M.R.A Ansari, J.:— The following question has been referred to this Court by the Income-tax Appellate Tribunal, Delhi Bench ‘A’, (hereinafter referred to as the Tribunal) under section 66 (1) of the Income-tax Act, 1922 (hereinafter referred to as the Act):—

“Whether on the facts and in the circumstances of the case the interest amount of Rs. 16,878/- and the ground rent of Rs. 3,793/- constituted part of the actual cost of the plot to the assessee for the purpose of determining the capital gain ?” The relevant facts as can be gathered from the statement of the case may be briefly stated. On 6-12-1957 Smt. Mithlesh Kumari (hereinafter referred to as the assessee) purchased the perpetual lease-hold rights in an open plot of land from one H. R. Gandhi for a consideration of Rs. 95,000/-. The sale deed, inter alia, provided that in addition to the payment of the price of Rs. 95,000/-, the assessee shall deposit a sum of Rs. 5,000/- either in cash or security on account of building security in the Delhi Improvement Trust within 15 days of the sale deed and that the vendor will be entitled to take back refund of Rs. 5,000/- deposited by him with the said authority as building security. The sale deed further provided that under the terms of the perpetual lease under which the vendor held the plot from the Government, he was required to construct a plot on the said plot within a stipulated period which he had failed to do and that the vendor was not liable for any consequences whatsoever of the aforesaid default. As the vendor had committed a breach of the condition of the perpetual lease regarding the construction of a building within the stipulated period, the Government had imposed a penalty of Rs. 5,000/- upon the vendor under the terms of the said deed and had recovered the said penalty by appropriating the building security deposited by him. The vendor called upon the assessee to make good the said loss and the assessee complied by paying Rs. 5,000/- to the vendor. The assessee had raised a loan from her mother-in-law, Smt. Ramawati Sanghi, for paying the price of the land. The assessee paid Rs. 16,878/- to her mother-in-law by way of interest on the amount borrowed by her. She also paid ground rent amounting to Rs. 3,793/-. Ultimately, in November 1960 the assessee sold away the land to her mother-in-law for Rs. 1,50,000/-. In her return for the assessment year 1961-62, the relevant previous year being the year ended on 31-3-1961, the assessee worked out her cost of the land as under:—

Rs. “Cost of plot purchased on 6-12-1957.. . 95,000 Interest from December 1957 to November 1960 on the amount of loan taken for the purchase of the land. . . 16,878 Ground rent from 7-12-1957 to November 1960. . . 3,793 Penalty paid to the Improvement Trust. . . 5,000 Brokerage on the sale of land. . . 1,500 TOTAL 1,22,171/-

Deducting this amount from the sale price of Rs. 1,50,000/-, the assessee disclosed a sum of Rs. 27,829/- as capital gains resulting from the purchase and sale of the plot of land.

The Income-tax Officer held that only the sum of Rs. 1,500/-representing the brokerage for the sale of the land could be added to the purchase price of Rs. 95,000/- and that the other items claimed by the assessee could not be added to the cost of the land. He, therefore, computed the capital gains at Rs. 53,500/-. The assessee preferred an appeal to the Appellate Assistant Commissioner against the order of the Income-tax Officer, but the Assistant Commissioner dismissed the appeal. The assessee thereupon preferred a second appeal to the Tribunal and the Tribunal held that the following items claimed by the assessee were also includable in the cost of the land:—

“Interest Rs. 16,878/-

Ground rent Rs. 3,793/-

Penalty Rs. 5,000/-”

The Tribunal, therefore, determined the capital gains at Rs. 27,829/- as disclosed by the assessee. The Revenue have obviously not disputed the finding of the Tribunal with regard to the penalty of Rs. 5,000/- but are challenging the Tribunal's finding with regard to the other two items, namely,

Interest — Rs. 16,878/- and

Ground rent — Rs. 3,793/-.

Section 12B (2) of the Act under which capital gains have to be computed reads as follows:—

“The amount of the capital gain shall be computed after making the following deduction from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made, namely:—

(i) expenditure incurred solely in connection with such sale, exchange, relinquishment or transfer;

(ii) the actual cost to the assessee of the capital asset, including any expenditure of a capital nature incurred and borne by him in making any additions or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provision of sections 8, 9, 10 and 12:”

The provisos to sub-section (2) need not be reproduced at this stage, but will be referred to at a later stage when considering the contentions urged on behalf of the Revenue.

Before considering the claim of the assessee, it may have to be stated that although the loan for the purpose of purchasing the plot is said to have been raised from her mother-in-law and the interest on this loan is also said to have been paid to her mother-in-law and ultimately the plot of land is also said to have been sold to her mother-in-law, the genuineness of these transactions has not been disputed by the Revenue. There is also no dispute regarding the payment of the ground rent of Rs. 3,793/-, and the statement of the case submitted by the Tribunal proceeds on the footing that all these transactions were genuine. The question for consideration, therefore, is whether the interest paid by the assessee to her mother-in-law and the ground rent paid to her may be included in the actual cost of the land to the assessee within the meaning of section 12b (2) (ii) of the Act.

