Whether interest paid on borrowed capital which has been claimed as deduction
u/s.24 can be claimed as part of cost for the purpose of section 48 is a vexed
question. The Chennai Bench of the Tribunal in ACIT v C.Ramabrahmam [2012] 34
CCH 420 (Chennai) has held that interest on borrowed capital can be taken as part
of cost of acquisition / improvement. The Finance Act, 2023 has made an
amendment with effect from assessment year 2024-25 to provide that the cost of
acquisition or cost of improvement shall not include the deduction claimed on the
amount of interest u/s.24 or under Chapter VI-A. It can be seen that the
Memorandum Explaining the Finance Bill has observed that assessees are claiming
double deduction and that therefore the amendment is proposed with effect from
2024-25. This makes it clear that the deduction in respect of interest on capital
borrowed though may be a double deduction will be allowed upto assessment year
2023-24 as held in C.Ramabrahmam’s case referred to supra. One other question
that can arise is with regard to benefit of indexation. The benefit of indexation is
available from the date on which the asset is held by the assessee or where the
asset has been acquired by the modes prescribed u/s.47, the benefit of indexation
will be available from the date on which any previous owner held it and who had
acquired it otherwise than by modes prescribed in section 47. Of course, if the asset
is held by the assessee or such previous owner even prior to 01.04.2001, the
indexation will be from the year beginning 01.04.2001.
In so far as the cost of improvement is concerned, the benefit of indexation will be
available from the date of improvement, but only in respect of improvement that has
taken place from 01.04.2001. If the acquisition or improvement has been out of
borrowed capital it can be seen that the indexation should be from the date of
acquisition / improvement and not from the date on which the interest is paid. This
would mean that even if the interest was paid in later years the benefit of indexation
will be available from an earlier period.
