Zuhari Investments Ltd., ITAT Delhi, Maithreyi Pai, Karnataka HC, Trishul Investments, Madras HC allowed capitalization of interest on borrowed funds for acquiring shares etc., while calculating capital gain provided such interest was not claimed as deduction elsewhere.
Can such interest incurred post-acquisition be claimed as deduction for calculating capital gain on Market Linked Debentures (MLDs) u/s 50AA which is specifically introduced to tax all capital gain on MLDs as “Short Term” as a measure to curb tax arbitrage
Whether post-acquisition interest on market-linked debentures counts as acquisition cost under provision treating MLD gains as short-term Decisions have allowed capitalization of interest on borrowed funds used to acquire shares for computing capital gains provided that interest was not claimed as a deduction elsewhere; courts treated such capitalized interest as part of cost of acquisition. The question raised is whether interest incurred after acquisition can be deducted when computing capital gains on market-linked debentures (MLDs) under a provision that deems all MLD gains as short-term to prevent tax arbitrage. The issue centers on whether post-acquisition interest qualifies as cost for section treating MLDs specially, given the anti-arbitrage intent and prior rulings limiting capitalization to interest not otherwise deducted. (AI Summary)
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