TMI Blog2007 (7) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... ious heads. In determining the cost of acquisition, the interest component after bringing the asset into existence is not taken into consideration as per Explanation 8 to section 43 of the Act. If the interest is to be added to the cost of acquisition, then the assessee would be entitled to double deduction - once u/s 36(1)(iii) and the other u/s 32 of the Act, which is not permissible in view of the decision of the Hon ble Supreme Court in the case of Escorts Ltd. v. UOI [ 1992 (10) TMI 1 - SUPREME COURT] . Similarly, when the shares are purchased by way of investment, and the dividend is received in respect of such shares, the interest paid on borrowed funds has been held to be allowable as deduction against the dividend income. The view taken by us is fortified by the decision of the coordinate Bench of the Tribunal in the case of Macintosh Finance Estates Ltd.[ 2006 (2) TMI 578 - ITAT MUMBAI] , wherein it has been held once we find that interest expenses is an allowable expenditure under the head Income from other sources , it cannot be allowed to be added to the cost of investment only because in this year no deduction is allowable because the dividend income has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... months. While computing the capital gain, the assessee deducted the cost of shares and interest on loan from the sale proceeds which resulted in short-term capital gain of Rs. 50,444, which was offered for taxation. In the course of the assessment proceedings the assessee was asked to show why he had taken the decision to sell the shares in June, 1998, while the payment was received in February, 1999. Reply of the assessee was that he does not have this information of hand. However, the Assessing Officer allowed deduction of Rs. 1,07,173 being interest for one month i.e., from 22-5-1998 to 27-6-1998, and the balance amount of Rs. 8,57,382 was disallowed. 3. The matter was carried in appeal before the CIT(A), before whom it was contended that action of Assessing Officer in disallowing the interest was not correct for the following reasons: "( i )The Assessing Officer did not dispute the fact that, interest of Rs. 9,64,556 was actually paid by the appellant to the loan creditor. ( ii )The Assessing Officer accepted the fact that, the interest paid on borrowed funds, which were utilised for purchase of capital asset, which was to be considered in ascertaining the cost of ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instead of deducting whole of the interest of, Rs. 9,65,556, the Assessing Officer deducted only interest pertaining to one month, without giving logical and cogent reason for the same. Accordingly, I hereby direct the Assessing Officer to deduct the entire interest of Rs. 9,64,556 while working the S.T.C.G. on sale of shares, and thereby delete the addition made of Rs. 8,57,383." Aggrieved by the same, the revenue is in appeal before the Tribunal. 5. The learned DR has contended before us that deductions have to be allowed only to the extent it is provided under the statute. According to her, section 48 provides the procedure for computing the capital gains. As per this section what is allowed as deduction is either the cost of acquisition or the cost of improvement or the expenditure incurred wholly and exclusively in connection with such transfer. Thus the interest paid by the assessee on borrowed funds cannot be allowed as deduction, since such expenditure does not fall within the ambit of section 48. In support of her contention, she relied on the decision of Mumbai Bench dated 27-2-2006, in the case of Macintosh Finance Estates Ltd. v. Addl. CIT [2007] 12 SOT 324. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may be pertinent to note that depreciation is also allowable as deduction under section 32 in respect of business assets on the cost of acquisition. In determining the cost of acquisition, the interest component after bringing the asset into existence is not taken into consideration as per Explanation 8 to section 43 of the Act. If the interest is to be added to the cost of acquisition, then the assessee would be entitled to double deduction - once under section 36(1)( iii ) and the other under section 32 of the Act, which is not permissible in view of the decision of the Hon ble Supreme Court in the case of Escorts Ltd. v. UOI [1993] 199 ITR 43 . 8. Similarly, when the shares are purchased by way of investment, and the dividend is received in respect of such shares, the interest paid on borrowed funds has been held to be allowable as deduction against the dividend income. The Hon ble Supreme Court has gone a step further in the case of CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 , wherein it has been held that deduction on account of interest paid on borrowed funds is allowable as deduction in computing the income under the head Income from other sources , eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into existence and to put them in working condition. In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets. A bare look at the above observations reveals that actual cost would include all expenditure necessary to bring the assets into existence and put them in working condition. Nowhere in the above observations, the Hon ble Supreme Court held that the expenditure incurred after the acquisition of asset would be included in the cost of assets. The terminal point is the time when the asset is brought into existence or when the asset is put in a working condition. Therefore, on the basis of the Supreme Court judgment, it cannot be said that expenditure incurred after the asset is brought into existence, i.e., after the acquisition of the asset would form part of the actual cost. Accordingly, we are not persuaded by the decision of the Hon ble Madras High Court. The jurisdictional High Court in the case of CIT v. Thane Electricity Supply Ltd. [1994] 206 ITR 727 (Bom.), ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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