Deduction u/s. 24(b) and computation of capital gains u/s 48 were altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’. None of them excludes operative of the other. The interest in question was indeed expenditure in acquiring asset. Since both provisions were altogether different, assessee was entitled to include interest paid on housing loan for computation of capital gains u/s 48 despite the fact that same had been claimed u/s 24(b) while computing income from house property.
RELEVANT EXTRACT OF ITAT JUDGMENT
6. The ld. CIT(A) on consideration of the assessment order, assessee’s submissions and the case laws relied upon by the assessee, has held as under:-
“The only dispute in the instant case is whether the interest paid by the assessee to the bank on loan availed for purchase of property could be allowed as deduction in computing the capital gains income. The charge of income-tax is created by virtue of the provisions contained in section 4 according to which the income tax is charged for the relevant assessment year in accordance with and subject to the provisions of Act in respect of the total income of the relevant previous year of every person. As per the scheme of the Act, income is broadly classified under five different heads and the income chargeable to tax under these heads has to be computed as per the relevant provisions applicable to respective heads of income. Section 45 to section 55A falling under Chapter IV- E deal with assessment of income under the head ‘capital gains’ and section 48 in particular prescribes the mode of computation of capital gains. As provided in section 48, expenditure incurred wholly and exclusively in connection with transfer and the cost of acquisition of the asset and cost of any improvement thereto are deductible from the full value of the consideration received or accruing to the assessee as a result of transfer of the capital assets. In the instant case, the deduction on account of interest paid to bank has been claimed by the appellant as deduction in computing capital gains. The appellant, however, has failed to explain as to how the said interest could be considered as cost of acquisition of the land or the cost of any improvement thereto. She has also failed to explain as to how the interest paid could be treated as expenditure incurred wholly and exclusively in connection with sale of land. On the other hand, the basis on which the interest was paid by the appellant showed that it had no direct nexus with the purchase and sale of land and as rightly contended by the AO, the interest paid was allowable as deduction against income under the head “income from house property”. Having regard to all these facts of the case, I am of the opinion that the interest paid by the appellant could not be treated as expenditure incurred wholly and exclusively in connection with sale or the cost of acquisition/improvement of the land being sold so as to be eligible for deduction in computing capital gains under section 48.”
The ld. CIT(A) opined that the interest amounts paid by the assessee to the bank with the F.Y. 2007- 08 to 2012-13 were not deductible in computing he capital gains as rightly held by the Assessing Officer and the order of the Assessing Officer was upheld.
7. Being further aggrieved, the assessee is in appeal before us. The ld AR of the assessee has reiterated the submissions as made before the ld. CIT(A) and also relied on the decision of the Honourable Delhi High Court in the case of CIT Vs. Mithlesh Kumari (1973) 92 ITR 9 (Delhi).
8. On the other hand, the ld. D.R. has relied on the orders of the authorities below.
9. We have perused the case records, analysed the facts and circumstances of the case and considered the judicial pronouncements, which was placed before us. In the case of CIT Vs. Mithilesh Kumari (supra), the Honourable High Court has held as under:-
“(13) We are in respectful agreement with the observations of the Calcutta and the Bombay High Court in the decisions referred to above. In the present case, we find that the assessed in order to purchase the land had not only to borrow the amount of Rs. 95,000.00 which was the consideration for the purchase of the land but also had to pay interest of Rs. 16, 878.00 on the amount borrowed by her. The amount of Rs. 95,000.00 plus the interest paid by the assessed constitutes the actual cost to the assessed of the land. The fact that the amount of Rs. 95,000.00 was paid by the assessed to the vendor and the amount of interest of Rs. 16,878.00 was paid to a different person, namely, her mother-in-law, does not make any difference so far as the assessed is concerned in respect of the actual cost of the land to her. It will not also make any difference whether the interest was paid on the date of the purchase or whether it is paid subsequently. To exclude the interest amount from the actual cost of the assets would lead to anomalous results. Supposing she had purchased the land for Rs. 1,00,000.00 by raising a loan of that amount and had paid interest of Rs. 20,000.00 on the said loan and had sold the land for Rs. 1,20,000.00. It would be unreasonable to hold under such circumstances by excluding the interest amount from the actual cost of the land that she had made a capital gain of Rs. 20,000.00 when, as a matter of fact, she had not made any profit at all by the transaction. Applying the said observations of the Calcutta and the Bombay High Courts to the present case, we hold that the Tribunal was right in additing the interest amount of Rs. 16,878.00 towards the actual cost of the land.”
In the case of CIT Vs. Sri Hariram Hotels (Purchase) Ltd. (2010) 188 Taxman 170 (Kar), the Honourable Karnataka High Court has held as under:-
“7. We are unable to agree with the arguments advanced by the learned counsel for the revenue for the simple reason on facts that even the Commissioner of Income Tax (Appeals) has held that interest had accrued as on 31/3/2003 and therefore, the Tribunal is justified in granting the relief to the assessee since the property has been purchased out of the loan borrowed from the Directors and any interest paid thereon is to be included while calculating the cost of acquisition of the asset. Therefore, question No. 1 has to be answered against the revenue.”
In the case of ACIT Vs C.Ramabrahmam, the ITAT Chennai Bench ‘C’ in ITA No. 943/Mds/2012 has held that the assessee had purchased house property, availing loan. The house property was subsequently sold and assessee included interest paid on housing loan while computing capital gains u/s 48. The Assessing Officer was of opinion that since interest in question on housing loan, had already been claimed as deduction u/s 24(b), the same could not be taken into consideration for computation u/s 48 and interest amount was added to income of assessee. The CIT(A) reversed the findings of A and held deduction u/s. 24(b) and computation of capital gains u/s 48 were altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’. None of them excludes operative of the other. The interest in question was indeed expenditure in acquiring asset. Since both provisions were altogether different, assessee was entitled to include interest paid on housing loan for computation of capital gains u/s 48 despite the fact that same had been claimed u/s 24(b) while computing income from house property. The revenue’s appeal was dismissed by the ITAT, Chennai Bench and the order of the ld. CIT(A) was upheld. From these judicial pronouncements, it is very much clear that if the property is purchased from borrowed funds then consideration for the purchased amount, the interest on borrowed fund also has to be paid. The amount of interest paid by the assessee constitutes the actual cost to the assessee for that property. To exclude the interest amount from the actual cost of the assets/ property would lead anomalous result. The interest amount should be definitely added to the actual cost of the property. Respectfully following these legal propositions and on basis of our observations as held herein, we reverse the findings of the ld. CIT(A) and hold that the interest paid to bank for acquiring capital asset would be eligible as part of cost of acquisition. We hold accordingly. The grounds No. 1 to 4 of the assessee’s appeal are allowed.
10. Grounds No. 5 and 6 are general in nature, requires no adjudication.