TMI Blog2013 (9) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... aid property stands bequeathed to, among others, is of assessee - Held that:- the assessee has not been able to show of the impugned sum as representing a condition precedent, with the succession of rights being given effect to without the said payment having been made, with even the transfer deed not recognizing the interest of any party other than the legatees in the subject property. - Decided against the assessee. Under section 48, only sums specified for being adjusted against the consideration accruing or arising on the transfer of a capital asset in computing the capital gains are, (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of improvement thereto - Assessee's case as not maintainable both in law as well as on facts – Decided against the Assessee. - IT Appeal No. 8506 (Mum.) of 2011 - - - Dated:- 1-2-2013 - I.P. BANSAL AND SANJAY ARORA,JJ. For the Respondent Ms. Aarti Visanji X. For the Respondent V. Krishnmoorthy. ORDER:- Sanjay Arora, Accountant Member - This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermined by the carrying capacity of the lifts themselves. The same (number of lifts), thus, would not assume any significance of its own, and the increase, if any, in valuation of the house property on account of a higher number of such units would be marginal, and not in any case in linear proportion to the number of lifts. With regard to the depreciation, the A.O. applied a rate of 20%, i.e., as applicable to the buildings which fall in the age group of 19-20 years; the subject property being constructed in the year 1969-70. We are unable to see as to how the said rate is not reasonable. This is all the more so considering that the estimated life of the building (subject to regular repairs and maintenance) is 50 years (refer para 16(c) of the registered valuer's report dated 27.9.2004/PB pgs. 15 to 17). Accordingly, we find no infirmity in the valuation adopted by the A.O., since confirmed by the ld. CIT(A). We decide accordingly. Ground 'A' is thus answered in favour of the Revenue. 5. We next consider the assessee's second ground 'B', raising the principal issue in appeal. The same is in respect of deduction in the sum of Rs. 35 lakhs claimed from the sale consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... death of the testator. However, as the legatees had no money, the amount was to be paid from the sale proceeds of the house property bequeathed. It is in respect of this amount that the deduction is being claimed, toward which the ld. AR cited the decision in the case of CIT v. Smt. Shakuntala Kantilal. The Revenue, on the other hand, has denied the assessee's claim on the basis that the same does not fall to be covered either under clause (i) or (ii) of section 48. 6.2 We begin by reviewing the law in the matter; both the parties relying on case law before us, so that the same would also stand to be examined from the stand-point of any divergence of opinion, if any, expressed by the hon'ble courts on the subject. Section 48, i.e., the relevant provision prescribing the manner of computation of capital gains chargeable u/s.45, reads as under:- Mode of computation 48. The income chargeable under the head "Capital gains" shall be computed, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deductibility of estate duty, charge in respect of which is created on the immovable property passing on the death of its owner. Negating the claim for its deduction in the computation of the capital gains on its transfer by a legatee, it was held by the hon'ble court that non-payment of estate duty did not result in their (legatees) getting an imperfect or incomplete title to the property. It is only when the title is defective, incomplete or imperfect that the cost of making the title complete and perfect could be treated as the cost of acquisition. Like view stands also almost uniformly expressed by the hon'ble courts in the context of the similar obligations, including those flowing from the instrument conferring or vesting title in the successor, as (say) a partition or gift deed, so that the same were considered as not qualifying for deduction either as cost of acquisition or as cost of improvement u/s. 48(ii). The latter, i.e., the cost of improvement, has again been uniformly understood to imply a physical or tangible improvement to the asset since its acquisition by the transferor or, for that matter, even the previous owner. Here it would be relevant to state and cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Disputes arose subsequently, and 'R' filed a suit for specific performance, which was settled by a compromise whereby the assessee agreed to pay Rs. 35,504/- to 'R'. In the meant time, the assessee entered into another agreement of sale in 1967 in respect of the same property with 'C'. 