE INTRODUCTION WERE THAT CERTAIN INCOME ARE NOT INCLU DIBLE WHILE COMPUTING THE TOTAL INCOME AS THESE ARE EXEMPT UNDE R CERTAIN PROVISIONS OF THE ACT. THERE HAVE BEEN CASES WHERE DEDUCTIONS HAVE BEEN CLAIMED IN RESPECT OF SUCH EXEMPTED INCOM E. THIS IN EFFECT MEANS THAT THE TAX INCENTIVE GIVEN BY WAY OF EXEMPTIONS TO CERTAIN CATEGORIES OF INCOME IS BEING USED TO RE DUCE ALL THE TAX PAYABLE ON THE NON-EXEMPT INCOME BY DEBITING THE EX PENSES INCURRED TO EARN THE EXEMPT INCOME AGAINST TAXABLE INCOME. THIS IS AGAINST THE BASIC PRINCIPLES OF TAXATION WHEREBY ONLY THE NET INCOME, I.E., GROSS INCOME MINUS THE EXPENDITURE IS TAXED. ON THE SAME ANALOGY, THE EXEMPTION IS ALSO IN RESPECT OF T HE NET INCOME. EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. THIS IS THE PURPORT OF S. 14A. ONE MUST NOT OVERLOOK THE INTENTION WITH WH ICH THIS LEGISLATION HAS BEEN MADE AS IT APPEARED TO HAVE BE EN MISUNDERSTOOD IN THIS CASE BY THE REVENUE AUTHORITI ES. TO MAKE OURSELF MORE CLEAR, HEREINBELOW REPRODUCE THE SECTI ON : '14A. (1) FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDE R THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT.' LET US ANALYZE THE PHRASES OF THIS SECTION. THE FIRST PHRASE IS FOR T HE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER WHIC H MADE IT CLEAR THAT THE VARIOUS HEADS OF INCOME AS PRESCRIBE D UNDER CHAPTER IV ARE THE SUBJECT-MATTER AND WITHIN THE AM BIT OF S. 14A. AS PER S. 14, CL. E 'CAPITAL GAIN' IS CLASSI FIED UNDER THE HEADS OF INCOME. NEXT PHRASE IS, 'IN RELATION TO IN COME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT' WHICH MEANS IF AN INCOME DOES FORM PART OF THE TOTAL INCO ME, THEN THE RELATED EXPENDITURE IS OUT OF THE AMBIT OF THE APPL ICABILITY OF S. 14A. THUS, THE BASIC QUESTION IS, THAT UNDER THE PR ESENT FACTS OF THIS APPEAL, WHETHER THE CAPITAL GAIN SHOWN AS INCO ME BY THE ASSESSEE HAD FORMED PART OF THE TOTAL INCOME. DEFIN ITELY, THE ANSWER IS AFFIRMATIVE BECAUSE THE CAPITAL GAIN SHOW N BY THE ASSESSEE HAD FORMED PART OF THE TOTAL INCOME OF THE ASSESSEE. OTHERWISE ALSO, CAPITAL GAIN IS NOT EXEMPT INCOME A ND WITHOUT ANY IFS AND BUTS, ALWAYS BEING TAXED IN THE HANDS O F A TAXPAYER. THEREFORE, THE REVENUE AUTHORITIES HAVE P ROCEEDED ON A WRONG PREMISE THAT THE INTEREST EXPENDITURE WAS I N RESPECT OF AN INCOME WHICH WAS EXEMPT, OR DID NOT FORM PART OF THE TOTAL INCOME. 