IN THE ITAT, MUMBAI BENCH ‘G’

CFL SECURITES LTD.

v.

Deputy Commissioner of Income-tax, Central Range-7

DR. O.K. NARAYANAN, ACCOUNT MEMBER

AND RAJPAL YADAV, JUDICIAL MEMBER

IT APPEAL NO. 4406 (MUM.) OF 2000

[ASSESSMENT YEAR 1996-97]

January 4, 2007

Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed - Assessment year 1996-97 - Assessee-company, engaged in business of shares and security broker under National Stock Exchange, debited certain amount in profit and loss account as interest paid on delayed payment of security deposit for capital market - Assessing Officer disallowed said interest expenses on ground that without paying initial security deposit, assessee could not commence its business and, therefore, interest paid on delayed payment of security deposit was to be treated as payment on capital account - Whether interest would relate back to date when assessee was supposed to make deposit with NSE which allowed it to commence its business and, therefore, Assessing Officer was justified in treating interest as capital expenditure - Held, yes

FACTS

The assessee-company, engaged in the business of shares and security broker under National Stock Exchange, debited certain amount in the profit and loss account as interest paid, part of which was relating to the interest paid to NSE on delayed payment of security deposit for capital market. The Assessing Officer, disallowed the interest expenses on the ground that assessee paid interest in respect of the initial security deposit without which it could not commence its business and, hence, it was to be treated payment on capital account.

The Commissioner (Appeals) did not allow any relief to assessee.

HELD

Without making the security deposit for capital market, the assessee could not commence its business. It had made that deposit after certain period with interest. Thus, the interest component related back to the date when assessee was supposed to make initial deposit with the National Stock Exchange and which authorized the assessee to do business. There was no force in the arguments of the assessee that interest payment was made after commencement of the business and, therefore, it was to be allowed as business expenses. [Para 5]

EDITOR’S NOTE:

Assessee’s claim for deduction of short term capital loss on sale of shares of a company was disallowed as it failed to prove loss in share transaction. [Para 7]