2018 (2) TMI 1527 - AT - Income Tax

Short term capital gains on sale of the impugned flat - Interest paid for the acquisition of the impugned property - Computation of cost of acquisition - Held that - The applicable clause of section 55 (2) to the assessee s case is clause (b) and the relevant sub clause is sub clause (i) which provides that where the capital asset become the property of the assessee before first day of April 1981 means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the first day of April 1981. The statutory charges such as registration and stamp duty are paid for getting the property registered in the name of the assessee without such payment the assessee would not become the owner of the impugned flat. The cost of acquisition of property would definitely include statutory charges such as registration and stamp duty duly paid. Therefore hold that the amount of 3, 84, 449/- should be included as cost of acquisition of the impugned flat. For Interest paid for the acquisition of the impugned property as held in Challapalli Sugars Ltd. vs. CIT 1974 (10) TMI 3 - SUPREME Court that in case money is borrowed by a newly started company which is in the process of constructing and erecting the plant the interest incurred before the commencement of production on such borrowed money can be capitalized and added to the cost of the fixed asset. In the instant case it is not discernable whether the interest paid for the acquisition of the impugned property has been claimed by the assessee under Chapter IVC namely income from house property . If the assessee had already claimed interest under the head income from house property the same interest cannot be capitalized and added to the cost of acquisition of the property. Since these facts are not available on record as regards interest paid for the loan availed from ICICI Bank for the purpose of acquisition of the impugned property whether to be allowed as deduction in computing the STCG is to be considered afresh by the Assessing Officer. The Assessing Officer shall take decision in accordance with law after affording a reasonable opportunity of hearing to the assessee. It is ordered accordingly.

Issues:
1. Disallowance of stamp duty and registration charges as part of the cost of acquisition of a flat for computing short term capital gains.
2. Disallowance of interest payment to ICICI Bank for a loan availed for acquiring the flat while computing short term capital gains.
3. Interpretation of provisions under Section 55(2) of the Income Tax Act for determining the cost of acquisition of an asset.
4. Applicability of judicial precedents in determining the cost of fixed assets and capitalization of interest incurred before the commencement of production.

Analysis:

Issue 1:
The Assessing Officer disallowed the stamp duty and registration charges as part of the cost of acquisition for computing short term capital gains. The CIT(A) upheld this decision, stating that such charges are not to be treated as part of the cost of acquisition, as per Section 48 of the Income Tax Act. The CIT(A) emphasized that the amount paid to the seller of the property is the relevant cost of acquisition, and statutory charges are not included. The tribunal partly allowed the appeal, stating that statutory charges should be included in the cost of acquisition of the flat.

Issue 2:
Regarding the disallowance of interest payment to ICICI Bank for the loan availed for acquiring the flat, the tribunal noted that interest paid for acquisition of an asset should be part of the cost of acquisition, citing judicial precedents. The tribunal directed the Assessing Officer to reconsider the allowance of interest as a deduction in computing short term capital gains, ensuring compliance with the law.

Issue 3:
The tribunal analyzed Section 55(2) of the Income Tax Act, specifically clause (b) and sub clause (i), to determine the cost of acquisition of the asset. It emphasized that statutory charges such as registration and stamp duty should be included in the cost of acquisition, as these expenses are essential for the assessee to become the owner of the property.

Issue 4:
In considering the applicability of judicial precedents in determining the cost of fixed assets and capitalization of interest, the tribunal referred to the normal rules of accountancy prevailing in commerce and industry. It highlighted that interest incurred before the commencement of production on borrowed money can be capitalized and added to the cost of fixed assets. The tribunal directed the Assessing Officer to reevaluate the treatment of interest paid for the loan availed for property acquisition, ensuring a fair opportunity for the assessee.

In conclusion, the tribunal partly allowed the appeal, emphasizing the inclusion of statutory charges in the cost of acquisition and directing a reassessment of the treatment of interest payment for the loan availed for property acquisition in compliance with legal provisions and judicial precedents.

← Previous Next →