8.1 THE CONFUSION OCCURRED IN THE MINDS OF THE REVENUE AUTHORITIES WAS DUE TO THE INCIDENCE OF DIVIDEND IN COME ARISING FROM THE ASSET, I.E., SHARE SCRIPS. NOW THE SITUATI ON IS LIKE THIS THAT THE CAPITAL GAIN AS SUCH IS NOT EXEMPT ARISING FROM THE CAPITAL ASSETS FOR THE PURPOSE OF COMPUTATION OF GA IN UNDER S. 48, HOWEVER, THE REVENUE GENERATED THERE FROM IS A NON-TAXABLE INCOME. WE HAVE POSED A QUESTION DURING THE COURSE OF HEARING THAT WHETHER THE REVENUE DEPARTMENT IS ASSESSING TH AT REVENUE GENERATION IN THE YEAR UNDER CONSIDERATION I.E., TH E DIVIDEND INCOME STATED TO BE EARNED FROM THOSE SHARE SCRIPS IN QUESTION OR THE REVENUE IS TAXING THE GAIN ARISING ON TRANSF ER OF THE IMPUGNED CAPITAL ASSET. UNDISPUTEDLY, THE ISSUE IS RELATED TO THE TRANSFER OF THE CAPITAL ASSET AND NOT THE REVENUE G ENERATED THERE OUT. TO SUM UP, WE HEREBY CLARIFY THAT A SITUATION MAY ARISE THAT ON TRANSFER OF A CAPITAL ASSET, THE GAIN IS TAXABLE BUT NOT THE INCIDENTAL INCOME, AND IF SO, THE EXPENDITURE HAVIN G NEXUS WITH THE COST OF ACQUISITION HAS TO BE TAKEN INTO ACCOUN T FOR THE PURPOSE OF COMPUTATION OF THE GAIN AS PRESCRIBED UN DER S. 48(II) OF IT ACT. 14 10. THOUGHT THIS DECISION IS IN RESPECT OF INTERES T PAID FOR FUNDS UTILIZED TO BUY SHARE SCRIPTS, THE PRINCIPLE ENUNCIATED IN T HE DECISION WOULD BE APPLICABLE IN THE CASE OF HOUSE PROPERTY AS WELL. ONCE IT IS AN ESTABLISHED FACT THAT THE ASSESSEE HAD BORROWED THE FUNDS FOR ACQUISITION OF A PROPERTY, THE BURDEN OF INTEREST H AD BEEN CAPITALIZED AND NO DEDUCTION OF THE AMOUNT HAS BEEN CLAIMED IN INCOME TAX RETURNS, THAT INTEREST BURDEN CANNOT BE SEGREGATED FROM THE AMOUNT OF INVESTMENT. WE FURTHER FIND THAT HONBLE CALCUTTA HIGH COURT IN THE C ASE OF ROYAL CALCUTTA TURF CLUB (SUPRA) HAS HELD THAT LONG TERM CAPITAL LOSS ON SALE OF SHARES WOULD BE ALLOWED TO BE SET OFF AGAINST THE LONG TERM CAPITAL LOSS ON SALE OF LAND IN ACCORDANCE WITH SEC.70(3) OF T HE ACT. WE THUS FIND THAT THE ISSUE IN THE PRESENT GROUND IS SIMI LAR TO THE ISSUE BEFORE THE MUMBAI ITAT IN THE CASE OF RAPTAKOS BRE TT & CO., LTD., (SUPRA) . WE THEREFORE FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S. VEGETABLE PRODUCTS LTD. (SUPRA ) AND THE DECISION OF CO-ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN TH E CASE OF RAPTAKOS BRETT & CO., LTD., (SUPRA) HOLD THAT ASSESSEE IS ENTITLED TO SET OFF OF THE LOSS OF LONG TERM CAPITAL GAINS FROM THE SHA RES ON WHICH SECURITY TRANSACTION IS PAID OR PAYABLE AGAINST THE LONG TERM CAPITAL GAINS EARNED FROM SHARES ON WHICH NO SECURITY TRANSAC TION IS PAID / PAYABLE. WE THUS HOLD ACCORDINGLY. THUS, THE GROUND OF A SSESSEE IS ALLOWED. 11. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED AN D THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 8 TH DAY OF MARCH, 2019. SD/- SD/- ( PARTHA SARATHI CHAUDHURY ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 8 TH MARCH, 2019. YAMINI 15 #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A)-2, AURANGABAD. PR. CIT-2, AURANGABAD. '#$ %%&',) &', / DR, ITAT, B PUNE; $,-./ GUARD FILE. / BY ORDER , // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE