TMI Blog2011 (3) TMI 1612X X X X Extracts X X X X X X X X Extracts X X X X ..... st of ₹ 2,56,147/- in the computation of the capital gains. The assessee borrowed monies from M/s Sahara India Financial Corporation Limited (hereinafter referred to as Sahara ) for the purpose of investing in the shares of Indraprastha Gas Limited issue as IPO (Initial Public Offer). The interest paid on the borrowing along with the processing charges were claimed as a deduction as cost of acquisition of the shares in the computation of capital gains on the sale of the shares immediately on allotment. The Assessing Officer took the view that since there was no provision in the Income Tax Act to allow the interest as expenditure in computing the capital gains, the claim was not admissible. The decision of the Assessing Officer having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to contend that there was immediate nexus between the loan and the acquisition of the shares. At page 41 of the paper book the assessee has placed a copy of the share application form. We find therefrom that the same has been signed both by the assessee as well as by Sahara. At the same page the assessee has also placed a photocopy of the cheque issued in favour of the Escrow Account for purchase of the shares, which shows that the cheque for ₹ 3.00 crores has been issued by Sahara, which is the lending company. The application form also shows the address of the assessee as C/o Sahara India Financial Corporation Limited, 25 28 Atlanta, Nariman Point, Mumbai 400 021. At page 42 is a letter dated 08.01.2010 written by Sahara to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al question of law was referred to the Madras High Court as one of the questions for decision: - Whether, on the facts and circumstances of the case, the Tribunal was right in allowing the interest liability incurred on borrowings to acquire the shares? The Tribunal in that case had found as a fact that the assessee had no intention to trade in the shares and the purchase of the shares could not be held to be a business asset in its hands. According to the Tribunal, the assessee was in the business of investment in shares and securities and was never in the business of trading in shares. On these findings the Madras High Court held that the Tribunal was right in holding that the interest paid for acquisition of the shares would p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee before the CIT(A). Having said so, the Tribunal proceeded to decide the merits of the claim. It found that in the case before it, the assessee was earning dividend income from the investment in shares and it was a settled position that the interest was allowable under the head Income from other sources . However, according to the Tribunal, the interest cannot be allowed under this head also because of section 14A, under which any expenditure incurred in relation to exempted income cannot be claimed as a deduction. The basis of the decision of the Tribunal is that the 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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