2017 (1) TMI 1437 - AT - Income Tax

Cost of acquisition of a capital asset u/s.48 clause (ii) - inclusion of interest amount qua the borrowed funds used for purchasing the same - Held that - There is no dispute that provisions in the Act nowhere provide specific definition of the costs incurred or to be taken in computing capital gains. It is further evident to us that Section 48(ii) of the Act specifically postulates cost of acquisition of the asset instead of mere cost of the asset for the purpose of computing capital gains. We reiterate trite proposition of law that expressions used in a fiscal statute are to be interpreted without supplying any further emphasis and more so when there is no any ambiguity therein. We thus adopt literal interpretation of the above clause to conclude that cost of acquisition of the asset includes assessee s interest cost as well since incurred on funds borrowed for the purpose of acquisition of the capital asset sold having direct nexus with the same. The assessee s sole substantive ground raised in the instant appeal is accepted.

Summary

Issues:
- Disallowance of interest claimed as cost of acquisition of capital assets for assessment year 2008-09 under section 143(3) of the Income Tax Act, 1961.

Analysis:
1. The appeal was against the CIT(A)-6, Ahmedabad's order upholding the Assessing Officer's action disallowing interest claimed as cost of acquisition of capital assets. The Assessing Officer acknowledged the direct nexus between the borrowed funds and the assets sold but disallowed the interest claim under section 48 of the Act.

2. The assessee contended that the interest amount should be considered part of the cost of acquisition based on judgments such as CIT vs. Mithileshkumari (1973) and other precedents. The CIT(A) upheld the Assessing Officer's decision, stating that the judgments cited were from non-jurisdictional high courts and pertained to the old Income Tax Act of 1922, which left the assessee dissatisfied.

3. The Tribunal deliberated on whether the interest amount on borrowed funds used for acquiring capital assets should be included in the cost of acquisition under section 48(ii) of the Act. They noted that the Act lacked a specific definition of costs for computing capital gains and that previous decisions favored including interest costs. The Tribunal rejected the CIT(A)'s reasoning, emphasizing the literal interpretation of the statute and the direct nexus between the interest cost and the capital asset.

4. Section 48(ii) of the Act specifies the cost of acquisition of the asset for computing capital gains. The Tribunal concluded that the interest cost incurred on borrowed funds for acquiring the capital asset should be considered part of the cost of acquisition. They accepted the assessee's substantive ground, allowing the appeal.

5. In the final decision pronounced on January 24, 2017, the Tribunal ruled in favor of the assessee, overturning the disallowance of the interest claimed as a cost of acquisition of the capital assets for the assessment year 2008-09.