We shall first consider the admissibility of the assessee's claim with regard to the interest paid by her. The Income-tax Officer has excluded this amount from the actual cost of the land the following, observations:—

“This interest accrued cannot be allowed as a capitalised expenditure and the very words of section 12b (2) (ii) stated that the capital gains shall be computed after deducting from the sale price the actual cost of the capital asset including only such expenses of a capital nature incurred and borne by him but ‘excluding any expenditure in respect of which allowance is admissible under any provisions of sections 8, 9, 10 and 12. The claim of interest is one which is admissible under these sections and as such cannot be allowed as a deduction.”

The Appellate Assistant Commissioner did not give any reasons in his order for disallowing the assessee's claim with regard to the interest. There can be no doubt that if the interest paid by the assessee to her mother-in-law is admissible under any provisions of sections 8, 9, 10 and 12 of the Act, then it cannot be included in the actual cost of the capital asset under clause (ii) of sub-section (2) of section 12B of the Act. We have, therefore, to consider whether the interest is admissible under any provisions of sections 8, 9, 10 and 12 of the Act. The capital asset in this case is on open plot of land on which there is no building. It would, therefore, not come under the category of property. Under section 9 of the Act, property means property consisting of any buildings or lands appurtenant thereto. Under clause (iv) of sub-section (1) of section 9 of the Act, the interest payable on capital borrowed for the construction of the building is an allowable item in computing the income from the property. Since the property in this case does not consist of any building, the interest on the capital borrowed for the purpose of purchasing the land is not allowable under clause (iv) of sub-section (1) of section 9 of the Act. The transaction of the purchase and sale of the land by the assessee has not been treated as a business transaction and the profit derived by the assessee from such transaction has not been treated as business income assessable under section 10 of the Act nor has the land in question been treated as a capital asset of the business of the assessee. Therefore, there is no question of the interest paid by the assessee being allowed as an admissible expenditure under section 10 (2) of the Act. The profit derived by the assessee by the purchase and sale of the land has also not been assessed under section 12 of the Act and, therefore, the interest paid by the assessee to her mother-in-law is not an expenditure which is admissible under section 12 of the Act. Therefore, the interest paid by the assessee is not an expenditure which is admissible under any provisions of sections 8, 9, 10 and 12 of the Act and is not excluded from the computation of the actual cost of the capital asset to the assessee. The question, however, is whether it can be included in the computation of the actual cost of the asset.

The learned counsel for the Revenue, Sh. B. N. Kirpal, contends that the actual cost of the capital asset to the assessee is the actual cost of the assessee as on the date of the acquisition of the capital asset and does not include an expenditure which the assessee may have incurred subsequently except the expenditure which is specifically mentioned in clause (ii) of sub-section (2) of section 12B of the Act, namely, the expenditure of a capital nature incurred and borne by him in making any additions or alterations to the capital asset. The interest paid by the assessee, argues the learned counsel, does not come within the category of expenditure incurred by her for making any additions or alterations to the capital asset and cannot, therefore, be included in the actual cost of the capital asset. In support of this contention, the learned counsel has referred to some of the provisos to sub-section (2) of section 12B of the Act which, according to him, indicate in what cases the Legislature intended an expenditure incurred by the assessee subsequent to the date of the acquisition of the capital asset to be taken into consideration in computing the actual cost. Reference is made to the 2nd proviso which reads as follows:—

“Provided further that where the capital asset is an asset in respect of which the assessee has obtained depreciation allowance in any year, the actual cost of the asset to the assessee shall be its written down value, as defined in section 10, increased or diminished, as the case may be, by any adjustment made under clause (vii) of sub-section (2) of that section:”

Reference is also made to the 3rd proviso to sub-section (2) which reads as follows:—

“Provided further that where the capital asset became the property of the assessee, or of the previous owner where the cost of the capital asset to the previous owner is to be taken in accordance with sub-section (3), before the 1st day of January, 1954, he may, on proof of the fair market value thereof on the said date to the satisfaction of the Income-tax Officer, substitute for the actual cost such fair market value which shall be deemed to be the actual cost to him of the asset, and which shall be reduced by the amount of depreciation, if any, allowed to the assessee after the said date and increased or diminished, as the case may be, by any adjustment made under clause (vii) of sub-section (2) of section 10:”

Although the 2nd proviso referred to above does provide for the computation of the capital asset not only on the basis of the actual cost as on the date of the acquisition of the capital asset but also on the basis of the addition or substraction of certain other amounts as a result of the assessee obtaining depreciation allowance subsequent to the date of the acquisition of the capital asset, still this proviso does not necessarily indicate that other items of expenditure incurred by the assessee subsequent to the date of the acquisition of the capital asset but which are directly connected with the actual cost of the asset cannot be included in the actual cost. The 3rd proviso referred to above really is not relevant, because it pertains to a capital asset which became the property of the assessee under sub-section (3) of section 12b of the Act.

