Pushkar Dutt Sharma, New Delhi vs Department Of Income Tax

This appeal by the Revenue is directed against the order passed by

the CIT(A) on 10.09.2010 in relation to the assessment year 2007-08. ITA No.5402/Del/2010

2. The first ground is against the deletion of addition of Rs. Rs.12.5

lac (sic- 18 lac) made by the Assessing Officer (AO) on account of cost

of improvement.

3. Briefly stated, the facts of the case are that the assessee was the

absolute owner of 1/5th share in a particular land. This land, purchased

by the assessee by means of six separate registered deeds in the years

1962/1963, was transferred during the previous year relevant to the

assessment year under consideration to M/s Aarone Infrastructure Pvt.

Ltd., New Delhi by means of a registered sale deed for a sale

consideration of Rs.27 crore. A sum of Rs.9.06 crore was offered as

long-term capital gain in the return of income. During the course of

assessment proceedings, it was noticed by the AO that the assessee had

claimed a deduction for a sum of Rs.25 lac towards 'Cost of

improvement'. In support of this claim, the assessee filed a copy of

Court decree issued in a Compromise suit between the assessee and one

Shri P.K. Dhingra. The assessee had entered into an agreement with Sh.

Dhingra in the year 1994 for the sale of the above land. Pursuant to such

2 ITA No.5402/Del/2010

agreement, Sh. Dhingra paid a sum of Rs.5.50 lac in cash and Rs.7 lac

through account payee cheque. The deal for the sale of the above land

could not materialize. After a prolonged litigation between the assessee

and Shri Dhingra, the Court passed a decree on 7.8.2006 settling the

dispute. The assessee agreed to pay a sum of Rs.25 lac to Shri Dhingra

under this decree. It is this payment which was treated by the assessee

as cost of improvement. The AO observed that the assessee had already

received a sum of Rs.12.50 lac from Shri Dhingra and, thus, he had to

incur extra cost of Rs.12.50 lac alone. When confronted, the assessee

came out with a revised computation restricting the cost of improvement

to Rs.18 lac. Relying on certain decisions, the AO held that the assessee

was not eligible for the benefit of deduction of Rs.18 lac claimed as

'Cost of improvement'. The ld. CIT(A) held that the AO was right in

adopting the amount at Rs.12.50 lac as against Rs.18.00 lac claimed by

the assessee. However, he agreed with the submissions advanced on

behalf of the assessee on the deductibility of this amount u/s 48(i) of the

Income-tax Act, 1961 (hereinafter also called 'the Act'). The Revenue

is aggrieved against the deletion of addition.

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4. We have heard the rival submissions and perused the relevant

material on record. The first thing which we need to ascertain is the

amount paid by the assessee to Shri P.K. Dhingra, which would qualify

for consideration and decision at our end. It is an admitted position that

when on the earlier occasion this property became the subject matter of

sale to Sh. Dhingra, the assessee received a sum of Rs.12.50 lac in two

instalments. It is further apparent that the assessee had to pay a sum of

Rs.25.00 lac to Sh. Dhingra pursuant to a Court decree. It is manifest

from para 4 of the impugned order that the ld. CIT(A) has upheld the

AO's finding on the assessee actually receiving a sum of Rs.12.5 lac

from Shri P.K. Dhingra on an earlier occasion and the resultant net

payment standing only at Rs.12.50 lac. There is no cross appeal from the

side of the assessee assailing this finding of the ld. CIT(A). We will,

therefore, proceed to consider the deductibility or otherwise of the net

amount actually paid by the assessee to Shri P.K. Dhingra at Rs.12.50

lac.

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5. Section 48 of the Act provides the 'Mode of computation' of

income chargeable under the head 'Capital gains.' This section provides

for computing such income 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; and (ii) the

cost of acquisition of the asset and the cost of any improvement thereto.

The ld. CIT(A) has held that Rs.12.50 lac is deductible u/s 48(i) and not

u/s 48(ii). As such, we will confine ourselves in considering the

deductibility or otherwise of this amount under clause (i) of section 48.

