Law:

Section:

Section 55 of the Income-tax Act, 1961 (Corresponding to section 12B(2)(ii) of the Indian Income-tax Act, 1922) - Capital gains - Cost of acquisition - Assessment year 1961-62 - Assessee purchased perpetual leasehold rights in a plot of land - She raised a loan for paying price of land - Assessee paid interest on account borrowed and also ground rent in respect of aforesaid land - Ultimately assessee sold said land after including amount of interest and ground rent in actual cost, and disclosed remaining sale consideration as capital gain - ITO held that amount paid towards interest and ground rent could not be added to actual cost of land - Tribunal, however, allowed assessee's claim - Whether all expenses which were incurred by assessee in acquiring capital asset as distinct from items of expenditure incurred for retaining and maintaining capital asset, were to be included in actual cost - Held, yes - Whether, since interest on amount borrowed was expenditure incurred for acquiring capital asset (i.e. land), it had to be included in actual cost - Held, yes - Whether, however, ground rent paid was in nature of any other expenditure that assessee might have incurred to maintain capital asset, and, therefore, it could not be included in cost of acquisition of land - Held, yes FACTS The assessee purchased the perpetual leasehold rights in an open plot of land. She had raised a loan from her mother-in-law for paying the price of land. The assessee paid certain amount to her mother-in-law by way of interest on amount borrowed and also paid ground rent in respect of land. Ultimately, she sold away the land to her mother-in-law and after including the amount paid towards interest on loan and ground rent in the actual cost, disclosed remaining amount as capital gain on sale of land. The ITO held that amount paid towards interest and ground rent could not be added to the cost of the land. The AAC upheld the ITO's order. The Tribunal, however, allowed the assessee's claim. On reference : HELD The capital asset in instant case was an open plot of land on which there was no building. It would, therefore, not come under the category of property. Under section 9 of the 1922…

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