Section 48

48. The income chargeable under the head "Capital gains" shall be computed, by deducting
from the full value of the consideration received or accruing as a result of the transfer of the
capital asset the following amounts, namely :—
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the asset and the cost of any improvement thereto;
Provided that the cost of acquisition of the asset or the cost of improvement thereto
shall not include the deductions claimed on the amount of interest under clause (b) of
section 24 or under the provisions of Chapter VIA
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[(iii) in case of value of any money or capital asset received by a specified person from a
specified entity referred to in subsection (4) of section 45, the amount chargeable to
income-tax as income of such specified entity under that sub-section which is
attributable to the capital asset being transferred by the specified entity, calculated in
the prescribed manner39:]

Analysis
 As per the proposed amendment, any amount claimed as deduction u/s 24(b) or
u/chapter VI-A shall not be allowed deduction as cost of acquisition or cost of
improvement while computing capital gains.
 The intention is to prevent double deduction claimed on interest on borrowed capital
for acquiring, renewing or reconstructing a property.
 As per the provisions of Section 24(b), a deduction was allowable u/h IFHP for
interest payable on capital borrowed for acquisition, construction, repair, renewal or
reconstruction of a house property. Further, even under chapter VIA, interest on
capital borrowed for house property was allowed as deduction u/s 80EE and 80 EEA.
 There were contradicting decisions of the courts in this subject matter as below:
- CIT vs. Mithlesh Kumari [1973] 92 ITR 9 (Del HC) – Interest paid by the
assessee was held to constitute actual cost of land.
- CIT vs. Maithreyi Pai [1985] 152 ITR 247 (Kar HC) – Held that interest could
be allowed to be added to cost but if is has already been claimed as deduction say
u/s 57, then no assessee could be allowed double deduction.
- ACIT v. C. Ramabrahmam [2013] 57 SOT 130 (T Che) - Held that interest paid
on housing loan can be included u/s 48 even though the same had already been
deducted u/s 24(b).
- Shree Bal Properties v. PCIT [ITA No. 2848/Mum/2019] (T Mum) – Following
the decision of Maithreyi, upheld the CIT(A) order which directed AO to verify
and allow interest as cost only if not claimed as deduction under other heads.

 Cost of acquisition has not been defined under the Act. However, courts have held
that the same is to be understood in common parlance. Considering the same, it has
been allowed by the courts to add interest on borrowed funds to the cost of
acquisition.
 However, now after the amendment, if any amount has been claimed as an interest,
the same would not be allowed as cost of acquisition / improvement.
 Applicable AY 2024-25 onwards.

Issue for consideration

Whether deduction of other interests under Chapter VIA in respect of capital assets
would also be covered within the scope of this section? Eg. Deduction u/s 80EEB for
interest on borrowed funds for purchase of electric vehicle?
- On plain reading of section, it would not be allowed as cost. However, as per EM,
the intention is only in respect of interest on funds borrowed for house property.
- Interest allowed only u/s 24(b) or chapter VIA have been mentioned in the
amendment. However, there is no reference of interest claimed u/s 57.