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TMI Blog1973 (2) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... tual leasehold rights in an open plot of land from one H.R. Gandhi for a consideration of Rs. 95,000. The sale deed, inter alia, provided that in addition to the payment of the price of Rs. 95,000, the assessee shall deposit a sum of Rs. 5,000 either in cash or security on account of building security in the Delhi Improvement Trust within 15 days of the sale deed and that the vendor will be entitled to take back refund of Rs. 5,000 deposited by him with the said authority as building security. The sale deed further provided that under the terms of the perpetual lease under which the vendor held the plot from the Government, he was required to construct a building on the said plot within a stipulated period which he had failed to do and that the vendor was not liable for any consequences whatsoever of the aforesaid default. As the vendor had committed a breach of the condition of the perpetual lease regarding the construction of a building within the stipulated period, the Government had imposed a penalty of Rs. 5,000 upon the vendor under the terms of the said deed and had recovered the said penalty by appropriating the building security deposited by him. The vendor called upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gain shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made, namely :--- (i) expenditure incurred solely in connection with such sale, exchange, relinquishment or transfer ; (ii) the actual cost to the assessee of the capital asset, including any expenditure of a capital nature incurred and borne by him in making any additions or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provision of sections 8, 9, 10 and 12. " The provisos to sub-section (2) need not be reproduced at this stage, but will be referred to at a later stage when considering the contentions urged on behalf of the revenue. Before considering the claim of the assessee, it may have to be stated that, although the loan for the purpose of purchasing the plot is said to have been raised from her mother-in-law and the interest on this loan is also said to have been paid to her mother-in-law and ultimately the plot of land is also said to have been sold to her mother-in-law, the genuineness of these transactions has not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of purchasing the land is not allowable under clause (iv) of sub-section (1) of section 9 of the Act. The transaction of the purchase and sale of the land by the assessee has not been treated as a business transaction and the profit derived by the assessee from such transaction has not been treated as business income assessable under section 10 of the Act nor has the land in question been treated as a capital asset of the business of the assessee. Therefore, there is no question of the interest paid by the assessee being allowed as an admissible expenditure under section 10(2) of the Act. The profit derived by the assessee by the purchase and sale of the land has also not been assessed under section 12 of the Act and, therefore, the interest paid by the assessee to her mother-in-law is not an expenditure which is admissible under section 12 of the Act. Therefore, the interest paid by the assessee is not an expenditure which is admissible under any provision of sections 8, 9, 10 and 12 of the Act and is not excluded from the computation of the actual cost of the capital asset to the assessee. The question, however, is whether it can be included in the computation of the actual co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under clause (vii) of sub-section (2) of section. 10 : ........ " Although the second proviso referred to above does provide for the computation of the capital asset not only on the basis of the actual cost as on the date of the acquisition of the capital asset but also on the basis of the addition or subtraction of certain other amounts as a result of the assessee obtaining depreciation allowance subsequent to the date of the acquisition of the capital asset, still this proviso does not necessarily indicate that other items of expenditure incurred by the assessee subsequent to the date of the acquisition of the capital asset but which are directly connected with the actual cost of the asset cannot be included in the actual cost. The third proviso referred to above really is not relevant, because it pertains to a capital asset which became the property of the assessee under sub-section (3) of section 12B of the Act. We really see no justification for putting the construction on the words " the actual cost to the assessee of the capital asset " which the learned counsel for the revenue seeks to put on them, namely, that the actual cost of the asset is its cost on the date of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case, we find that the assessee in order to purchase the land had not only to borrow the amount of Rs. 95,000 which was the consideration for the purchase of the land, but also had to pay interest of Rs. 16,878 on the amount borrowed by her. The amount of Rs. 95,000 plus the interest paid by the assessee constitutes the actual cost to the assessee of the land. The fact that the amount of Rs. 95,000 was paid by the assessee to the vendor and the amount of interest of Rs. 16,878 was paid to a different person, namely, her mother-in-law, does not make any difference so far as the assessee is concerned in respect of the actual cost of the land to her. It will not also make any difference whether the interest was paid on the date of the purchase or whether it is paid subsequently. To exclude the interest amount from the actual cost of the asset would lead to anomalous results. Supposing she had purchased the land for Rs. 1,00,000, by raising a loan of that amount and had paid interest of Rs. 20,000 on the said loan and had sold land for Rs. 1,20,000. It would be unreasonable to hold under such circumstances by excluding the interest amount from the actual cost of the land ..... X X X X Extracts X X X X X X X X Extracts X X X X
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