TMI Blog2006 (11) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... f overriding title. Hence, the said deduction was not admissible. In doing so, the learned CIT(A) appears to be confused between natural obligation of a father towards the education, maintenance and marriage of his daughter and the legal obligation of an HUF to provide for marriage, etc. of an unmarried daughter at the time of the particitioning of the HUF property and the charge attaching to such property when it has sold subsequently. The appellant pleads that the subject property was encumbered and could be sold only on the release after ₹ 10 lacs were paid to the unmarried daughter. The said payment was to be allowed as deduction from the gross sale price of the property in the computation of capital gain, as it was diversion of income out of overriding title. 3. The learned CIT(A) erred in confirming the addition of ₹ 40,000 on ad hoc basis for supposedly inadequate withdrawals for household expenses. The correct facts adduced before him were not considered by the learned CIT(A) in this regard. The Tribunal may now delete the addition of ₹ 40,000. 4. The appellant claims appropriate relief on the above grounds of appeal. 3. Apropos ground Nos. 1 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there was encumbrance on the property, i.e., payment of ₹ 10 lacs to daughter, Miss Nikita K. Parikh and the said amount was directly paid to the daughter of the assessee vide cheque No. 348605, dt. 18th Aug., 1993 on Punjab National Bank, i.e., on the date of execution of sale deed. Reference was also made to para 14 of pp. 11 and 12 of sale deed. It was explained that the same is allowable while computing capital gain either as an element of cost or as deduction from gross sale consideration and for this purpose reliance was placed on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Daksha Ramanlal (1992) 105 CTR (Guj) 207: (1992) 197 ITR 123(Guj). The AO found that daughter of assessee, Kum. Nikita K. Parikh was staying with her father. She was major at the time of payment. She did not disclose that amount for taxation in her own return and it was shown as capital receipt in her hand. AO further found that assessee by adopting this method had created a device so as to give it a colour of charge on the property to show it as diversion of income by overriding title. There was a partition of HUF and already a family arrangement had been made on 4t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it remains his income. In another case of the Hon'ble Supreme Court CIT vs. Sitaldas Tirathdas (1961) 41 ITR 367(SC), it is held that where by obligation, the income is diverted before it reaches assessee, it is deductible but when income is required to be applied to discharge an obligation, after such income reaches the assessee, it is not deductible. Here, it is obligation of the father to maintain his unmarried daughter. This is also explained by the assessee himself when asked vide notice under s. 142(1) dt. 16th Jan., 1997 as to why entire amount of ₹ 10 lacs for Kum. Nikita Parikh is deducted from the capital gains in respect of assessee's case only and not from the other members of the HUF's case. In reply filed on 20th Jan., 1997, the assessee stated that the entire amount of ₹ 10 lacs had been deducted from assessee's share only because as father of Kum. Nikita and Karta of HUF, he is responsible for the maintenance and marriage of Kum. Nikita. Therefore, it is merely to discharge such an obligation that income out of capital gains, after it has become payable to the assessee, had been set apart for the daughter. Since unmarried daughter was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e daughter and then the sale price of the property has been decided. The sale price of the property has been decided as a whole and, therefore, as rightly observed by the AO a sum money set aside to meet the natural obligation of a father towards his unmarried daughter becomes 'application of income' and not 'diversion of income by overriding title'. The obligation to look after the unmarried daughter till she is married off, has always been there and does not change the character by attaching to it voluntarily created artificial charge. Therefore, I am in agreement with the decision taken by the AO. This ground therefore fails. Assessee is aggrieved hence in appeal. 5. Learned Authorised Representative after narrating the facts referred to the award dt. 4th Sept., 1990 given in respect of partition of Shri Krishna G. Parikh (HUF), a copy of which has been placed at pp. 5 to 17 of the paper book wherein following provisions were made to protect the interest of minor daughter, Miss Nikita K. Parikh : (ii) Jewellery valuing ₹ 2.66 lacs plus gold ornaments valuing ₹ 3.10 lacs and silver utensils valuing ₹ 1.85 lacs, aggregating to ₹ 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that a charge was created by the decree on the property which was sold and the same was deductible from the sale price for the purpose of computation of capital gain as per the decision of the Tribunal in the case of Jt. CIT vs. Prakash Haribhakti (an unreported decision), dt. 20th Jan., 2006 in ITA No. 2417/Ahd/1999, A Bench, wherein a payment of ₹ 10 lacs given by the assessee for vacating the premises which was subject to sale was held deductible from the sale price for the purpose of computation of capital gains. In the said case vide cl. 3 of the agreement it was stated that the occupant of the premises, namely, Lakhanpal National Ltd. had agreed to give vacant possession of the premises to enable the assessee vendor to sell the said premises on the condition that the vendor shall divert in favour of the licencee a sum of ₹ 10 lacs by an overriding title from the consideration received by the vendor-assessee on sale of the said premises as their contribution to the licencee's cost of acquiring alternative premises. According to cl. 4 of the said agreement, the assessee vendor had agreed with the licencee that in order to get the vacant possession w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook place as consent decree by the order of the Court. He contended that there were various properties owned by the HUF out of which assessee became owner of many properties falling to his shares. He contended that as the said property was under sale agreement, with an ulterior motive it was mentioned that ₹ 10 lacs will be paid out of the sale proceeds of the said property. He contended that by passing the consent decree the assessee had become absolute and individual owner of the property. Education, maintenance and marriage of daughter is legal obligation of a father and otherwise also the assessee was under an obligation to provide education, maintenance and marriage expenses to daughter. He contended that word charge was not appearing either in the award or consent decree but it was later on inserted in the consent decree by way of an amendment in 1997. He contended that Court decree is not binding while deciding cases under IT Act. For this contention he relied on the following decisions : (1) Sushil Kumar Co. Jt. CIT (2003) 81 TTJ (Kol)(SB) 864. This decision was relied upon to contend that consent decree is solely based on terms and conditions as mutually agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be considered part of total sale proceeds and the contention of assessee that ₹ 39 lacs paid to Shri R.M. Aga cannot be considered to be sale consideration was rejected. (6) R.M. Arunachalam, Etc. vs. CIT (1997) 141 CTR (SC) 348: (1997) 227 ITR 222(SC)'to contend that s. 100 of Transfer of Property Act wherein the word charge has been defined is different from mortgage and this case law relating to payment made on redemption of mortgage cannot be considered to be case law applicable to the case of assessee for supporting the contention that such payment was deductible while computing capital gain to the assessee. (7) CIT vs. Attili N. Rao (2001) 171 CTR (SC) 188: (2001) 252 ITR 880(SC)'to contend that capital gain on public auction of mortgaged property had to be computed on the full price realized in auction and not on the net amount paid over to assessee-owner by the mortgagee (State) after deducting its dues. (8) K. V. Idiculla vs. CIT (1995) 123 CTR (Ker) 441: (1995) 214 ITR 386(Ker)'to contend that though the property transferred by assessee was subject to a charge in favour of his wife created by his father for discharge of a debt, the charge di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) on the ground that Hon'ble Supreme Court in the said case did not consider the issue regarding diversion of income at source. He contended that other cases also are distinguishable on facts. He contended that amount was directly paid by the purchaser of the property to the daughter of the assessee. Thus, it was pleaded that relief as sought for should be granted to the assessee. 11. We have carefully considered the rival submissions in the light of material placed before us. The relevant portion of consent decree in Civil Suit No. 1421 of 1993 is as under : This suit coming on 31st day of March, 1993 before H.H. Judge, Shri A. H. Bhatt, Aux. C. Court, in the presence of advocates of the parties. It is hereby ordered and decreed that ' The award dt. 4th Sept., 1990 of the Arbitrator, Shri A. R. Parikh and the decree dt. 27th Feb., 1991 passed by this Hon'ble Court in CMA No. 627 of 1990 be set aside. There shall be a petition of K.G. Parikh, HUF, on and from today in the following manner : A sum of ₹ 10,00,000 (rupees ten lacs only) be and hereby set apart for education, maintenance and marriage expenses of the plff. The plff. is also entitled to get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was approved by civil Court on 27th Feb., 1991. Thus, at the time of sale agreement assessee was full owner of the property on which capital gain has arisen to the assessee. It was only in the consent terms, the said property was made subject to payment of ₹ 10 lacs. Under the Hindu Law, as it was prevalent at the relevant time, unmarried daughter does not have right to partition but has a right to education, maintenance and marriage out of HUF property. In the award provision of ₹ 5 lacs was made for the purpose of education, maintenance and marriage of said Miss Nikita K. Parikh apart from share from jewellery, etc., and there was no mention in the said award regarding charge created only in respect of Shahibaug property falling to the share of assessee. The relevant part of award has already been reproduced in para 5 of this order. ₹ 5 lacs was a charge on all the properties and not specifically in respect of shares of assessee in respect of Shahibaug property. In the consent terms there is no material change other than that the provision of ₹ 5 lacs was enhanced to ₹ 10 lacs and it was specifically mentioned that said sum of ₹ 10 lacs will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was also incorporated in the partition deed, that a sum of ₹ 25,000 should be set apart for the marriage expenses of the sister of the assessees. The claim of the assessees before the ITO was that in computing the capital gains on the sale of the properties, which they had obtained under the partition, this sum of ₹ 25,000 which they were liable to set apart for the marriage of their sister, must be deducted. The ITO disallowed this claim . The Tribunal agreed with the ITO on the main ground that there was nothing in the partition deed under which the provision of ₹ 25,000 towards the marriage expenses of the assessees' sister was to be a charge on any of the items of properties, allotted to the assessees. On a reference to the partition deed, what the Tribunal says is correct. But, we would not like to uphold the decision of the Tribunal on this ground alone. There is a more pertinent ground for the disallowances. The claim of the assessees to deduct the provision for the marriage expenses of the sister, as an admissible item of expenditure, has been put forward on the terms of the partition deed, and not under any specific statutory provision relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty sold. At the time when sale agreement was