Case Law Details
Parwati Devi Totlani Vs ITO (ITAT Jaipur)
Interest paid on the borrowing made for acquiring Capital Asset (House Property) is part of the cost of acquisition and therefore eligible for indexation and deduction from the Sale Consideration for computation of capital gains.
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal filed by the assessee against the order of Id. CIT(A)-III, Jaipur dated 28.12.2018 for the assessment years 201011 wherein the limited issue for consideration is non-grant of deduction of interest expenditure as part of cost of construction while computing capital gains u/s 48 of the IT Act.
2. During the course of hearing, the Id. AR submitted that the assessee was allotted a Flat No. T-1/147 in Sector-6, Vidhyadhar Nagar, Jaipur having the measurement of 938.37 SFT by Rajasthan Rajya Sehakari Awasan Sangh Ltd., Jaipur on 12/01/1995 at a total cost of Rs. 4,85,941/-.
3. It was submitted that the assessee took loads of Rs. 2,80,000/- on 01/07/1995 and paid the balance amount from her own source. The assessee incurred interest expense of Rs. 3,93,898/- during the loan tenure since 01/07/1995 to 31/03/2009 and this interest capitalized. No deduction U/s 24 (b) was claimed in the ITRs filed for the various years. The assessee is submitting the copies of ITRs filed during this period with this paper book to prove that no interest was claimed u/s 24(b).
4. It was further submitted that the assessee had sold Flat on 29/07/2009 for Rs. 14,51,000/- (Value under 50C Rs. 14,73,240/-) and long Term Capital Gains on this sale was computed as under:-
| S. NO. | NATURE OF COST | COST INCURRED |
YEAR OF PURCHASE | INDEXED COST |
| a) | Cost of Flat Allotted | 4,85,941/- | 1994-95 | 11,85,771/‑ |
| b) | Interest paid on loan to LIC Housing | 3,93,898/- | Paid in different years |
393898/- , , |
| c) | Paint, Electricity Expenses and Penalty | 16,998/- | -do- | 16,998/- |
–
| A | TOTAL (a +b+c) | 15,96,667/- |
| B | SALE VALUE UNDER 50C | 14,73,240/‑ |
| LONG TERM CAPITAL GAIN (LOSS) B-A | 1,22,427/- |
ITR was filed by the assessee claiming loss of Rs. 7,15,181/-after applying indexation on Purchases cost + interest + expenses.
5. It was further submitted that the notice U/s 148 of the Act was issued on 31/03/2017. The AO rejected the claim of Interest and other expenses holding in the assessment order dated 16/11/2017 as under :
“……………. but as per the IT Act, 1961 all the payments made towards repayment of loan taken and penalty, electricity expenses etc. is not an allowable expenses and should not be claimed in purchase cost.’
6. It was further submitted that the Id. CIT(A) upheld the view of the AO by holding that “I carefully consider the issue also but I find that the expenses of Rs. 3,93,898/ – and Rs. 15,998/- are not related to the cost of construction of asset”.
7. It was further submitted that both of the grounds of appeal relate to core issue i.e. whether the Interest and other expenses can form part of the cost of the capital asset for the purpose of computation of capital gains.
8. In this regard, it was submitted that the assessee has not claimed the deduction of interest u/s 24(b) and claimed the same as cost, of capital asset u/s 48 only. Therefore, appellant is not claiming ‘Double Deduction’ of the same amount which has been criticized strongly by the Hon’ble High Court in the case of Escorts Ltd & Another vs Union of India (1993) 199 ITR 43 (SC).
9. It was further submitted that it is almost a settled law, being upheld by the several co-ordinate Benches, that interest forms part of the cost of capital assets, in following cases:
| ITA No. | ITAT Bench | Name of case | Gist |
| 943/2012 AY 2007-08 | “c” Bench, Chennai | ACIT vs. Shri C Ramabrahmam | Assessee is entitled to claim deduction u/s 24 (b) and u/s 48 as both provisions are altogether different. |
| 147/2015 AY 2011-12 | “G” Bench, New Delhi | Subhash Bana Vs. ACIT, New Delhi | Entire interest paid to bank for acquiring capital asset would be eligible as part of cost of acquisition. |
| 208/2017 AY 2013-14 | Jodhpur | Gayatri Maheshwari vs. ITO, Ward 1(2), Jodhpur | The amount of interest paid by the assessee constitutes the actual cost to the assessee for that property. The interest amount should be definitely added to the actual cost of the property. |
| 1120/2016 AY 2011-12 | “c” Bench, Chennai | ITO vs. Smt. R. Aishwarya | Coordinate Bench has dearly 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 co‑ordinate bench. |
It was accordingly submitted that the assessee’s appeal deserves to be allowed.
10. Per contra, the Id. DR is heard who has taken through its findings of the lower authorities and has thus relied on the said findings.
11. We have heard the rival contentions and perused the material available on record. The Coordinate Bench in case of Gayatri Maheshwari vs. ITO (supra) has considered the decision of Hon’ble Delhi High Court in case of CIT Mlithilesh Kumari (1973) 92 ITR 9 and also the decision of Hon’ble Karnataka High Court in case of CIT vs. Shri Hariram Hotels (Purchase) Ltd. (2010) 188 taxman 170 (Kar) and has held as under:-
” 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 Hon’ble 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 v.as paid on the date of the purchase or whether it is paid subsequently. To exclude the interest amount from the actual cost of the 3.55,-=’-E5 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 9’3117 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 oL5ser/ations 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 Hon’ble Karnataka High Court has held as under:‑
“7 We are unable to agree with the arguments advanced by the ‘earned 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 just/fled 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 ::as 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 Id. 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 a c ied to the actual cost of the properly.
Respectfully following these regal propositions and on basis of our observations as held herein, we reverse the findings of t’-e Id. 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,”
12. We therefore find that there is a consistent view among various Honible High Courts and which has been consistently followed by the various Benches of the Tribunal that the assessee is entitled to include interest as part of the cost of the assets while computing the capital gains U/s 48 of the Act. In the absence of any contrary authority brought to our notice, the Assessing Officer is directed to allow the interest expenses of Rs.3,93,898/- paid to LIC Housing Finance Ltd. Subject to appropriate indexation while computing capital gains u/s 48 of the Act.
In the result, the appeal of the assessee is allowed.
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