Interest paid to be taken as cost of acquisition of property

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

04 November 2016 Example Case:-
Person 'AB' capital is 70L
Bought a under construction property in March 2014 (1 Cr)
Taken the possession of property in April 2015
'AB' Is paying interest (3L each in YE March2015 and YE March2016) on personal loans (30L) taken.
Query:-
Interest paid in March 2015 is to be taken under cost of Acquisition(CoA).
1)But whether the interest paid in March2016 also to be taken under CoA? , what about future years interest paid?
There is a confusion some suggest that it cannot be taken as CoA since it is holding cost, but some says there are judgements saying that it is CoA.
2) Does anyone know about any such judgement or cases? Any reference to such cases.

Mukul Giria

Mukul Giria (Expert)
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04 November 2016 There have been a few decisions of high courts where the courts have taken the view that when a loan has been taken for acquisition of land, the interest paid on the loan even after the acquisition of the land has been completed, would form a part of the cost of acquisition of the land for the purposes of computation of capital gains. To illustrate, take a situation where land was acquired in the year 2000 for Rs.10 lakh, with a loan of Rs.9 lakh taken for acquisition in that year. Interest of Rs.4.50 lakh has been paid on the loan from 2000 to 2012, when the loan was fully repaid.

Under this situation, the courts have held that the cost of the land is not Rs.10 lakh, but Rs.14.50 lakh, even though the interest was paid subsequent to the acquisition of the land, since interest on a loan taken for acquisition of the land is an expenditure in acquiring the land.

Querist : Anonymous

Querist : Anonymous (Querist)

04 November 2016 Thanks for the quick reply.
It will be helpful if you can provide some case references or any particular IT sections related to such a situation

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