Smt. Amita Narang, Delhi V. The Dy Commissioner of Income Tax, Jammu

ITA 385/ASR/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0128 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 27-09-2018
• Assessment Year: 2007-2008
• Appeal Filed On: 11-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K R JAIN
• Keywords: Capital asset; Depreciation; Cost of acquisition; Revenue expenditure
• Section: 143(3); 205

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR (SMC) BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER I.T.A. NO. 385/ASR/2016 AS SESSMENT YEAR: 2007-08 AMITA NARANG, D-103, ANAND NIKETAN, NEW DELHI [PAN: AALPN 1549E] VS. DY. C.I.T., CIRCLE 2, JAMMU (APPELLANT) (RESPONDENT) APPELLANT BY : SH. K. R. JAIN (AD V.) RESPONDENT BY: SH. CHARAN DASS (D.R.) DATE OF HEARING: 14.02.2019 DATE OF PRONOUNCEMENT: 29.03.2019 ORDER PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS), JAMMU ('CIT(A )' FOR SHORT) DATED 23.3.2016, PARTLY ALLOWING THE ASSESSEES APPEAL CO NTESTING HER ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 ('THE ACT' HEREI NAFTER) DATED 29.12.2009 FOR THE ASSESSMENT YEAR (AY) 2007-08. 2. THE ISSUE AT LARGE IN THE INSTANT APPEAL IS THE ALLOWABILITY OF THE INTEREST ON BORROWED CAPITAL EMPLOYED BY THE ASSESSEE FOR PURCH ASING A CAPITAL ASSET, I.E., IN COMPUTING SHORT-TERM CAPITAL GAIN (STCG) ARISING ON ITS TRANSFER, WHICH IN THE PRESENT CASE IS BY WAY OF SALE OF A HOUSE PROPERTY IN JANUARY, 2007, I.E., WITHIN A PERIOD OF LESS THAN TEN MONTHS OF ITS PURCHASE BY THE ASSESSEE IN APRIL, 2006. ITA NO. 385/ASR/2016 (AY 2007-08) AMITA NARANG V. DY. CIT 2 3. THE ASSESSEE BEFORE ME RELIED, AS WAS THE CASE B EFORE THE LD. CIT(A), ON THE DECISIONS IN CIT V. MITHLESH KUMARI [1973] 92 ITR 9 (DEL) AND CIT (ADDL.) V. K.S. GUPTA [1979] 119 ITR 372 (AP). THE LD. DEPARTMENTAL REPR ESENTATIVE (DR), SH. CHARAN DASS, WOULD RELY ON CIT V. VARDHMAN POLYTEX LTD. [2008] 300 ITR 186 (P&H), RENDERED FOLLOWING CIT V. VARDHMAN POLYTEX LTD . [2008] 299 ITR 152 (P&H)(FB). 4. I HAVE HEARD THE PARTIES, AND PERUSED THE MATERI AL ON RECORD. 4.1 SECTION 48, WHICH PROVIDES THE MANNER OF COMPUT ATION OF CAPITAL GAINS CHARGEABLE U/S. 45 OF THE ACT, READS AS UNDER IN IT S RELEVANT PART: 48. MODE OF COMPUTATION. THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACC RUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY: (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE C OST OF ANY IMPROVEMENT THERETO: PROVIDED EXPLANATION . FOR THE PURPOSES OF THIS SECTION,' 4.2 IT IS CLEAR, THEREFORE, THAT THE COST INCURRED BY THE ASSESSEE, DEDUCTION FOR WHICH IN COMPUTING CAPITAL GAINS, SHORT-TERM OR LON G-TERM, COULD BE ALLOWED, OTHER THAN WHERE INCURRED IN CONNECTION WITH THE TRANSFER , IS THAT INCURRED ON THE ACQUISITION OR IMPROVEMENT OF THE CAPITAL ASSET TRA NSFERRED, I.E., CAPITAL COSTS. WHETHER