It can be seen from the language of this provision that it provides for

deducting any expenditure incurred wholly and exclusively in

connection with such transfer. The expression 'in connection with such

transfer' is to be seen in contradistinction to the expression 'for the

transfer'. Whereas the latter is relatively narrower so as to embrace only

such expenses which are incurred for the purposes of transfer of capital

asset, the former is quite wide in its ambit and also encompasses

expenditure of any nature which is connected with the transfer of 5 ITA No.5402/Del/2010

property. Any expenditure which has to be incurred to effectively

transfer the property falls within its purview. Not only the expenses

directly connected with or for the immediate purpose of the transfer of

capital asset, but also all expenses which facilitate the transfer of the

capital asset, fall within its scope. It would also include the expenses

incurred to remove the impediments or encumbrances in the way of the

instant transfer of capital asset. It implies that, any amount paid by the

assessee for removing any encumbrance falls u/s 48(i) of the Act.

6. The Hon'ble Bombay High Court in CIT vs. Abrar Alvi (2001) 247

ITR 312 (Bom) has upheld the deduction of the amount paid to resolve

the property dispute and remove the encumbrance thereupon u/s 48(i) of

the Act. Similar view was earlier taken by the Hon'ble Bombay High

Court in the case of CIT vs. Shakuntala Kantilal (1991) 190 ITR 56

(Bom). The Hon'ble Madras High Court in CIT VS. Bradford Trading

Co. P. Ltd. (2003) 261 ITR 222 (Mad) has also reiterated the same view

by holding that that any amount paid for removing encumbrance and

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settlement of claim is 'expenditure incurred in connection with transfer

of a capital asset' deductible u/s 48(i).

7. It can be noticed that the ld. CIT(A) has held that the amount is not

deductible u/s 48(ii), but only u/s 48(i). It is found that the Hon'ble

Bombay High Court in CIT vs. Miss Piroja C. Patel (2000) 242 ITR 582

(Bom) has held that the compensation paid by assessee to the hutment

dwellers for vacating land before its sale is 'Cost of improvement'

deductible u/s 48(ii). Be that as it may, in any case, the deduction is

certainly available u/s 48 in respect of payment made for removing any

encumbrances on the property to be transferred.

8. Adverting to the facts of the instant case, we find that the dispute

between the assessee and Shri P.K. Dhingra in connection with the

transfer of this very property, which was earlier agreed to be transferred

but the deal could not fructify, finally got settled by means of a Court

decree under which the assessee was required to pay a sum of Rs.25.00

lac. But for this payment, the assessee could not have transferred the

property to the vendee in the year in question which fetched the instant

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capital gain. Such net expenditure of Rs.12.50 lac, in our considered

opinion, rightly deserves to be deducted u/s 48(i) as has been held by the

ld. CIT(A).

9. If we strictly go by the provisions, then the sum of Rs.12.50 lac

received by the assessee earlier from Shri Dhingra is in the nature of

advance money received. This amount is chargeable to tax in the year in

question in terms of section 51, which provides that : 'Where any capital

asset was on any previous occasion the subject of negotiations for its

transfer, any advance or other money received and retained by the

assessee in respect of such negotiations shall be deducted from the cost

for which the asset was acquired or the written down value or the fair

market value, as the case may be, in computing the cost of acquisition.'.

Simultaneous with the chargeability of Rs.12.50 lac, the amount of

Rs.25.00 lac paid by the assesse to Sh. Dingra in the year in question is

deductible u/s 48(i). Net result remains the same, that is, either there is

an income of Rs.12.50 lac u/s 51 and also deduction for Rs.25.00 lac u/s

48(i), or there is net deduction of Rs.12.50 lac u/s 48(i). The assessee is

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entitled to relief u/s 48(i) for a net sum of Rs.12.50 lac. This ground

fails.

10. The only other ground is against the deletion of addition of

Rs.38,76,181/- made by the AO on account of difference in the 'Cost of

acquisition'. The facts apropos this issue are that the assessee, in the

computation of income filed along with the return, considered indexed

cost of acquisition at Rs.10.00 crore. This cost of acquisition was

determined by taking the area of land transferred at 43 Bighas and 2

Biswas (hereinafter called the 'lesser area'). During the course of

assessment proceedings, the assessee claimed that the correct amount of

indexed cost of acquisition was Rs.10.39 crore and not Rs.10.00 crore.