'C' had to give assurance to 'R' that on the completion of the sale, 'C' would deduct Rs. 35,504/- from the total consideration and pay it to 'R'. The assessee claimed that this amount of Rs. 35,504/- should be allowed as deduction for the purpose of computing the income under the head 'capital gains'. It was in this context that the hon'ble High Court upheld the tribunal's order accepting the assessee's said claim. Though the hon'ble court has clarified that the expression 'in connection with such transfer', as appearing in section 48(i), is wider than the expression 'for the transfer', the said exposition by the hon'ble court, on which there could be no doubt, was only to meet the argument of the Revenue's counsel that no deduction, apart from that stated in section 48, could be allowed in the computation of capital gains chargeable u/s. 45. The basis of the hon'ble court's decision, as its re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n income, which has been received and is since applied. In our view, therefore, the exclusion of the payment made by the assessee-respondent in that case, or on his behalf, was by applying the principle of diversion of income by overriding title, which was found to obtain in the facts and circumstances of that case by the hon'ble court. The situation as obtaining in the instant case, on the other hand, stands well contemplated and provided for under the provisions of the Act, of which the assessee is not only well aware of but has also invoked, being ss. 2(29A) r.w.s 2(42A); 47, 48 49 (including Explanations thereto); and 55. There is no scope for the application of the principle of diversion of income by over-riding title in the facts and circumstances of the present case for the said decision (i.e., in the case of Smt. Shakuntala Kantilal (supra)) to be applicable or of any assistance to the assessee. 6.4 We may also examine the facts of the instant case, if only for the sake of completeness of this order. Proceeding in the matter, we firstly find that the membership in the Jal Darshan Co-operative Housing Society Ltd., i.e., through the transfer of the membership/shares in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Will as to the amount payable. 6.5 Though we have gone through the entire sale deed, a registered document, reference to some of its clauses would be relevant in the matter, which reads as under, and explicitly brings forth the absolute title to the property of the four legatees, including the assessee:- 3. The Transfers have delivered vacant and peaceful possession of the said flat to the Transferee as the absolute owner thereof. 4. The Transferors agree, confirm and declare that :- (a) The Transferors as members of the said Society are solely and absolutely entitled to hold the said shares and to own and posses the said flat and that no other person or party has any right, title, interest property claim or demand into/over/upon the same or any part thereof by way of sale, exchange, mortgage, gift, trust, tenancy, inheritance, possession, lien or otherwise howsoever. (b) The Transferors have good right, full power and absolute authority to transfer the said shares and as incidental thereto to sell and transfer the right to hold, use and occupy the said flat and that neither they nor any of them nor any one on their behalf have done, committed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e admittedly not paid the impugned amount, had, however, become the absolute co-owners of the property and, accordingly transferred the same to the transferees, i.e., the absolute right in the same. How could it be? Further, the said sale deed, which under the circumstances is a title deed, declares that no other persons had any right, title or interest, claim or demand or lien in/over or on the same (Flat No. 83 in Jal Darshan Building) or any part thereof by way of any mode, including inheritance, so that the transferees had full power and authority to transfer the said shares in the society as well as the ownership and possession of the flat under reference. We are, thus, unable to hold of the Gadatwalas as having any right or title or interest in the subject property, for the assessee to claim of their overriding title or even interest therein, or to the sale proceeds thereof, to the extent agreed to. In fact, it is this that led to an inquiry from the Bench to the ld. AR, as to why, in that case (i.e., of overriding title or of constituting a condition precedent - as claimed), the payees were not made a party to the said instrument of transfer and, rather, paid the agreed sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inheritance, it could only be through Will, where so, while in the instant case there is no reference to the Will either in transfer of membership or in the conveyance deed. Even the payment has not been shown to have been made. So much so for a condition that is being claimed to be a condition precedent per its terms. As regards the legal position, the same has again been found as well-settled by the hon'ble courts. The law does not recognize transfer by way of Will (s. 47), so that even if it were so, i.e., a condition precedent, entailing a cost to the legatee/s, it is only the cost to the previous owner, that would stand to be considered as the cost of acquisition, and there is no scope for adding thereto the cost, if any, incurred on acquisition by the successor, which would be in fact his - the latter's - cost. The same could also not be considered as a cost of improvement, so as to qualify, either way, for deduction u/s. 48. The holding period is again to be reckoned with reference to the date of acquisition by the previous owner, so that even by implication it is only the cost of such acquisition, or the deemed cost of acquisition, i.e., the FMV as on 01/4/1981, where th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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