A PARTICULAR COST QUALIFIES TO BE A COST OF ACQUISITION, AS THE INTEREST COST IS CLAIMED TO BE IN THE INSTANT CASE, OR COST OF IMPRO VEMENT, IS PRIMARILY A MATTER OF FACT, BEING THE COST LAID DOWN OR SUFFERED TO OBTAI N ANYTHING ( HABIB HUSSEIN V. CIT ITA NO. 385/ASR/2016 (AY 2007-08) AMITA NARANG V. DY. CIT 3 [1963] 48 ITR 859 (BOM)). THAT THE COST IS TO CORRE SPOND WITH THE COMMON NOTION THEREOF, I.E., AS UNDERSTOOD COMMERCIALLY OR WHICH AN ORDINARY MAN OF BUSINESS WILL RESORT TO WHEN MAKING COMPUTATION FOR HIS PURP OSES, WAS REITERATED, AGAIN IN THE CONTEXT OF COMPUTATION OF CAPITAL GAIN/LOSS, BY THE APEX COURT IN DHUN DADABHOY KAPADIA V. CIT [1967] 63 ITR 651 (SC). WHAT, THEREFORE, IS TO BE SEEN, AS CLARIFIED IN CHALLAPALLI SUGARS LTD. V. CIT [1975] 98 ITR 167 (SC), IS WHETHER THE COST INCURRED IS NECESSARY TO BRING THE RELEVAN T ASSET INTO EXISTENCE AND TO PUT IT IN WORKING CONDITION. THE SAID DECISION, THOUGH REN DERED IN THE CONTEXT OF COST FOR THE PURPOSE OF CLAIM OF DEPRECIATION, THE PRINCIPLE INVOLVED IS THE SAME, I.E., WHAT COULD, OR COULD NOT, UNDER THE GIVEN FACTS AND CIRC UMSTANCES, BE REGARDED AS A QUALIFYING COST TO THE ASSESSEE, EITHER TOWARD ACQU ISITION OR, AFTER ACQUISITION, ITS IMPROVEMENT. AGAIN, IT IS IMMATERIAL WHETHER THE CA PITAL ASSET UNDER REFERENCE IS A BUSINESS ASSET, ELIGIBLE FOR DEPRECIATION ON ITS U SER, OR A NON-BUSINESS (PERSONAL) ASSET. THE DECISION IS THUS EQUALLY APPLICABLE IN T HE CONTEXT OF COMPUTATION OF CAPITAL GAINS, AS INDEED WAS IN K.S. GUPTA (SUPRA). THE SAID DECISION BY THE APEX COURT STANDS IN FACT FOLLOWED BY HONBLE COURTS THR OUGHOUT THE COUNTRY, AS INDEED BY THE HONBLE JURISDICTIONAL HIGH COURT, AS IN CIT V. VARDHMAN POLYTEX LTD . [2006] 205 CTR 457 (P&H); CIT V. PUNJAB TRACTORS LTD . [2007] 289 ITR 130 (P&H); AND BY ITS FULL BENCH VARDHMAN POLYTEX LTD . (REPORTED AT 299 ITR (SUPRA)). 4.3 THE PRINCIPLE THAT, THEREFORE, EMERGES IS THAT ONLY THE COST LAID OUT OR INCURRED TOWARD ACQUISITION OF A CAPITAL ASSET, OR FOR EFFECTING ANY IMPROVEMENT THERETO, AS UNDERSTOOD BY A MAN OF COMMERCE, APPLYI NG PRINCIPLES OF COMMERCIAL ACCOUNTING, WOULD STAND TO BE INCLUDED AS PART OF I TS CAPITAL COST AND, ACCORDINGLY, DEDUCTED IN COMPUTING THE CAPITAL GAIN ON ITS TRAN SFER. GUARANTEE COMMISSION PAID TO A BANK FOR ACQUIRING A CAPITAL ASSET WAS ACCORDI NGLY HELD AS A PART OF ITS COST OF ACQUISITION IN CIT V. FORT GLOSTER INDUSTRIES LTD. [1971] 79 ITR 48 (CAL). ANY COST ITA NO. 385/ASR/2016 (AY 2007-08) AMITA NARANG V. DY. CIT 4 INCURRED FOR HOLDING A CAPITAL ASSET, I.E., AFTER I TS ACQUISITION, OR FOR ITS MAINTENANCE, WOULD, ACCORDINGLY, NOT STAND TO BE AL LOWED. THIS, IN FACT, IS ALSO THE RATIO OF THE DECISION IN MITHILESH KUMARI (SUPRA), THE RELEVANT PART, TO REPRODUCE VERBATIM, READS AS UNDER: (PG. 14 OF THE REPORTS) IT WOULD BE REASONABLE, IN OUR VIEW, TO INCLUDE IN