2006 (1) TMI 188 - AT - Income Tax

Tribunal Decision: Capital Loss Allowed, Interest Deduction Granted, TDS Credit Denied

Kameshwari Finance And Leasing (P) Limited. Versus Deputy Commissioner Of Income-tax, (Investigation) Circle 2(1), New Delhi.

The Tribunal allowed the short-term capital loss and the deduction of interest paid but denied the credit for TDS on dividends in the case. - Kameshwari ... Chargeable As Issues Involved:1. Whether the Revenue authorities were justified in not allowing the short-term capital loss on sale of shares amounting to Rs. 2,87,77,400Rs.2. Whether the Revenue authorities were justified in disallowing the claim for deduction on account of interest paid by the assessee of Rs. 1,72,01,022Rs.3. Whether the Revenue authorities were justified in not giving credit to TDS amounting to Rs. 1,80,633Rs.Issue-wise Detailed Analysis:1. Short-term Capital Loss:The primary issue was whether the assessee became the owner of the shares claimed to have been sold, resulting in a short-term capital loss. The Revenue authorities concluded that no prudent businessman would enter into a transaction involving significant interest payments and borrowings for minimal dividend income. The assessee argued that the shares were held as a capital asset, and the transaction should be judged under the provisions for capital gains. The Tribunal found that the assessee had paid the balance consideration for the shares, and the agreement for sale included distinctive numbers of the shares. The Tribunal held that the assessee became the owner of the shares as of 18th January 1996, and there was no violation of SEBI regulations as the transfer was between promoters. The Tribunal also accepted the alternative argument that the rights acquired under the agreement could be considered a capital asset, and their transfer resulted in a capital loss. The Tribunal concluded that the short-term capital loss was duly established and should be allowed.2. Deduction of Interest Paid:The assessee claimed a deduction for interest paid on borrowings used to purchase shares, arguing that the dividend income was offered for taxation. The Revenue authorities disallowed the interest deduction, considering the transactions as sham. The Tribunal noted that the transactions were neither sham nor illegal and that the interest paid on borrowings for making investments in shares is deductible under section 57(iii) of the Act, as established in CIT v. Rajendra Prasad Moody. The Tribunal directed the Assessing Officer to allow the claim for deduction.3. Credit for TDS:The assessee claimed credit for TDS on dividends received, but the Revenue authorities denied it because the TDS certificate was not in the assessee's name. The Tribunal referred to rule 30A(1)(ix), which allows credit for TDS to a person other than the shareholder under certain conditions. The Tribunal found that the necessary declaration in Form No. 15B was provided, but the requirement of taking steps for registering the transfer of shares was not fulfilled. Consequently, the Tribunal held that the assessee was not entitled to credit for TDS on the dividend.Conclusion:The appeal was partly allowed. The Tribunal allowed the short-term capital loss and the deduction of interest paid but denied the credit for TDS on dividends.