TMI Blog1980 (12) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with March 31, 1967, he sold a bungalow and site at Kodambakkam High Road, of the extent of 15 grounds and 1,400 sq. ft. to the American Embassy for ₹ 6,00,000 and a plot of land measuring 7.2040 grounds at Nungambakkam High Road for ₹ 1,17,750 and a house at Pattukkottai for ₹ 65,000. During the previous year ending with March 31, 1969, he had sold 6 grounds and 260 sq. ft. at Thirumalai Pillai Road, T. Nagar, Mardras, for ₹ 79,200. During the previous year ending with March 31, 1970, the assessee sold 4 grounds and 1,020 sq. ft. in Thirumalai Pillai Road for a sum of ₹ 64,162.50 and the house bearing door No. 44, III Main Road, Adayar, for ₹ 81,000. He offered ₹ 7,537, ₹ 1,84,480, ₹ 19,015 and ₹ 32,118 as capital gains for the assessment years 1966-67, 1967-68, 1969-70 and 1970-71, respectively, as arising from the aforesaid transfers. In doing so, he had taken the cost of acquisition of the capital assets concerned at their market value as on April 28, 1964, the date on which he became entitled to them under the will of his adoptive mother. He had also claimed that since the estate duty had been paid consequent upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under section 256(2) of the Act. Whether in computing the capital gains on the sale of properties made by the assessee during the previous years relevant for the assessment years 1966-67, 1967-68, 1969-70 and 1970-71, proportionate estate duty paid on the death of Shri Ramanathan Chettiar and Shrimathi Umayal Achi in respect of properties sold should be deducted? Valliammai in her turn had sold 2.5 grounds of land in Valliammal Road, Alagappa Nagar, for ₹ 23,125 on April 11, 1966, 1.5 grounds of land in the same road for ₹ 13,875 on June 5, 1966, three grounds of land for ₹ 47,795 on March 16, 1967, and 3.2008 grounds of land in Nungambakkam High Road for ₹ 45,995 on March 18, 1967. In the return filed by her for the assessment year 1967-68 she had offered ₹ 1,07,479 as capital gains arising from the aforesaid sales liable to be taxed under section 45 of the Act and sought deduction of the proportionate part of the estate duty levied and paid on the estate of Ramanathan Chettiar as was attributable to the value of the properties sold by her. The ITO rejected the contention holding that since she had acquired the properties sold by inherita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dira [1979] 119 ITR 837. However, when these matters came before another Division Bench consisting of V. Ramaswami and Venugopal JJ. (see p. 714 supra), they expressed a doubt as to the correctness of the earlier Bench decision and, therefore, referred the matter to a larger Bench. That is how the matter has come before the Full Bench. The question that arises for consideration by the Full Bench in these cases is whether in computing the capital gains arising on the sales made by the assessees during the relevant previous years, the proportionate estate duty attributable to the properties sold could be deducted from the sale consideration either on the ground that it represents part of the cost of their acquisition or the cost of their improvement subsequent to the acquisition. The relevant statutory provisions which have a bearing on the above question are sections 45, 48 and 55 of the Act, and section 74 of the E.D. Act, 1953. As per section 45 of the Act all profits and gains arising from the transfer of capital assets effected in the previous year shall be chargeable to income-tax under the head Capital gains and shall be deemed to be the income of the previous year in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest had been acquired by the assessee on payment of the estate duty. The Tribunal, however, rejected that contention on the ground that there is a clear-cut distinction between a charge and a mortgage, that only in the case of a mortgage there is a transfer of an interest in the property while there is no such transfer of an interest when a mere charge is created over it, that in the case of a charge a right to payment out from a particular fund or a particular property without transferring that fund or property is alone created, and that right cannot be said to be an interest carved out of the properties in favour of the Government on the creation of a charge so that it could be said that there is a retransfer of an interest in favour of the assessee from the Government on the payment of estate duty, and, therefore, the estate duty paid cannot be taken as part of the cost of acquisition of the asset. Though the learned counsel for the assessee questions the said view of the Tribunal, we do not see how payment of estate duty will amount to acquisition of an interest in the capital asset. In the case of Arunachalam, he had got the entire right, title and interest in the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to physical additions or alterations to tangible or physical property, and that those words would comprehend also a removal of a burden or an encumbrance or an obligation. Any other construction, according to the learned counsel, would restrict the applicability of that provision only to tangible property and it could not be applied to the case of an intangible asset. Such a construction would also lead to the mode of computation being different from asset to asset. He further contended that it is neither necessary nor possible to restrict the meaning of the words cost of improvement in relation to a capital