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Issues: Whether the interest and service charges paid through the portfolio manager for acquiring shares formed part of the cost of acquisition and were capital in nature, or were liable to be treated as revenue expenditure and disallowed.
Analysis: The amount paid towards interest, service charges and incidental charges was incurred wholly in connection with acquisition of shares. The computation of capital gains necessarily had to proceed on the actual cost of acquisition, and the addition made by reducing that cost and treating the difference as taxable income had no independent basis. The expenditure was attributable to acquisition of the capital asset and could not be recharacterised as a hypothetical revenue disallowance under the provisions relating to expenditure against dividend income. The adjustment made by the Assessing Officer therefore did not represent a real enhancement of taxable income.
Conclusion: The expenditure was held to be part of the cost of acquisition of the shares and the addition was deleted, in favour of the assessee.
Final Conclusion: The assessee succeeded on the substantive issue of share acquisition cost, resulting in deletion of the impugned addition, while the Revenue's appeal was not entertained in view of the issue being already covered.
Ratio Decidendi: Expenditure incurred directly for acquiring shares is capital in nature and must be included in the cost of acquisition for capital gains computation, not treated as a revenue disallowance.
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