2019 (4) TMI 101

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.... issue at large in the instant appeal is the allowability of the interest on borrowed capital employed by the assessee for purchasing 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. 3. The assessee before me relied, as was the case before 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 Representative (DR), Sh. Charan Dass, would rely on CIT v. Vardhman Polytex Ltd. [2008] 300 ITR 186 (P&H), rendered following CIT....

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....., as understood commercially or which an ordinary man of business will resort to when making computation for his purposes, 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 relevant asset into existence and to put it in working condition. The said decision, though rendered 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 circumstances, be regarded as a qualifying cost to the asses....

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....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 acquiring the capital asset, as distinct from the items of expenditure, which were incurred by him in acquiring the capital asset as distinct from the items of expenditure which were incurred by him for retaining or the maintaining the capital asset.' [emphasis supplied] The Hon'ble Court did not, accordingly, consider the assessee's claim for ground rent of the land - the capital asset under reference, as valid. The interest cost on capital borrowed for purchase thereof, for the period after its' acquisition, an....

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....ll 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 available by one person, at a cost, to another. The same would stand to be incurred irrespective of the purpose for which the funds borrowed are deployed. Where, therefore, 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) an....