INCOME TAX OFFICER v. SMT. PUSHPABEN B. WADHWANI
[Citation -1986-LL-0304-4]

Citation 1986-LL-0304-4
Appellant Name INCOME TAX OFFICER
Respondent Name SMT. PUSHPABEN B. WADHWANI
Court ITAT
Relevant Act Income-tax
Date of Order 04/03/1986
Assessment Year 1977-78
Judgment View Judgment
Keyword Tags opportunity of being heard • disallowance of interest • initial contribution • investment allowance • revenue expenditure • cost of acquisition • capital expenditure • development rebate • interest payment • house property • interest paid • capital gain • sale of flat • sale price
Bot Summary: The facts of the case, the assessee s contentions and the decision of the ITO thereon, could be gathered from the following relevant portion of the assessment order : Assessee has shown only income from capital gain on sale of flat at Bombay. The assessee contended that the ITO was not justified excluding the amount of interest paid on the loan taken for construction of the property in question in determining the cost of acquisition of the assets sold by her. The AAC accepted the assessee s contention in the following manner: On verification of the facts I find that the figure arrived at by the ITO is not correct, because whatever expenses incurred for creating an asset forms the part of the cost and depreciation and development rebate and or investment allowance is allowable on the interest etc. In my view, the ITO has failed to appreciate the assessee s case in proper perspective vis-a-vis the definitions of cost of improvement and cost of acquisition contained in s. 55(1)(b) and s. 55(2) r/w s. 48(ii) of the Act. The restriction about the disallowance of interest is in respect of cost of improvement and not in respect of cost of improvement and not in respect of cost of acquisition. In the case of Maithreyi Pai, the Hon ble High Court has held that the interest paid on the borrowed capital fort he purposes of purchase of shares should form part of the cost of acquisition provided the assessee has not got deduction in respect of such interest payment in earlier years. If the assessee has not been allowed such deduction in earlier then in view of the decision in the case of Maithreyi Pai, the interest should form part of the cost of acquisition of the asset sold by the her.


U.T. SHAH, J.M. Order grounds taken up by Revenue in this appeal read as under: "(1) ld. AAC has erred in law and on facts in directing ITO to allow interest paid on loan while working out capital gain. (2) On facts of case AAC ought to have upheld order of ITO. (3) It is, therefore, prayed that order of AAC may be set aside and that of ITO be restored to above extent." 2. assessee is individual. assessment year is 1977-78 and relevant previous year ended on 31st March, 1977. 3 . facts of case, assessee s contentions and decision of ITO thereon, could be gathered from following relevant portion of assessment order : "Assessee has shown only income from capital gain on sale of flat at Bombay. Assessee purchased flat in Navjivan Cooperative Housing Society. Bombay for Rs. 7,700. Assessee was granted loan of Rs. 11,000. amount of Rs. 7,700 was paid by assessee in instalments. said flat was sold out in 1976 for Rs. 45,000. Assessee has claimed cost of flat at Rs. 22,000 which has been arrived at as under: . Rs. Initial contribution 7,700 Amount paid towards loan in monthly instalment 5,587 Interest of loan 6,476 Cost of fans & geysor 1,077 Brokerage 900 . 22,000 From details mentioned above it is clear that assessee has paid interest on instalments of loan at Rs. 6,476. Out of total interest paid by assessee she received rebate of Rs. 300 in interest. Assessee has claimed interest of loan as capital expenditure which is not correct. Since loan on instalment for construction of house property will be revenue expenditure, same will not be allowable while computing cost of flat. cost of flat will be as under: . Rs. Initial contribution 7,700 Amount of loan paid in instalment 5,847 Cost of fan & Geysor etc. 2,277 . 15,824 Thus cost of flat will be Rs. 15,824 and not Rs. 22,000 as claimed by assessee. I, therefore, allow cost of flat at Rs. 15,824. Total income is computed as under : . Rs. Sale price 45,000 Less: Cost of flat as discussed 15,824 . 29,176 Less: Exemption under s. 80T 5,000 . 24,176 Further deduction @ 25 per cent 6,044 Total income 18,132 r/o 18,130 4. Before AAC, assessee contended that ITO was not justified excluding amount of interest paid on loan taken for construction of property in question in determining cost of acquisition of assets sold by her. For this purpose, reliance was placed on decision of Hon ble Supreme Court in case of Challapali Sugar Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC). It was therefore, urged that cost of acquisition of property in question should be taken as shown by her. AAC accepted assessee s contention in following manner: "On verification of facts I find that figure arrived at by ITO is not correct, because whatever expenses incurred for creating asset forms part of cost and depreciation and development rebate and or investment allowance is allowable on interest etc. Since expenses incurred by appellant are for acquisition of flat and for creating asset. I am of view that ITO was not justified in rejecting claim of appellant. ITO is directed to accept adopt cost of flat as shown by appellant." 5. Being aggrieved by order of AAC, Revenue has come up in appeal before Tribunal. learned representative for Department strongly supported action of ITO and urged that order of AAC should be reversed. According to him, neither decision in case of Challapali Sugar Ltd. (supra), nor in case of CIT vs. Tensile Steel Ltd. (1976) 105 ITR 581 (Guj) would be applicable to facts and circumstances obtaining in instant case. It may be mentioned that assessee in her written submissions dt. 5th Nov., 1985 has urged that order of AAC should be confirmed. For this purpose, reliance is placed on decision in case of Tensile Steel Ltd. (supra). 6. On due consideration of rival submissions of parties, I do not find any force in stand taken on behalf of Revenue. In my view, ITO has failed to appreciate assessee s case in proper perspective vis-a-vis definitions of "cost of improvement" and "cost of acquisition contained in s. 55(1)(b) and s. 55(2) r/w s. 48(ii) of Act. restriction about disallowance of interest is in respect of "cost of improvement" and not in respect of "cost of improvement" and not in respect of "cost of acquisition". Therefore, I am of opinion that assessee would be entitled to claim interest paid by her should be considered in determining "cost of acquisition" of assets sold by her. Again, ratio laid down in aforesaid two reported cases clearly supports stand taken by assessee. Similar issue had come up before High Court in cases if CIT vs. Mithlesh Kumari (1973) 92 ITR 9 (Del), CIT vs. Travancore Cochin Chemicals Ltd. (1975) 99 ITR 24 (Ker)(FB), K. S. Gupta (1979) 119 ITR 372 (AP) and CIT vs. Maithreyi Pai (1984) 43 CTR (Kar) 88 : (1985) 152 ITR 247 (Kar). In case of Maithreyi Pai, Hon ble High Court has held that interest paid on borrowed capital fort he purposes of purchase of shares should form part of cost of acquisition provided assessee has not got deduction in respect of such interest payment in earlier years. In instant case, from order of ITO it is not clear as to when assessee acquired flat in question and whether she was allowed deduction of interest payments in computing income from said flat under head "income from house property" in earlier years. If that be so, then interest paid on loan cannot be treated as part of cost of acquisition. However, if assessee has not been allowed such deduction in earlier then in view of decision in case of Maithreyi Pai (supra), interest should form part of cost of acquisition" of asset sold by her. Since this aspect of matter requires investigation. I set aside orders of ITO authorities on this point and restore case once more to file of ITO with direction to give his decision afresh keeping in mind observations made in this order and after giving opportunity of being heard to assessee in this regard. 7. For statistical purpose, appeal is allowed. *** INCOME TAX OFFICER v. SMT. PUSHPABEN B. WADHWANI
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