Case Law Details

Case Name : ITO Vs Smt. R. Aishwarya (ITAT Chennai)
Appeal Number : ITA No. 1120/Mds/2016
Date of Judgement/Order : 06/01/2020
Related Assessment Year : 2011-2012
Courts : All ITAT (6798) ITAT Chennai (284)

ITO Vs Smt. R. Aishwarya (ITAT Chennai)

Assessee is entitled to include interest in the capital cost while computing capital gains U/s 48 of the Act. Judicial discipline requires us to follow the order of a co‑ordinate bench.

FULL TEXT OF THE ITAT JUDGEMENT

Revenue in this appeal is aggrieved on the direction of the ld. Commissioner of Income Tax (Appeals) to allow credit of Rs. 63,98,540/- as a part of cost of acquisition/improvement for calculating capital gains.

2. Facts apropos are that assessee had filed a return of income disclosing an income of =3,78,769/-. Assessee had sold a property on 04.03.2011 for a sum of Rs. 3,20,00,000/-. The said property was purchased on 01.02.2006. Assessee computed long term capital gain arising from the above transaction as under:-

Sale consideration : =3,20,00,000/-

Less:
Purchase Value =1,48,00,000/-
Stamp duty = 11,84,000/-
Reg. Charges = 1,48,100/-

—————–

Rs. 1,61,32,100/-

Cost of improvement = 15,00,000/-

—————

Rs. 1,76,32,100/-

Indexed cost of acquisition : =2,52,24,191/-
Interest on housing loan : = 63,98,540/-

———————

Long term capital gain : = 3,77,269/-

———————

Ld. Assessing Officer was of the opinion that interest of Rs. 63,98,540/- on the housing loan paid by the assessee, for the period starting from the date of purchase and ending on the date of sale of property could not be allowed as cost of acquisition/improvement. As per ld. Assessing Officer interest expenditure incurred during the period of construction alone could be considered as part of cost. According to him, thereafter it took the character of revenue expenditure. Though, the assessee relied on the decision of Co-ordinate Bench in the case of CIT vs. C. Ramabrahmam (2013) 57 SOT 0130, ld. Assessing Officer did not accept the claim of the assessee. He reworked the capital gain excluding the interest on housing loan from the cost of acquisition/cost of improvement.

3. Assessee moved in appeal before ld. Commissioner of Income Tax (Appeals). Reliance was once again placed on the decision of Co-ordinate Bench in the case of C. Ramabrahmam (supra). The ld. Commissioner of Income Tax (Appeals) held as under at para 7
of his order:-

‘’From the perusal of the written submissions of the appellant, it is noticed that she has heavily relied on the decision of the Honourable jurisdictional ITAT in the case of ACIT vs C. Ramabrahmam (2012) 27 Taxman. Com 104 to substantiate her claim. In this case, the Honourable ITAT has held that such interest paid on the housing loan can be included while computing capital gains. In fact, in the said case, the taxpayer had claimed the interest as deduction, in that year’s when the asset was held by the taxpayer and still the Honourable Tribunal held that the interest can be claimed as cost of acquisition, on the reasoning that both are under different heads of income. However, as contended, in the present appellant’s case, she had not claimed the interest as deduction, in the years when the asset was held by her. As such, it was pleaded that the possibility of any double deduction on this score did not arise at all. I find force in the above submissions of the appellant and the case law relied upon by. It is rightly held that the deduction u/s 24(b) and computation of capital gains under section 48 are covered by different heads of income, i.e., income from House Property and Capital Gains. Both of the provisions do not exclude the other. Deduction u/s 24(b) is claimed when concerned assessee declares income from House Property, whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. The interest paid on the loan taken for acquiring the asset is an expenditure in acquiring the asset. Since both the provisions are altogether different, I am of the considered view that the appellant is entitled to include the interest amount at the time of computing capital gains under section 48 of the Act. In the light of this observation, the AO is directed to allow the credit of Rs.63, 98, 540/-as cost of acquisition while calculating the capital gains. In the result, the appeal of the assessee is allowed in its favour.

4. Now before us, the ld. Departmental Representative submitted that the Department had not accepted the decision of Coordinate Bench in the case of C. Ramabrahmam (supra).

5. Per contra, ld. Authorised Representative strongly supported the order of the ld. Commissioner of Income Tax (Appeals).

6. We have perused the orders and heard the rival contentions. The Co-ordinate Bench in the case of C. Ramabrahmam (supra) had held as under at para 8 of its order:-

8. We have considered submissions of both parties at length and also perused the relevant findings of the Assessing Officer as well as CIT(A). Regarding the issue of capital gains, it transpires that there is hardly any dispute that the assessee had availed the loan for purchasing the property in question. Since the assessee had shown the income under the head ‘house property’, he preferred to raise the claim of deduction under section 24(b) of the “Act”, which reads as under:

“(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:”

There is no quarrel that since the assessee’s claim of deduction was under the statutory provisions; therefore, he succeeded in getting the same. However, after the property was sold, he also chose to include the interest amount while computing capital gains under section 48 of the “Act”, which reads as under:

“48. The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration 43 received or accruing as a result of the transfer of the capital asset the following amounts, namely :—

(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the asset and the cost of any improvement thereto:”

After perusing the above said provisions, we are of the opinion that deduction under section 24(b) and computation of capital gains under section 48 of the “Act” are altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’. Further, a perusal of both the provisions makes it unambiguous that none of them excludes operation of the other. In other words, a deduction under section 24(b) is claimed when concerned assessee declares income from ‘house property’, whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. We do not have even a slightest doubt that the interest in question is indeed an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee in the instant case is certainly entitled to include the interest amount at the time of computing capital gains under section 48 of the “Act”. Therefore, the CIT(A) has rightly accepted the assessee’s contention and deleted the addition made by the Assessing officer. Hence, qua this ground, we uphold the order of the CIT(A)’’.

Co-ordinate Bench has clearly held that an assessee is entitled to include interest in the capital cost while computing capital gains u/s. 48 of the Act. Judicial discipline requires us to follow the order of a coordinate Bench unless it could be demonstrated that the view taken was contrary to a provision of law. The ld. Commissioner of Income Tax (Appeals) in the case before us had followed the decision of Coordinate Bench. We cannot therefore interfere with the order of the ld. Commissioner of Income Tax (Appeals).

7. In the result, the appeal of the Revenue stands dismissed.

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