2019 (11) TMI 85 - AT - Income Tax

Capital gains computation u/s 48 - deduction of interest as part of cost of acquisition from full value of sale consideration - AO asked the assessee why interest expense as claimed in cost of improvement/acquisition of the transacted property should not be disallowed, as interest expenditure should be claimed u/s. 24 against house property income - HELD THAT - Without making the payment of the amounts to the builder the assessee could not have obtained the conveyance deed - AO is wrong in taking the cost of acquisition only as stated in the conveyance deed. As against that the assessee has filed evidence on record to contend that what is shown by him as cost of acquisition are the payments made to the builder for getting the right over the property which is sold by him. Such claim of the assessee could not be denied unless proved otherwise. There is no material on record to suggest that the payments which are stated to be made by the assessee were not incurred by him as the cost of the said flat which has been subject-matter of sale during the year under consideration. It is so with respect to base price, processing fee, preference charges, external development charges, tire fighting charges, generator charges, etc. which all will form cost of acquisition incurred by the assessee for getting the ownership of the asset and, therefore, the assess e is entitled to get deduction thereof under the provisions of s. 48(ii) Deduction under section 24(b) and computation of capital gains under section 48 are altogether covered by different heads of income i.e., income from 'house property' and 'capital gains' - deduction u/s 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 - See Praveen Gupta vs. Assistant Commissioner of Income Tax 2010 (8) TMI 820 - ITAT DELHI and ACIT vs. C. Ramabrahmam 2012 (11) TMI 430 - ITAT CHENNAI - Decided in favour of assessee

Summary

Issues Involved:
1. Computation of capital gains under Section 48(ii) of the Income-tax Act.
2. Deduction under Section 24(b) of the Income-tax Act.
3. Interaction between Section 48(ii) and Section 24(b) regarding interest expense.
4. Inclusion of interest on borrowed capital in the cost of acquisition.
5. Allegation of double deduction.
6. Admissibility of interest as part of the cost of acquisition.
7. Evaluation of judicial precedents cited by both parties.

Detailed Analysis:

1. Computation of Capital Gains under Section 48(ii) of the Income-tax Act:
The assessee contended that the computation of capital gains under Section 48(ii) should be independent of deductions under Section 24(b). The Tribunal agreed, emphasizing that the cost of acquisition and any improvement to the asset should be deducted from the full value of the consideration received. This is consistent with the statutory mandate under Section 48(ii).

2. Deduction under Section 24(b) of the Income-tax Act:
The Tribunal noted that Section 24(b) specifically provides for the deduction of interest on borrowed capital from income under the head "Income from house property." The assessee had claimed this deduction for the interest paid on the home loan.

3. Interaction between Section 48(ii) and Section 24(b) regarding Interest Expense:
The Tribunal examined whether interest expenses claimed under Section 24(b) could also be considered under Section 48(ii). The Tribunal found that these sections pertain to different heads of income: "Income from house property" and "Capital gains." Therefore, the interest expense could be considered under both sections without any statutory prohibition.

4. Inclusion of Interest on Borrowed Capital in the Cost of Acquisition:
The Tribunal referred to judicial precedents, including the cases of Praveen Gupta vs. Assistant Commissioner of Income Tax and ACIT vs. C. Ramabrahmam, which supported the inclusion of interest on borrowed capital in the cost of acquisition. The Tribunal held that interest paid for acquiring an asset forms part of the cost of acquisition under Section 48(ii).

5. Allegation of Double Deduction:
The Revenue argued that allowing interest expense under both sections would result in a double deduction. The Tribunal rejected this argument, stating that the statutory provisions do not exclude the operation of one another. The Tribunal emphasized that each section operates independently within its respective domain.

6. Admissibility of Interest as Part of the Cost of Acquisition:
The Tribunal found that the interest paid on the home loan was indeed an expenditure incurred for acquiring the property. This interest should be included in the cost of acquisition when computing capital gains under Section 48(ii).

7. Evaluation of Judicial Precedents Cited by Both Parties:
The Tribunal reviewed various judicial precedents cited by both the assessee and the Revenue. The Tribunal found the decisions in Praveen Gupta and ACIT vs. C. Ramabrahmam particularly relevant and persuasive. These decisions supported the assessee's contention that interest on borrowed capital should be included in the cost of acquisition for computing capital gains.

Conclusion:
The Tribunal concluded that the issue in dispute was squarely covered by the cited judicial precedents. The Tribunal held that the interest on borrowed capital should be included in the cost of acquisition under Section 48(ii), and the Revenue's disallowance of this interest was incorrect. Consequently, the Tribunal allowed the assessee's appeal and deleted the addition made by the Assessing Officer.

Order:
The appeal of the assessee was allowed, and the addition in dispute was deleted. The order was pronounced on 30-10-2019.