We really see no justification for putting the construction on the words “the actual cost to the assessee of the capital asset” which the learned counsel for the Revenue seeks to put on them, namely, that the actual cost of the asset is its cost on the date of its acquisition. By putting such a construction we would be qualifying the words used in clause (ii) in a manner which could not have been intended by the Legislature. We cannot also accept the construction sought to be put by the learned counsel for the Revenue on the words “including any expenditure of a capital nature incurred and borne by him in making any additions, or alterations thereto” as meaning that it is only the expenditure incurred in making additions or alterations to the capital asset that can be included in the actual cost of the capital asset and that other similar items of expenditure cannot be so included. It would be reasonable, in our view, to include in the actual cost of the capital asset all expenses which were incurred by the assessee in acquiring the capital asset as distinct from the items of expenditure which were incurred by him for retaining or maintaining the capital asset. In C.I.T v. Fort Gloster Industries Ltd., (1971) 79 I. T. R. 48 (1) the assessee had placed an order with a British concern for the purchase of machinery worth Rs. 48 lakhs. The British supplier required a guarantee to be given. The Allahabad Bank Ltd. agreed to be the guarantor for the sum of Rs. 48 lakhs for a consideration of Rs. 36,000/- to be paid to the bank as guarantee commission. The Calcutta High Court held that this sum of Rs. 36,000/- should be treated as part of the actual cost to the assessee of the new machinery acquired by it for the purpose of allowance of development rebate in terms of section 10 (2) (vi) (b) of the Act. The reasoning of the High Court was that costs which were essentially necessary for a particular assessee to incur for acquiring a capital asset should be included in his actual cost. In so holding, the Calcutta High Court followed a decision of the Bombay High Court in Habib Hussein v. Commissioner Of Income-Tax, Bombay City I., (1963) 48 I. T. R. 859, (2) in which it was held as follow:—

“The dictionary meaning of the word ‘cost’ is ‘what is laid out or suffered to obtain anything’ xx. xx. xx. In our opinion, therefore, the meaning of the expression ‘actual cost to the assessee’ as used in sub-section (5) of section 10 of the Act would be what the assessee has, in fact, expended or laid out for the purpose of acquiring the depreciable assets.”

We are in respectful agreement with the observations of the Calcutta and the Bombay High Court in the decisions referred to above. In the present case, we find that the assessee in order to purchase the land had not only to borrow the amount of Rs. 95,000/- which was the consideration for the purchase of the land but also had to pay interest of Rs. 16, 878/- on the amount borrowed by her. The amount of Rs. 95,000/- plus the interest paid by the assessee constitutes the actual cost to the assessee of the land. The fact that the amount of Rs. 95,000/- was paid by the assessee to the vendor and the amount of interest of Rs. 16,878/- was paid to a different person, namely, her mother-in-law, does not make any difference so far as the assessee is concerned in respect of the actual cost of the land to her. It will not also make any difference whether the interest was paid on the date of the purchase or whether it is paid subsequently. To exclude the interest amount from the actual cost of the assets would lead to anomalous results. Supposing she had purchased the land for Rs. 1,00,000/- by raising a loan of that amount and had paid interest of Rs. 20,000/- on the said loan and had sold the land for Rs. 1,20,000/-. It would be unreasonable to hold under such circumstances by excluding the interest amount from the actual cost of the land that she had made a capital gain of Rs. 20,000/- when, as a matter of fact, she had not made any profit at all by the transaction. Applying the said observations of the Calcutta and the Bombay High Courts to the present case, we hold that the Tribunal was right in additing the interest amount of Rs. 16,878/- towards the actual cost of the land.

With regard to the ground rent of Rs. 3,793/-, the assessee's claim, in our view, stands on a different footing. This expenditure was not incurred by the assessee for the acquisition of the capital asset. It was incurred by her for keeping the capital asset in her possession. It is in the nature of any other expenditure that the assessee might have incurred to maintain the capital asset. It is similar to the salary which the assessee might have paid to a Chowkidar engaged for keeping watch on the land. Such item of expenditure cannot be said to be expenditure incurred by the assesee for the acquisition of the capital asset and they cannot, therefore, be included in computing the actual cost to the assesee of the capital asset. The Tribunal, in our view, was wrong in adding this amount of Rs. 3,793/- also in computing the actual cost of the capital asset.

Therefore, the question referred to us is answered as follows:—

The interest amount of Rs. 16,878/- constituted part of the actual cost of the plot to the assessee for the purpose of determining the capital gain; but the ground rent of Rs. 3,793/- did not constitute part of such actual cost.

In view of the fact that both the Revenue as well as the assessee have succeeded in part in this reference, there shall be no orders as to costs.

Reference answered accordingly.