TMI Blog1996 (1) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. The property was acquired through a will from her late father, K. P. Thampan. Hence, the cost of the previous owner was taken into consideration and the value as on January 1, 1954, at the option of the assessee was adopted at Rs. 70,000. There is no dispute with regard to the valuation. The assessee's further claim of cost of improvement at Rs. 27,000 was also allowed by the Tribunal. The dispute is with regard to the claim of Rs. 30,000 paid by the assessee to her sisters on June 16, 1960, in terms of her late father's will, which stipulated that a sum of Rs. 15,000 to each of her two sisters, Ammini and Radha, or their representatives in interest was to be paid by the assessee and that the amount "shall be a charge on the said property", while settling the property in question on the assessee. The Income-tax Officer disallowed the claim on the ground that there is no provision for allowance of this claim as it was not within the definitions of "cost of acquisition" of "cost of any improvement", defined under section 55 of the Act. On appeal, the Appellate Assistant Commissioner held that it can be treated as cost of acquisition and allowed the appeal on this point. Aggrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 30,000 paid to complete the title in favour of the assessee would amount to "cost of acquisition" in the hands of the father of the assessee. Learned counsel drawing our attention to a passage occurring in the Law and Practice of Income Tax by Kanga and Palkhivala, eighth edition, volume 1, at page 781, submitted that the decision of the Madras High Court in Smt. S. Valliammai v. CIT [1981] 127 ITR 713 [FB] and the decision of the Kerala High Court in Ambat Echukutty Menon v. CIT [1978] 111 ITR 880 are not dealing with the point as arising in the present case. So also learned counsel submitted that the decision of the Madras High Court in CIT v. V. Indira [1979] 119 ITR 837 was rendered on different facts altogether. Therefore, it was submitted that the abovesaid three decisions would not render any help to the Department to contend that the expenditure incurred for perfecting, improving or completing the title would not go to improve the cost of acquisition. Therefore, according to learned counsel, even if the cost of acquisition is to be ascertained as per the provisions of section 55(2)(iii) of the Act, the expenditure incurred for completing, improving and perfectin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, learned standing counsel relied upon the decisions reported in CIT v. V. Indira [1979] 119 ITR 837 (Mad) ; S. Valliammai (Smt.) v. CIT [1981] 127 ITR 713 (Mad) [FB] ; Ambat Echukutty Menon v. CIT [1978] 111 ITR 880 (Ker) ; Salay Mohamad Ibrahim Sait v. ITO [1994] 210 ITR 700 (Ker) and K. V. Idiculla v. CIT [1995] 214 ITR 386 (Ker). We have heard learned counsel appearing for the assessee as well as learned standing counsel for the Department. The point for consideration is, whether a sum of Rs. 30,000 paid by the assessee to two of her sisters, as per the directions contained in the will dated January 16, 1956, executed by her father, would go to increase the cost of acquisition in the hands of the previous owner, viz., her father. Section 45 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, subject to certain exemptions and deductions, be chargeable to income-tax as capital gains and shall be deemed to be the income of the previous year in which the transfer took place. Section 48 lays down the mode of computation of the capital gains and the deductions to be made. According to section 48, the income chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee by way of gift, the cost of acquisition has to be in accordance with section 49(1). As the previous owner has not paid the amount of Rs. 6,943 and the same has been paid by the assessee, it cannot be treated as the cost to the previous owner and it cannot be qualified for deduction as cost of acquisition of the property. The amount cannot also be allowed as a deduction as "cost of any improvement thereto". As the amount has been paid only to improve the title of the owner rather than improving the asset as such, there is no scope for deducting the amount in the computation of the capital gains. It was further held that if the property had been acquired prior to the 1st day of January, 1954, by the previous owner, then the cost of acquisition of the capital asset or the fair market value as on the first day of January, 1954, would alone represent the cost of acquisition or the deductible amount. This court also had an occasion to consider a similar question in Smt. S. Valliammai v. CIT [1981] 127 ITR 713 [FB]. According to the facts arising in that case, one R died leaving behind his wife, U, and daughter, V, as his legal heirs and hence all his properties devolved on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of improvement' contained in section 55(1)(b), 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 capital asset that was originally acquired by the previous owner. Where the previous owner had mortgaged the property 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." So also the Andhra Pradesh High Court in CIT v. Bilquis Jahan Begum [1984] 150 ITR 508, while considering the provisions of sections 48, 49 and 55 of the Act, held that in computing the capital gains on sale of properties inherited on the death of an owner, estate duty payable in respect of the properties cannot be deducted from the full value of the consideration received on the transfer of the properties. This decision was rendered by following the Full Bench decision of this court in Valliammai (S.) (Smt.) v. CIT [1981] 127 ITR 713. Again the Kerala High Court had an occasion to consider a questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which their mother was given a right of residence. In order to obtain a relinquishment of the said right of residence to enable them to sell the property, the assessees paid to their mother a sum of Rs. 60,000. In computing the capital gains arising on the sale of the property, the claim of the assessees for deduction of this sum of Rs. 60,000 was allowed by the Income-tax Officer, which was ultimately confirmed by the Tribunal. On a reference, this court held that admittedly the assessees did not have the benefit of the said sum of Rs. 60,000 when the interest of the mother in the property in question had been purchased by getting the relinquishment for a consideration of Rs. 60,000 and hence the said amount could not be taken as consideration paid in respect of the interest of the assessees. Consequently, the Tribunal was right in its view that the sum of Rs. 60,000 paid to the mother was to be excluded in computing the capital gains. This decision was distinguished by the Kerala High Court in the decision reported in K. V. Idiculla v. CIT [1995] 214 ITR 386. According to the facts arising in K. V. Idiculla v. CIT [1995] 214 ITR 386 (Ker), the assessee's father, V, purchased a la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the decision of the Madras High Court in CIT v. C. V. Soundararajan [1984] 150 ITR 80 is distinguishable on facts. The Kerala High Court followed the decisions reported in Ambat Echukutty Menon v. CIT [1978] 111 ITR 880 (Ker) and CIT v. V. Indira [1979] 119 ITR 837 (Mad) referred to above. Our attention was also drawn to the decision of the Gujarat High Court in CIT v. Daksha Ramanlal [1992] 197 ITR 123. According to the facts arising in that case, the assessee had received a piece of land as a gift. She sold the same and disclosed the capital gains on such sale. The assessee claimed deduction of Rs. 25,000 paid by her to the mortgagee, as the land which was gifted to her was subject to a mortgage. The assessee claimed that amount for deduction, since according to the assessee, the said sum of Rs. 25,000 would go to increase the cost of the land. On these facts, the Gujarat High Court held 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 Rs. 25,000 to the mortgagee, what she did was to purchase t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 111 ITR 880 (Ker), the assessee inherited a mortgaged property, paid off the mortgage debt and subsequently sold the property free of the mortgage. The Kerala High Court held that the payment of the mortgage debt should not be taken as part of the cost of acquisition to the assessee, since under section 49(1)(iii)(a) the cost to the previous owner was to be treated as the cost of acquisition to the assessee. it is submitted that the decision is incorrect for the following reasons : (a) the basic principle is that the word 'property' or 'asset' in the juristic sense (and in this Act) includes not merely the physical property or asset but the right, title or interest in it. Different persons may have different rights in a single physical asset or property. An absolute owner has the largest bundle of rights, while a lessee's title and a mortgagee's title are examples of limited rights. In the case of mortgaged property the bundle of rights consists of the mortgagor's title and the mortgagee's title. What the assessee inherited was only the mortgagor's title and he enlarged his bundle of rights by extinguishing the mortgagee's title. The two separate costs of the two titles constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) of the Act, inasmuch as the assessee became the owner of the property in question under a will executed by her father. According to the provisions contained in section 55 for the purpose of sections 48 and 49, "cost of acquisition" in relation to a capital asset : (i) where the capital asset became the property of the assessee before the first day of January, 1954, means the cost of acquisition of the asset to the assessee or the fair market value of the asset as on the first day of January, 1954, at the option of the assessee ; (ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the first day of January, 1954, means the cost of the capital asset to the previous owner or the fair market value of the asset as on the first day of January, 1954, at the option of the assessee. In the present case, the assessee exercised her option to adopt the fair market value prevailing as on January 1, 1954. Thereafter, as per the abovesaid provisions, the assessee can add along with the cost of acquisition in the hands of the previous owner only th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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