2011 (8) TMI 612 - HC - Income Tax

Application of income - Capital gains - amount payable to the sisters of the appellant as per the Will of the appellant s father was not deducted in computing the capital gains assessable to tax - ITAT is justified in holding that the obligation to make the payment to the sisters under the Will was a voluntary act of the appellant in the light of the agreement of Distribution of Assets - agreement entered into between the assessee his mother and three sisters wherein the parties had agreed that the assessee had to pay Rs.6 lakhs to each of his sisters - Held that - it was only an application of money and hence it could not be given deduction Assessee s appeal dismissed Cost of construction - adopting the rate of Rs.576/- sq.ft. estimated as consideration in Form 37-I filed before the Appropriate Authority as against the cost of construction of Rs.240/- per sq.ft. adopted in form No. 34A - Appellate Authority took the consideration as regards the cost of construction herein at the rate of Rs.240/- per sq.ft. and not at the rate given in Form 37-I before the Appropriate Authority - Tribunal adopted the value of Rs.576/- per sq.ft. as taken by the Appropriate Authority - Held that - order of the Tribunal set aside and allow the assessee s appeal

Issues Involved:
1. Jurisdiction of ITAT on the quantum of cost of construction.
2. Justification of ITAT in adopting the rate of Rs.576/- per sq.ft.
3. Justification of ITAT in not upholding the cost of construction of Rs.240/- per sq.ft.
4. Justification of ITAT in referring to Form 37-I for the cost of construction rate.
5. Justification of ITAT in adopting Rs.576/- per sq.ft. contrary to the evidence.
6. Deductibility of the amount payable to the appellant's sisters in computing capital gains.
7. Obligation to make payment to the sisters as per the Will and its voluntary nature.

Detailed Analysis:

1. Jurisdiction of ITAT on the quantum of cost of construction:
The assessee questioned whether the ITAT had jurisdiction to decide on the quantum of cost of construction when such a ground was not before it. The court did not explicitly address this issue in isolation but considered it within the broader context of the case.

2. Justification of ITAT in adopting the rate of Rs.576/- per sq.ft.:
The ITAT adopted the rate of Rs.576/- per sq.ft. based on the apparent consideration in Form 37-I filed before the Appropriate Authority. The court found that the ITAT erred in this approach because the apparent consideration under Chapter XX-C is different from the full value of consideration under Section 48 of the Income Tax Act. The court emphasized that the full value of consideration means the actual price received, not the market value.

3. Justification of ITAT in not upholding the cost of construction of Rs.240/- per sq.ft.:
The Commissioner of Income Tax (Appeals) had adopted the cost of construction at Rs.240/- per sq.ft. based on the information provided by the Assessing Officer. The court agreed with the Commissioner of Income Tax (Appeals) and held that the cost of construction should be based on the actual consideration received rather than the apparent consideration.

4. Justification of ITAT in referring to Form 37-I for the cost of construction rate:
The court held that the ITAT was not justified in adopting Rs.576/- per sq.ft. by referring to Form 37-I filed before the Appropriate Authority. The court clarified that the apparent consideration for Chapter XX-C purposes does not apply to the computation of capital gains under Section 48.

5. Justification of ITAT in adopting Rs.576/- per sq.ft. contrary to the evidence:
The court found that the ITAT's adoption of Rs.576/- per sq.ft. was inconsistent with the evidence and contrary to the facts on record. The court reiterated that the computation of capital gains should be based on the full value of the consideration received, which was Rs.240/- per sq.ft. as determined by the Commissioner of Income Tax (Appeals).

6. Deductibility of the amount payable to the appellant's sisters in computing capital gains:
The ITAT held that the amount payable to the appellant's sisters as per the Will was not deductible in computing capital gains. The court upheld this view, stating that the payment to the sisters was not related to the transfer of the capital asset but was an application of money.

7. Obligation to make payment to the sisters as per the Will and its voluntary nature:
The court examined the Will and the agreement between the assessee and his sisters. It concluded that the payment to the sisters was a voluntary act of the appellant and not a legal obligation affecting the computation of capital gains. Thus, the court confirmed the ITAT's decision on this matter.

Conclusion:
The court set aside the ITAT's order concerning the computation of capital gains and upheld the Commissioner of Income Tax (Appeals)'s determination of the cost of construction at Rs.240/- per sq.ft. However, the court confirmed the ITAT's decision that the payment to the appellant's sisters was not deductible in computing capital gains.

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