2011 (5) TMI 1111 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT(A) regarding assessment year 2006-07 u/s 143(3) of the IT Act, 1961.

Issue 1: Computation of cost of acquisition including interest on borrowed capital

The limited issue raised pertains to the computation of the cost of acquisition of assets by including interest on borrowed capital and part of the cost of acquisition. The appellant sold a property and declared long term capital gains. The Assessing Officer disagreed with the indexed cost of acquisition calculated by the assessee, considering it not in line with section 48 of the Act. The CIT(A) held that the total cost of the property, including interest paid on installments, constitutes the cost of acquisition. The indexed cost of acquisition was computed correctly at Rs. 66,81,747. The Revenue challenged the inclusion of interest paid on delayed payments as part of the indexed cost of acquisition. The Tribunal upheld the CIT(A)'s decision, stating that interest paid on delayed payments should be included in the cost of acquisition and indexed separately payment wise.

Issue 2: Interpretation of relevant sections of the Income Tax Act

The Tribunal referred to sections 48 and 55 of the Income Tax Act for guidance on the computation of capital gains and cost of acquisition. Section 48 outlines the deductions to be made from the consideration received for a capital asset transfer, including the cost of acquisition and improvement. Section 55 defines the "cost of improvement" and "cost of acquisition" for the purpose of sections 48 and 49. The Tribunal emphasized that the cost of acquisition includes the purchase price and any interest paid on borrowed capital for property acquisition. It clarified that interest paid on delayed payments should be considered part of the cost of acquisition and indexed separately. The Tribunal highlighted the distinction between cost of acquisition and cost of improvement as per the provisions of the Act.

Conclusion:

The Tribunal dismissed the Revenue's appeal against the working of the indexed cost of acquisition, affirming the inclusion of interest paid on delayed payments in the cost of acquisition. It upheld the CIT(A)'s decision that interest paid on installments forms part of the cost of acquisition and should be indexed separately. The Tribunal's decision was based on the interpretation of relevant sections of the Income Tax Act, emphasizing the definition and treatment of cost of acquisition and improvement in capital gains computation.