TMI Blog2013 (5) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was framed by DCIT, Circle- 33, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2007-08 vide his order dated 22.12.2009. 2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance made by AO while computing income under the head Capital Gains. For this, assessee has raised following ground: "For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance made by the A.O. to the tune of Rs.72,00,000/- which was claimed by the assessee as expenditure, in computing the income under the head capital gains." 3. Briefly stated facts are that during the year assessee transferred two flats at 3B 3C, 5, Loudon St., Kolkata vide sub-lease deed dated 04.08.2006 to Mrs. Poonam Agarwal for a total consideration of Rs.2.20 cr. The assessee acquired sub-lease rights in the above stated two flats from Bhagya Lakshmi Commercial Pvt. Ltd. vide agreement dated 02.09.2004. During the Financial Year 2005-06 assessee entered into an agreement dated 05.05.2005 with Onkar Management Pvt. Ltd. for transfer of above stated property vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of suit property, made by the respondents in favour of the third party i.e. Mr. Alok Agarwal and Mrs. Poonam Agarwal vide registered Deed of Transfer dated 04.08.2006 shall be declared to be null and void and cancelled. Under such circumstances, necessary directions shall be passed upon the Registrar of Assurances, Kolkata, where the registration of the deed was conducted, to take necessary action as per law so that the above referred deed may be cancelled at once. Hence, the respondents are directed to file necessary receipts before this Learned Forum in proof of their compliance of this order. Fix 01.12.2007 for further order cum disposal. Copy of the award may be circulated to the parties concerned free of cost." 4. The assessee while computing capital gain on transfer of this property i. e. sub-lease rights, claimed deduction of damages and compensation paid at Rs.72 lakh. It was required by the AO to explain how this deduction is allowable. Assessee claimed that this expenditure is incurred wholly and exclusively in connection with the transfer of above two flats at 3B and 3C, 5, Loudon Street, Kolkata to Mrs. Poonam Agarwal vide sub-lease dated 04.08.2006. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant was found guilty for breach of several terms and conditions of the agreement that he had made with M/s. Onkar Management Pvt. Ltd. In this factual background, the appellant was ordered to pay the sum of Rs.72,00,000/- by way of damages and compensation and legal cost. The sum payable by the appellant is only by way of penalty for breach of terms and conditions of the agreement; and by no stretch of imagination, can be considered as expenditure incurred wholly and exclusively in connection with the transfer of the property. It is also important to note that the liability to pay the sum of Rs.72,00,000/- is a subsequent development. The appellant had transferred the property to Mrs. Poonam Agarwal (for which the capital gain is being computed) vide sub-lease dated 04.08.2006. The arbitration award by which the appellant was ordered to pay the sum of Rs.72,00,000/- was passed by the Arbitrator on 30.09.2007. The liability to pay the sum of Rs.72,00,000/- which arose on 30.09.2007cannot be considered as expenditure incurred wholly and exclusively in connection with the transfer which had already taken place way back on 04.08.2006. It is also factually incorrect to argue that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the jurisprudential thought as propounded by Salmond. In Midnapur Zamindary Co. Ltd. Vs. Kumar Naresh Narayan Roy and Ors. 026 1924 PC 144, Sir John Edge summed up the Indian law by stating that in India persons are not permitted to take forcible possession; they must obtain such possession as they are entitled to through a Court. It is thus clear that so far as the Indian law is concerned the person in peaceful possession is entitled to retain his possession and in order to protect such possession he may even use reasonable force to keep out a trespasser. A rightful owner who has been wrongfully dispossessed of land may retake possession if he can do so peacefully and without the use of unreasonable force. If the trespasser is in settled possession of the property belonging to the rightful owner, the rightful owner shall have to take recourse to law; he cannot take the law in his own hands and evict the trespasser or interfere with his possession. The law will come to the aid of a person in peaceful and settled possession by injuncting even a rightful owner from using force or taking law in his own hands, and also by restoring him in possession even from the rightful owner (of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge. Nothing in this section applies to the charge of a trustee on the trust property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.'' Construing the said provision, this court in Dattatraya Shanker Mote v. Anand Chintaman Datar [1975] 2 SCR 224, has said (page 232): "It is apparent from the provisions of the above section that a charge does not amount to a mortgage though all the provisions which apply to a simple mortgage contained in the preceding provisions shall, so far as may be, apply to such charge. While a charge can be created either by act of parties or operation of law, a mortgage can only be created by act of parties. A charge is thus a wider term as it includes also a mortgage, in that every mortgage is a charge, but ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come the full owner of the assets even before the payment of estate duty and on payment of the same he had not acquired a new right, tangible or intangible, in the assets. It cannot, therefore, be said that the amount proportionate to the estate duty paid by the assessee on the properties that were transferred should be treated as "cost of acquisition of the assets" under sections 48 and 49 read with section 55(2) of the Act. Since the title of the assessee to the immovable properties acquired was not incomplete and imperfect in any way, it cannot also be said that as a result of the payment of the estate duty by the assessee, there was an improvement in the title of the assessee and the said payment could be regarded as "cost of improvement" under section 48 read with section 55(1)(b) of the Act. In Winans v. Attorney-General (No. 2) [1910] AC 27 (HL), the question for consideration was whether foreign bonds and certificates payable to bearer passing by delivery and marketable on the London Stock Exchange, were, when physically situate in the United Kingdom at the death of the owner, liable to estate duty under the Finance Act, 1894, even though the deceased was domiciled abroad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned judgment. In that case, the assessee, as one of the heirs, had inherited property from the previous owner who had mortgaged the same during his lifetime and after his death the heirs, including the assessee, had discharged the mortgage created by the deceased. The said property was subsequently acquired under the Land Acquisition Act and for the purpose of capital gains the assessee sought deduction of the amount spent to clear the mortgage. The High Court held that the capital asset had become the property of the assessee by succession or inheritance on the death of the previous owner under section 49(1) of the Act and the cost of acquisition of the asset is to be deemed to be the cost for which the previous owner acquired it, as increased by the cost of any improvement of the assets incurred or borne either by the previous owner or by the assessee. According to the High Court, having regard to the definition of the expression "cost of improvement" contained in section 55(1)(b) of the Act, in order to entitle the assessee to claim a deduction in respect of the cost of any improvement, the expenditure should have been incurred in making any additions or alterations to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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