asset in a literal sense and that it is possible to understand and interpret that provision in a general or commercial sense. In that connection, he relied on the decision of the Supreme Court in Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651, wherein the Supreme Court held that the principles to be. applied are those which are part of commercial practice or which an ordinary man of business will resort to when making computation for his business purposes. Referring to the decision of the Calcutta High Court in CIT v. Bengal Assam Investors Ltd. [1969] 72 ITR 319 and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's title to the shares and hence was a capital expenditure forming part of the actual cost of the shares to the assessee. It also held that by incurring the expenditure for conducting the suits for amending the articles of association, the assessee was trying to enhance the value of the shares and hence the expenditure was also of a capital nature incurred for making additions or alterations to the shares. Though the learned counsel for the assessees places much reliance on the above decision, we are clearly of the view that the principle laid down in that decision will not apply to the cases on hand. In that case, unless the shares acquired by the assessee are registered in the books of the company in its name, it cannot be taken to have acquired a complete title to the shares and, therefore, the expenses incurred in having the shares registered in its name in the books of the company was taken to be an expenditure of a capital nature, incurred for perfecting the assessee's title to the shares, forming part of its actual cost of the shares. By incurring the expenses for having the articles of association amended so as to get voting rights for each and every share, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion within the meaning of section 49(1) of the Act and the assessee is eligible to the deduction claimed by her. When the matter came to this court on a reference, the same contentions, which are now put forward before us, were urged. The Division Bench rejected those contentions and held that section 48 of the Act provides for the deduction of cost of acquisition of the capital asset and also the cost of any improvement thereto subject to the terms of the other sections, that as the asset became the property of the assessee by way of gift, the cost of acquisition had to be the cost to the previous owner in accordance with section 49(1), that as the previous owner had not paid the amount of ₹ 6,943 and the same had been paid only by the assessee, it could not be treated as the cost of acquisition to the previous owner and that, therefore, it could not qualify for deduction as the cost of acquisition of the asset. The court also held that the amount could not also be treated as cost of any improvement thereto as the expression thereto would appear to cover a case where the amount is expended on the asset itself. In the context, Sethuraman J. speaking for the Bench, observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(b) of the Act, it could not be claimed as an expenditure incurred in making any additions or alterations to the capital asset that was originally acquired by the previous owner, and that where the previous owner had created a mortgage and the assessee and his co-owners cleared off the mortgage so created, it could not be said that they incurred any expenditure by way of effecting any improvement to the capital asset that was originally purchased by the previous owner. In this view, the court held that the mortgage amount paid could not be treated as cost of improvement of the asset . The capital asset, the sale of which has brought in the capital gain, may either be tangible or intangible. In the case of a tangible asset, an addition can be only in the form of physical addition. In the case of intangible assets, the addition cannot be physical. Therefore, it is not possible to say in every case that without any physical addition to the capital asset, there can be no improvement thereto. Whether physical addition is necessary or not will depend on the nature of the asset. We are concerned here with tangible assets and the question is whether by payment of the estate duty, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been acquired by the assessees, the estate duty has come to them as a liability and by discharging that liability, the assessees' title to the capital assets had not been improved. Where a person inherits assets as well as liabilities and later discharges the liabilities, can he be said to have made an addition to the assets as such? The answer can be only in the negative. In the light of what we have stated above, we are not inclined to accept the assessees' contention that the removal of any burden, encumbrance or obligation on the asset will amount to an addition to the asset as such. Nor are we inclined to hold that any expenditure resulting in any addition to the value of the asset has to be treated as the cost of making any addition to the asset as such. In the view we have taken, no exception could be taken to the decision in CIT v. V. Indira [1979] 119 ITR 837 (Mad.). It neither conflicts with the decision in CIT v. Bengal Assam Investors Ltd. [1969] 72 ITR 319 (Cal.) nor does it require reconsideration. In the light of the above discussion, we have to answer the questions in these cases in the negative and against the assessees. - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
