Capitalization of Interest paid for Capital Gain purpose

[Ethirajan Parthasarathy]

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

 

AI Summary

Capitalisation of interest on borrowed funds can form part of the cost for MLD capital gains, if not claimed elsewhere.
Interest paid on borrowed funds used to acquire Market Linked Debentures can be capitalised and treated as part of the cost of acquisition for computing capital gain under section 50AA, because section 50AA only recharacterises gains as short term and does not displace section 48; this is permissible provided the interest was not claimed as a revenue deduction under any other head.