2022 (8) TMI 1133 - AT - Income Tax

Computation of capital Gain - Cost of acquisition - inclusion of Interest cost - Interest cost was claimed as deduction u/s 24(b) from Income from House Property (self occupied) - CIT-A deleted the addition - HELD THAT - This issue is squarely covered by the decision of Delhi SMC Bench of the Tribunal in Ashok Kumar Shahi 2019 (11) TMI 85 - ITAT DELHI in which decision of Chennai Bench of the Tribunal in ACIT vs. Shri C. Ramabrahmam 2012 (11) TMI 430 - ITAT CHENNAI and held deduction under section 24(b) and computation of capital gains under section 48 of the Act are altogether covered by different heads of income i.e., income from house property and capital gains . Further, a perusal of both the provisions makes it unambiguous that none of them excludes operative of the other. In other words, a deduction under section 24(b) is claimed when concerned assessee declares income from house property , whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. We do not have even a slightest doubt that the interest in question is indeed an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee in the instant case is certainly entitled to include the interest amount at the time of computing capital gains under section 48 - CIT(A) has rightly accepted the assessee s contention and deleted the addition made by the Assessing officer - Decided against revenue. Deduction u/s 54 on account of acquisition of new residential unit - HELD THAT - It is not in dispute that the assessee has purchased agricultural land and constructed in the said land residential house, guest house, staff quarters, swimming pool shed for parking etc. The Ld. CIT(A) has observed and rightly so that the assessee has made investment in the residential house and land appurtenant thereto and that the Act does not limit the size of appurtenant land. As decided in Shri Narendra Mohan Uniyali 2009 (8) TMI 825 - ITAT, DELHI . It is crystal clear from the plain reading of Section 54 54F that exemption is allowable in respect of amount invested in the construction of a residential house. There is no any rider u/s 54F that no deduction would be allowed in respect of investment of capital gains made on acquisition of land appurtenant the building or on the investment on land on which building is being constructed. When the land is purchased and building is constructed thereon, it is not necessary that such construction should be on the entire plot of land, meaning thereby a part of the land which is appurtenant to the building and on which no construction is made, there is no denial of exemption on such investment. The impugned disallowances of exemption under section 54 is not based on any solid foundation and the Ld. CIT(A) was perfectly justified in deleting the disallowance. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 1,00,91,252/- on account of indexed cost of house property pertaining to interest expenses.
2. Allowing deduction of Rs. 1,70,00,000/- under section 54 of the Income Tax Act for acquisition of a new residential unit.

Detailed Analysis:

1. Deletion of Disallowance of Rs. 1,00,91,252/- on Account of Indexed Cost of House Property Pertaining to Interest Expenses:

The Revenue challenged the CIT(A)'s decision to delete the disallowance of Rs. 1,00,91,252/- made by the AO on account of indexed cost of house property pertaining to interest expenses. The AO had disallowed the interest expenses, arguing that interest paid after the acquisition of the asset does not form part of the cost of acquisition as per section 48 of the Act and cited the decision of the Mumbai Bench of the ITAT in Macintosh Finance Estate Ltd. vs. Addl. CIT.

The CIT(A), however, relied on the decision of the Madras High Court in the case of Trishul Investments Ltd., which overruled the decision in Macintosh Finance Estates Ltd., stating that interest incurred for acquisition of capital asset forms part of the cost of the asset. The CIT(A) also noted that section 43, which the AO relied upon, pertains to business income and is not applicable in this case since the interest on housing loan does not relate to business income. The CIT(A) further clarified that section 24(b) and section 48 do not exclude each other, allowing the interest to be considered in the cost of acquisition when computing capital gains.

The Tribunal upheld the CIT(A)'s decision, referencing the Delhi SMC Bench's ruling in Ashok Kumar Shahi vs. ACIT and the Chennai Tribunal's decision in ACIT vs. Ramabrahamam, which supported the inclusion of interest paid on borrowed funds for purchasing property as part of the cost of acquisition under section 48, even if it was claimed as a deduction under section 24(b) while computing income from house property.

2. Allowing Deduction of Rs. 1,70,00,000/- under Section 54 of the Income Tax Act:

The AO disallowed the deduction claimed under section 54, arguing that the residential house was constructed on agricultural land, which was not permissible. The AO's decision was based on a report indicating that the land was still agricultural in revenue records and included structures such as a guest house, staff quarters, swimming pool, and parking shed.

The CIT(A) overturned the AO's decision, stating that the Income Tax Act does not limit the size of appurtenant land and there is no restriction on claiming exemption for investment in a residential house on agricultural land. The CIT(A) noted that the residential house constructed was habitable and had all necessary amenities, thus qualifying for the exemption under section 54.

The Tribunal supported the CIT(A)'s view, referencing the ITAT Jaipur Bench's decision in Shyam Sunder Makhija vs. ITO, which recognized a farm house as a residential house. The Tribunal also cited the Delhi Bench's ruling in Addl. CIT vs. Shri Narendra Mohan Uniyali, which clarified that section 54 allows exemption for investment in the construction of a residential house, including the land appurtenant to the building.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The deletion of disallowance of Rs. 1,00,91,252/- on account of indexed cost of house property pertaining to interest expenses and the allowance of deduction of Rs. 1,70,00,000/- under section 54 for the acquisition of a new residential unit were both affirmed. The Tribunal emphasized that section 24(b) and section 48 operate independently, and there is no restriction in the Income Tax Act against claiming exemption for investment in a residential house on agricultural land.