2023 (7) TMI 405 - AT - Income Tax

Computation of capital gains - Cost of Acquistion - Deduction u/s 48 - Interest paid on loan taken for settlement of arbitration award in favor of family members - Disallowance of interest - capital asset sold during the accounting year was specifically gifted to the appellant for payment of compensation to the other legal heir by way of family arrangement and deductible as cost of acquisition from the sale value - HELD THAT - We are in conformity with the orders of the revenue authorities that this payment of interest has nothing to do with LTCG on the sale of the said capital asset and therefore such payment of interest cannot be claimed as deduction from the value of LTCG u/sec. 48. We do not agree with the contention raised by assessee that it is the deduction claimed due to cost of acquisition since there is no cost incurred for acquisition, as the property had been gifted to the assessee by his parents. None of the heads of expenses for computation of capital gains as defined u/sec. 48 is applicable in the case of the assessee. The deduction of interest paid is neither related to cost of acquisition, cost of improvement or cost of transfer of asset sold. We do not find any infirmity with the findings of the ld. CIT(A) which is hereby upheld. Ground No.1 of the assessee s appeal is dismissed.

Summary

Issues:
The issues involved in the judgment are:
1. Deductibility of interest claimed against capital gains.
2. Classification of agricultural land as a capital asset for computing capital gain.

Issue 1: Deductibility of interest claimed against capital gains:
The assessee had sold a land and claimed interest paid as deduction against capital gains, stating it was used for compensation to legal heirs. However, the AO disallowed the deduction, stating the property was gifted to the assessee and the interest claimed was not allowable under sec.48 of the Act. The CIT(A) upheld the AO's decision, stating the interest paid was not related to cost of acquisition or transfer of the asset sold. The Tribunal agreed with the revenue authorities, stating the interest payment had no connection to the LTCG on the sale of the asset. As the property was gifted, no cost of acquisition was incurred, and the interest deduction did not fall under any specified expenses for capital gains computation. Therefore, the Tribunal upheld the decision of the CIT(A) and dismissed Ground No.1 of the appeal.

Issue 2: Classification of agricultural land as a capital asset:
The second ground raised by the assessee was regarding the classification of agricultural land situated beyond two kilometers from municipal limits as a capital asset for computing capital gain. However, the Tribunal noted that this issue did not arise from the assessment order as the assessee had already offered LTCG in the return of income. Therefore, the Tribunal dismissed Ground No.2 of the appeal as it was not a valid issue arising from the assessment.

In conclusion, the Tribunal dismissed the appeal of the assessee after considering both the issues raised. The deductibility of interest claimed against capital gains was denied as it was not related to the sale of the asset, and the classification of agricultural land as a capital asset was not considered as a valid issue for appeal.