THE ACTUAL COST OF THE CAPITAL ASSET EXPENSES WHICH WERE INCURRED BY THE ASSESSEE, IN AC QUIRING THE CAPITAL ASSET, AS DISTINCT FROM THE ITEMS OF EXPENDITURE, WHICH WERE INCURRED BY HI M IN ACQUIRING THE CAPITAL ASSET AS DISTINCT FROM THE ITEMS OF EXPENDITURE WHICH WERE INCURRED B Y HIM FOR RETAINING OR THE MAINTAINING THE CAPITAL ASSET . [EMPHASIS SUPPLIED] THE HONBLE COURT DID NOT, ACCORDINGLY, CONSIDER TH E ASSESSEES CLAIM FOR GROUND RENT OF THE LAND THE CAPITAL ASSET UNDER REFERENC E, AS VALID. THE INTEREST COST ON CAPITAL BORROWED FOR PURCHASE THEREOF, FOR THE PERI OD AFTER ITS ACQUISITION, AND UP TO THE DATE OF ITS SALE, WAS, HOWEVER, ALLOWED. HO W COULD, ONE WONDERS, THE SAME BE REGARDED AS A COST OF ACQUISITION WHICH GETS CRY STALLIZED ON THE DATE OF ACQUISITION, OR FOR EFFECTING ANY IMPROVEMENT, WHIL E NONE HAS BEEN IN THE INSTANT CASE, TO BE ALLOWED AS DEDUCTION? THE SAME CAN ONLY BE REGARDED AS A COST INCURRED IN RETAINING OR HOLDING THE ASSET, AS FOR EXAMPLE, THE GROUND RENT, DISALLOWED BY THE HONBLE COURT ITSELF, EVEN AS IT ALLOWS THE CLAIM O F THE INTEREST INCURRED FOR THE PERIOD FOLLOWING THE ACQUISITION. THERE IS, IN PRIN CIPLE, NO DIFFERENCE BETWEEN GROUND RENT, DISALLOWED, AND INTEREST, ALLOWED, PER THE SAID DECISION, BOTH BEING FOR THE PURPOSE OF RETAINING OR HOLDING THE ASSET. THE SAID DECISION, THUS, WITH RESPECT, IS IN CONTRADICTION OF THE RATIO STATED HEREINABO VE, LAID DOWN THEREBY, WHICH ALONE IS BINDING ( SREE BHAGAVATHI TEXTILES LTD. V. CIT [2000] 244 ITR 496 (KER)), AS WELL AS THAT BY THE SEVERAL JUDICIAL PRECEDENTS, IN CLUDING THE TWO DECISIONS FOLLOWED BY THE HONBLE COURT, VIZ. FORT GLOSTER INDUSTRIES LTD . (SUPRA) AND HABIB HUSSEIN (SUPRA). ITA NO. 385/ASR/2016 (AY 2007-08) AMITA NARANG V. DY. CIT 5 4.4 THE QUESTION OF CHANGE IN THE COST OF ACQUISITI ON, SUBSEQUENT THERETO, HAS BEEN CONSIDERED AT LENGTH BY THE APEX COURT IN SAHARANPUR ELECTRIC SUPPLY CO. LTD. V. CIT [1992] 194 ITR 294 (SC). ORDINARILY, THEREFORE, TH ERE IS NO OCCASION FOR A CHANGE IN THE COST OF ACQUISITION, WHICH STANDS D ETERMINED ON THE DATE OF ACQUISITION, OR EVEN PRIOR THERETO. 4.5 AT THIS STAGE, IT MAY ALSO BE RELEVANT TO DWELL ON THE NATURE OF THE INTEREST COST. THE INTEREST COST REPRESENTS THE TIME COST OF FUNDS. THAT IS, RELATES TO THE PERIOD FOR WHICH THE FUNDS ARE BORROWED OR MADE AVA ILABLE BY ONE PERSON, AT A COST, TO ANOTHER. THE SAME WOULD STAND TO BE INCURRED IRR ESPECTIVE OF THE PURPOSE FOR WHICH THE FUNDS BORROWED ARE DEPLOYED. WHERE, THERE FORE, THE ACQUISITION OF AN ASSET ITSELF INVOLVES, AND ESSENTIALLY SO, TIME, AS WHERE IT IS UNDER CONSTRUCTION, THE CORRESPONDING INTEREST COST, I.E., RELATABLE TO THE CONSTRUCTION PERIOD, WOULD QUALIFY AS A COST OF ACQUISITION IN-AS-MUCH AS THE SAME IS INCURRED FOR BRINGING THE ASSET INTO EXISTENCE, AS APPROVED IN CHALLAPALLI SUGARS (SUPRA), A DECISION