This increase in the indexed cost of acquisition was made by claiming

the area of his land holding at 44 Bighas, 15 Biswas and 4 Biswansi

(hereinafter called the 'higher area'). The AO refused to accept the

assessee's claim of higher area by noticing that the assessee's valuation

report also indicated lesser area. The same lesser area was found to be

appearing in the Court decree as well. He, therefore, computed capital

gain by taking the indexed cost of acquisition at Rs.10.00 crore for the 9 ITA No.5402/Del/2010

lesser area. The ld. CIT(A) accepted the assessee's claim of higher area

and ordered for the adoption of the indexed cost of acquisition at

Rs.10.39 crore. This resulted into deletion of addition to the tune of

Rs.38.76 lac, against which the Revenue has come up in appeal before

us.

11. We have heard the rival submissions and perused the relevant

material on record. There is no quarrel on the fact that the assessee's

Registered valuer's report and the Court decree mention the lesser area.

At this juncture, it is pertinent to note that the assessee was 1/5th owner

of the total agricultural land admeasuring 223 Bighas and 16 Biswas.

The claim of the assessee for increase in the share in agricultural land to

the higher area stemmed from the fact that the difference between the

two was on account of his share in common area meant for use by all the

five co-owners. This can be seen from the Registered sale deed

executed by the assessee as vendor in favour of M/s Aarone

Infrastructure Pvt. Ltd., a copy of which is available on pages 11

onwards of the paper book. Page 12 categorically mentions that the

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Vendor, namely, the assessee, 'is the absolute owner of 1/5th share'

bearing different khasra nos. Page 13 reiterates that the assessee's 1/5th

share of agricultural land measuring 223 Bighas and 16 Biswas is

approximately 44 Bighas, 15 Biswas and 5 Biswans, that is, the higher

area. It further provides that : 'At the time of the execution of this Sale

Deed, the vendor is holding actual physical vacant position of the land'

measuring 43 Bighas and 2 Biswas, that is, the lesser area. When we

take a holistic view of the matter by reading the registered sale deed in

entirety, the picture which emerges is that the assessee was holding 1/5th

share in 223 Bighas and 16 Biswas. Out of such higher share of 44

Biswas, 15 Biswas and 4 Biswans, the actual physical possession with

the assessee was for a lesser area admeasuring 43 Bighas and 2 Biswas

and the remaining portion obviously represented a common area meant

for use by all the five co-owners. On the transfer of his 1/5th share in the

total area of land, what the assessee actually transferred was not only the

lesser area under his exclusive ownership, but also the common area on

which he had joint ownership rights. Sale consideration amounting to

Rs.27 crore received by the assessee is in respect of higher area of 44 11 ITA No.5402/Del/2010

Bighas, 15 Biswas and 4 Biswans. It is not the case of the Revenue that

the assessee transferred his entire 1/5th share in the agricultural land and

received Rs.27 crore in respect of lesser area and some other amount of

consideration for the remaining area which was commonly used. When

there is a sale of the assessee's 1/5th share in total land area covering

both the exclusive ownership/possession as well as the joint

ownership/possession, the cost should also be taken for the both,

including that of joint ownership. It is impermissible to take full value of

consideration for the higher area and cost of acquisition for the lesser

area. Insofar as the mention of a lesser area in the Registered valuer's

report and Court decree is concerned, we find the Registered sale deed to

be a more authentic document evidencing the details of the property

transferred with the relevant khasra nos. etc. We, therefore, prefer to go

with the Registered sale deed in preference to the other documents in so

far as the question of determining the assessee's share in land is

concerned. If we so proceed by taking the higher area of the land

transferred, the assessee's claim for deduction for increase in the

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indexed cost of acquisition by a further sum of Rs.38.76 lac merits

acceptance. We countenance the impugned order on this issue.

12. In the result, the appeal is dismissed.

The order pronounced in the open court on 16.02.2015.

Sd/- Sd/-

[DIVA SINGH] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated, 16th February, 2015. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.

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