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Issues involved: Determination of whether the interest amount paid by the assessee constituted part of the actual cost of the plots for the purpose of calculating capital gains for the assessment year 1967-68.
Facts: The assessee sold plots of land to two persons for a total consideration of Rs. 32,100, which were purchased for Rs. 9,138 from the Andhra Co-operative Housing Society Ltd. The assessee claimed that the cost of the property should include the purchase price and the interest paid on borrowings, totaling Rs. 20,434. The Income Tax Officer (ITO) disagreed and computed the capital gains at Rs. 22,962, considering only the purchase price as the cost of acquisition. Appellate Proceedings: The Appellate Assistant Commissioner (AAC) found that the interest claimed by the assessee was not allowed as revenue expenditure by the department in the past. The AAC held that the interest should be included in computing the cost of the land. The Income-tax Appellate Tribunal upheld the AAC's order, leading to the reference to the High Court. Legal Precedents: Referring to legal precedents, the High Court highlighted that the interest paid on borrowed funds for the purchase of land should be included in the actual cost of acquisition. The court emphasized the need to include all expenditure necessary to bring assets into existence and put them in working condition, as per accepted accountancy rules. Judgment: The High Court ruled in favor of the assessee, stating that the interest amount of Rs. 11,344 constituted part of the actual cost of the plots for determining capital gains. Citing relevant legal principles and precedents, the court held that including the capitalized interest in the cost of acquisition was essential for an accurate determination of the actual cost. The Commissioner was directed to pay the costs of the reference to the assessee, along with the advocate's fee of Rs. 250.
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