2018 (3) TMI 733 - AT - Income Tax

Deposit with Andhra bank to be treated as qualifying for deposit under capital gains scheme - assessee pleads that it was due to mistaken understanding and adverse market situation in real estate as reasonable cause for not making the investment as required by the Act qualifying for exemption from capital gain - Held that - The assessee has not invested either in flat or construction of accommodation or deposited the sum of ₹ 50 lacs in the designated capital gain account, instead it has deposited the same in Andhra Bank not qualifying for capital gain. The. We find that it is trite law that the assessee can get relief only within the four corners of law. The assessee having not complied with the provisions of law by making the requisite investment in residential accommodation or investment in designated capital gain account cannot claim relief from capital gain to the extent of ₹ 50 lacs deposited in Andhra Bank account which is not qualifying for capital gain exemption. Treatment of interest under housing loan as cost of improvement and application of cost inflation index thereupon - Deductions from income from house property - Held that - The interest on housing loan has not been mandated to be allowed as deduction otherwise than the prescription of law prescribed as above. Furthermore, we find that the CIT(Appeals) in his appellate order has referred to certain decisions of Hon ble Apex Court and Hon ble High Courts which are on this issue and are against the proposition being canvassed by the assessee. It is trite law that the decision from the higher judicial forums take precedence over the decisions of the tribunal. Accordingly, in our considered opinion, the CIT(Appeals) has properly appreciated the issue in light of the relevant law and appropriate case laws from higher forums. Accordingly, we do not find any infirmity in the order of the ld. Commissioner of Income Tax (Appeals). - Assessee appeal dismissed.

Summary

Issues Involved:
1. Treatment of ?50 lakhs deposit with Andhra Bank under capital gains scheme.
2. Treatment of interest paid on housing loan as part of the cost of improvement and application of cost inflation index.

Detailed Analysis:

1. Treatment of ?50 Lakhs Deposit with Andhra Bank:
The assessee sold a flat and deposited ?50 lakhs in SBI under the Capital Gain Account Scheme and another ?50 lakhs in Andhra Bank under a normal scheme. The assessee claimed the entire ?100 lakhs as exempt under capital gains. The Assessing Officer (AO) allowed the deduction for the ?50 lakhs deposited in SBI but disallowed the deduction for the ?50 lakhs deposited in Andhra Bank, as it was not under the Capital Gain Account Scheme.

The Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that the amount deposited in Andhra Bank did not qualify for exemption under the capital gains scheme. The relevant section (54(2)) of the Income Tax Act requires the unutilized capital gains to be deposited in a specified Capital Gain Account Scheme to qualify for exemption. Since the deposit with Andhra Bank did not meet this criterion, the exemption was rightly denied.

The Tribunal affirmed this decision, noting that the assessee's misunderstanding of the law and adverse market conditions did not provide grounds for exemption outside the statutory requirements. Thus, the Tribunal upheld the disallowance of the ?50 lakhs deposited in Andhra Bank.

2. Treatment of Interest Paid on Housing Loan:
The assessee claimed interest paid on a housing loan as part of the cost of improvement, seeking to deduct it from the long-term capital gains. The AO disallowed this deduction, stating that interest on housing loans does not qualify as a cost of improvement under section 48 of the Income Tax Act. The AO referenced the decision in Smt. S. Valliammai v. CIT, which held that interest on housing loans cannot be considered a cost of improvement.

The Commissioner of Income Tax (Appeals) agreed with the AO, elaborating that the interest paid on housing loans, even if capitalized, does not form part of the cost of acquisition or improvement. The Commissioner cited several judgments, including those from the Supreme Court, which supported this view. Specifically, the judgments in RM Arunachalam's case and V.S.M.R. Jagadishchandran's case were highlighted, which established that interest paid on borrowed capital does not qualify for deduction under capital gains computation.

The Tribunal also upheld this view, emphasizing that the law does not permit treating interest on housing loans as a cost of improvement. The Tribunal noted that the assessee had claimed some interest as a deduction under section 24(b) for income from house property, which further precluded its consideration under capital gains. The Tribunal affirmed that the Commissioner of Income Tax (Appeals) had correctly applied the law and relevant case precedents.

Conclusion:
The Tribunal dismissed the appeal, confirming the AO and Commissioner of Income Tax (Appeals)'s decisions. The ?50 lakhs deposited in Andhra Bank did not qualify for exemption under the capital gains scheme, and the interest paid on the housing loan could not be treated as a cost of improvement for capital gains computation.