Section 55(2) – Cost of Acquisition of Capital Asset for Computing Capital Gain

As per Section 55(2), Cost of acquisition of Capital Asset is the price which the assessee has paid, or the amount which the assessee has incurred, for acquisition of the asset. Expenses incurred for completing the title are a part of the cost of acquisition.

Interest on money borrowed for acquiring capital assets will form part of Cost of Asset:

(1)        Interest on loan taken for acquiring a capital asset (other than house property) will become part of the cost of acquisition. In the case of house property, any interest (whether current or accumulated) is allowed as deduction under section 24(b) and thus will not form part of cost of acquisition.

(2)        Interest paid by the firm to its partner on capital contribution for the purchase of capital asset cannot be treated as part of cost of acquisition.

(3)        Interest on the asset acquired by the assessee carrying on business or profession till such asset is put to use, shall form part of the cost of acquisition but any interest paid for the period after the asset is put to use shall be treated as revenue expense and hence will not form part of cost of acquisition.

Sum paid for Discharge of Mortgage:

Where the property has been mortgaged by the previous owner during his lifetime and the assessec, after inheriting the same, has discharged the mortgage debt, the amount paid by him for the purpose of clearing off the mortgage shall be regarded as cost of acquisition under section 48 read with section 55(2) of the Act. The position is, however, different where the mortgage is created by the owner after he has acquired the property. The clearing off of the mortgage debt by him prior to transfer of the property would not entitle him to claim deduction under section 48 of the Act because in such a case he did not acquire any interest in the property subsequent to his acquiring the same.

Cost of acquisition includes Deemed Cost of Acquisition.