By TIOL News Service

AHEMDABAD, JUNE 28, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether cost of interest on borrowed funds used for acquiring capital asset, can be taken as cost of acquisition of asset. YES is the answer.

Facts of the case:

The assessee during the subject year sold six capital assets in the nature of immovable properties in the relevant previous year giving rise to short term capital gains. The assessee’s short term capital gains computation claim interest amount in question of Rs.5,21,584/- as to have been incurred on funds borrowed for acquisition of the above assets. The AO was fair enough in not disputing direct nexus between assessee’s borrowed fund and the assets acquired followed by sale thereof in the relevant previous year. He however declined assessee’s interest claim u/s 48 of the Act that the same nowhere postulates such a deduction since cost of interest on borrowed funds used for acquiring the impugned capital asset cannot be taken to be cost of acquisition of asset.

On appeal, the ITAT held that,

++ the question is as to whether cost of acquisition of a capital asset u/s.48 clause (ii) includes interest amount qua the borrowed funds used for purchasing the same. And more particularly in case when there is no dispute about direct nexus thereof as the fact of instant case. There is no dispute that provisions in the Act nowhere provide specific definition of the costs incurred or to be taken in computing capital gains. The CIT(A)’s case on the other hand is that they pertain to the old Act. We find that the same is factually incorrect at least so far as Andhra Pradesh and Madras high court’s decisions are concerned. It is further evident to us that their lordships of the apex court in Challpalli Sugars case had rather examining the very issue pertaining to cost of fixed assets to include similar cost of interest. The DR fails to rebut this factual position. We further notice that this co-ordinate bench decision in ACIT vs. Aurangabad Holiday Resorts (P) Ltd. - 2007-TIOL-352-ITAT-PUNE relies upon Bombay high court’s decision in CIT vs. Smt. Godavaridevi Saraf to hold that even judgments of non jurisdictional high courts bind this tribunal. We are therefore of the opinion that CIT(A)’s reasoning narrated in preceding paragraphs is not sustainable;

++ it is further evident that Section 48(ii) specifically postulates cost of acquisition of the asset instead of mere cost of the asset for the purpose of computing capital gains. We reiterate trite proposition of law that expressions used in a fiscal statute are to be interpreted without supplying any further emphasis and more so when there is no any ambiguity therein. We thus adopt literal interpretation of the above clause to conclude that cost of acquisition of the asset includes assessee’s interest cost as well since incurred on funds borrowed for the purpose of acquisition of the capital asset sold having direct nexus with the same.

(See 2017-TIOL-951-ITAT-AHM)