FOLLOWED IN CIT V. BOKARO STEEL LTD. [1999] 236 ITR 315 (SC) AND COLLECTOR OF CENTRAL EXCISE V. DAI ICHI ,KARKARIA LTD. [1999] 156 CTR 172 (SC), UPHOLDING THE PRINCIPLE OF COMMERCIAL ACCOUNTING, WHICH IN FACT STANDS SINCE F ORMALIZED PER ACCOUNTING STANDARD, STATING LIKEWISE (REFER AS 10 BY ICAI). H OW WOULD THEN, A COST, WHICH HAS NOTHING TO DO WITH THE ACQUISITION COST OF THE ASSET AND, BESIDES, RELATES TO THE PERIOD AFTER ITS ACQUISITION, BE REGARDED AS A PAR T OF THE ACQUISITION COST? HOW, ONE MAY ASK, COULD THE ACQUISITION COST VARY WITH THE P ERIOD FOR WHICH THE CAPITAL ASSET IS HELD, AS THE INTEREST COST WOULD? AGAIN, HOW COU LD THE DATE OF ITS SALE AND, THUS, THE PERIOD FOR WHICH IT IS HELD PRIOR THERETO, DETE RMINE ITS COST. IF, FOR EXAMPLE, THE CAPITAL ASSET IS SOLD AFTER ONE MONTH OR SIX MONTHS OR A YEAR, OVER WHICH PERIOD THE BORROWING CONTINUES, AS IT DID IN MITHILESH KUMARI (SUPRA), THE INTEREST COST WOULD VARY ACCORDINGLY, ALTERING THE COST OF ACQUISITION OF THE ASSET WITH THE PERIOD FOR ITA NO. 385/ASR/2016 (AY 2007-08) AMITA NARANG V. DY. CIT 6 WHICH IT IS HELD! WHY, THE BORROWED CAPITAL MAY BE REPAID IMMEDIATELY, WHILE THE ACQUISITION, SINCE COMPLETE, AND THUS ITS COST, WO ULD REMAIN UNALTERED. AGAIN, THE BORROWED CAPITAL MAY NOT BE REPAID EVEN AFTER THE A SSET IS SOLD, AND INTEREST MAY CONTINUE TO BE INCURRED, DEPLOYING THE SALE PROCEED S FOR ANY OTHER PURPOSE. IN A GIVEN CASE, THE ASSET MAY BE SOLD ON CREDIT, SO THA T INTEREST COST CONTINUES TO BE INCURRED. THE SAME, IN SHORT, IT NEEDS TO BE APPREC IATED, IS A HOLDING COST, I.E., COST OF HOLDING THE ASSET, POST ACQUISITION, ALLOWABLE A S A REVENUE EXPENDITURE WHERE THE ASSET IS TO BE USED FOR THE PURPOSE OF BUSINESS. AS EXPLAINED IN CIT V. TATA IRON AND STEEL CO. LTD. [1982] 231 ITR 285 (SC), REFERENCE TO WHICH WAS AL SO MADE DURING HEARING, THERE IS A FUNDAMENTAL DIFFERENCE B ETWEEN THE COST OF AN ASSET AND THE MEANS OF ITS FINANCING. THE MANNER OR MODE OF REPAYMENT OF THE LOAN OBTAINED TO ACQUIRE AN ASSET HAS, THEREFORE, NOTHING TO DO W ITH THE COST OF THE ASSET ACQUIRED FOR THE PURPOSE OF THE BUSINESS. 5. THERE IS, IN VIEW OF THE FORE-GOING, NO BASIS EI THER ON FACTS OR IN LAW TO CONSIDER THE INTEREST COST FOR THE PERIOD FOR WHICH THE CAPITAL ASSET WAS RETAINED OR HELD BY THE ASSESSEE PRIOR TO BEING SOLD/TRANSFERRE D AS A CAPITAL COST AND, THUS, DEDUCTIBLE U/S. 48 IN COMPUTING CAPITAL GAIN U/S. 4 5. I DECIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 29, 201 9 SD/- (SANJAY ARORA) ACCOUNTANT MEMBER DATE: 29.03.2019 /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: AMITA NARANG, D-103, ANAND N IKETAN, NEW DELHI (2) THE RESPONDENT: DY. C.I.T., CIRCLE 2, JAMMU (3) THE CIT(APPEALS), JAMMU ITA NO. 385/ASR/2016 (AY 2007-08) AMITA NARANG V. DY. CIT 7 (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T. TRUE COPY BY ORDER