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Section 45 of the Income-tax Act, 1961 - Capital gains - Chargeable as - Assessment year 1967-68 - Assessee sold certain lands which he purchased with borrowed money - Whether interest, paid on such borrowings would be included in actual cost of acquisition, for purpose of determining capital gains - Held, yes FACTS The assessee purchased certain lands with borrowed money. During the relevant assessment year, the lands were sold. The assessee claimed that the interest paid on borrowings should be included in the cost of acquisition, for purpose of determining capital gains. The Income-tax Officer did not include the amount of interest in the cost of acquisition. The AAC allowed the assessee's appeal. The Tribunal upheld the order of the AAC. On reference : HELD In order to find out what was the cost of acquisition to the assessee in respect of those plots, one had to take into account not only the original price paid by the assessee for these two plots of land, but also to include in that cost of acquisition the capitalised interest paid by him on the borrowings by him for paying the purchase price when he originally purchased the two plots. The basic principle, in cases of this kind, is to ascertain the actual cost of acquisition to the assessee, and, in arriving at the figure of actual cost of acquisition the interest which has been capitalised must be included; otherwise, from the commercial point of view and the principles of accountancy, one cannot get a correct idea of the cost of acquisition. The Tribunal, in the instant case, had, therefore, applied the correct principle and come to the correct conclusion. Under these circumstances, it was obvious that the amount of the interest was part of the actual cost of acquisition for purposes of determining the capital gains. Note: The case was decided in favour of the assessee. CASES REFERRED TO Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC) and CIT v. Mithlesh Kumari [1973] 92 ITR 9 (Delhi). JUDGMENT B.J. Divan, CJ.-In this case, at the instance of the revenue, the following question has been referred to us by the Income-tax Appellate Tribunal for our opinion: "Whether, on the facts and in the…

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