executed there was no provision in the award regarding a charge created specifically on Shahibaug property falling to the share of assessee and it was later development that by consent term a so-called charge was created. Thus, it cannot be said that the payment of ₹ 10 lacs was an expenditure wholly and exclusively incurred in connection with transfer of property sold and the said payment cannot also be considered as a cost of acquisition or cost of improvement. Thus, the claim of assessee is not in accordance with law. 15. Secondly, it is difficult to accept the case of assessee that out of sale consideration which has been received by assessee, the amount of ₹ 10 lacs is to be allowed. Even as per the case of assessee, the share falling to assessee of Shahibaug property was charged by a sum of ₹ 10 lacs. The assessee has not sold his entire share in Shahibaug property. The details of Shahibaug property have already been reproduced in the above part of this order. Shahibaug property comprises of two plots, i.e., plot No. 13/1 and plot No. 13/4. Plot No. 13/1 is freehold property whereas plot No. 13/4 is leaseh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isition of such capital asset would be the cost of the capital asset to the previous owner. Word 'property' does not mean merely the physical property but also means right, title or interest in it. In case of mortgage or lease, different persons will have different rights in the same property. If a person is an absolute owner of the property, then it can be said that he has all the rights and interests in that property. If the property is mortgaged or leased then the owner of the property would possess only those rights, which are not transferred to the mortgagee or the lessee, as the case may be. When a person who has mortgaged the property transfers it to another person, what he transfers is only those rights, which he possesses. The transfer would get the property subject to the rights created by the previous owner in favour of others, and if this view is taken, then it follows that when the previous owner gifted the mortgaged property to the assessee what he had transferred to the assessee was the right, title or interest which he had in that property. When the assessee discharged the mortgage by paying ₹ 25,000 to the mortgagee, what he did was to purchase that r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be evicted, the expenditure is to be allowed as a deduction either as cost of improvement or as an expenditure while computing the capital gains arising out of the sale of the property and in that way, the CIT(A) was right in allowing the claim of the assessee though as an expenditure which was incurred wholly and exclusively in connection with the transfer of the property under s. 48(1) of the Act. It has already been pointed out that the payment made by assessee was neither a cost of improvement nor an expenditure incurred wholly and exclusively for the purpose of transfer of property. Thus this case has also no application. 18. There is one more aspect of the matter. Sec. 339A as mentioned at p. 465 of book Mullah Principles of Hindu Law , 15th Edition, reads as under : 339A. Reopening of partition at the instance of a minor'The law on the subject was very clearly summarised by the Supreme Court in a recent decision (cl) in the form of propositions : (a) Where the partition is effected between the members of the family which includes minor coparceners it is binding on the minors also if it is done in good faith and in bona fide manner, keeping into accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance and marriage of unmarried daughter is on the entire property of the HUF of which total partition is being effected. By the act of parties the obligation cannot be fastened only to a part of a particular property falling to the share of coparcener and more particularly when said property which is made a subject to so-called charge was shared by all the parties to the partition. The mere fact that the word charge is recited in the decree would not establish that the said amount of ₹ 10 lacs was a charge against the share in particular property of the assessee as it appears that the said word charge is intentionally used for an ulterior purpose and is only a self-serving statement. The said issue has to be examined only in accordance with law. This view is supported by the said decision of Special Bench in the case of Sushil Kumar Co. vs. Jt. CIT (supra). The relevant observations are reproduced from the said decision for the sake of convenience : 25. When the consent terms and the decree passed by the Court are carefully perused it is not difficult to hold that the decree is not based on any grounds or reasoning, but is solely based on the terms and conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k, one woman cleaner, one gardener, one laundryman, three watchmen. AO considered that refreshment expenses, etc. of these servants were also incurred by the assessee. It was further found that assessee was maintaining large number of vehicles i.e. one 118 NE car, 1 Maruti, 2 Maruti vans and 3 scooters. Taking clue from all these circumstances, the AO made lump sum addition of ₹ 40,000 on this account. Learned CIT(A) has confirmed this addition with the following observations : In para 10 of the assessment order, the AO has discussed in detail as to why the withdrawals for household expenses at ₹ 1,41,741 are considered grossly inadequate. In his submission, the appellant has stated that household expenses incurred are adequate and that the AO was not justified in considering motor car and telephone expenses also included in the household expenses. In his observations, the AO has referred to the large number of vehicles i.e. one car, one Maruti, two Maruti vans and three scooters maintained by the appellant and has also referred to the expenditure of telephone expenses incurred by the appellant as stated by the appellant at the time of survey to give an idea of stan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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