TMI Blog1979 (1) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital gains in the assessee's case ? By a settlement deed dated May 28, 1967, a house property bearing Nos. 2 and 3 Lakshmipuram Street, was gifted to the assessee by her father. In the document of gift, the property was valued at ₹ 6,000. During the financial year ended March 31, 1971, the assessee sold the said property for a sum of ₹ 30,000. In the income-tax assessment for the year 1971-72, the question arose whether there was any capital gains arising out of the sale of the property. The ITO took the cost of the acquisition of the property at ₹ 6,000 as shown in the gift deed and computed the capital gains accordingly. In the appeal before the AAC, the assessee claimed that the cost of the property was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amount so paid would constitute cost of acquisition within the meaning of s. 49(1) and that, therefore, the assessee would be eligible for deduction of ₹ 6,943. It is this order that has been challenged by the revenue by causing this reference to be made on the question already referred to. In order to appreciate the point involved, it is necessary to refer to the relevant provisions of the Act. Section 45 provides for the levy of tax on the capital gains arising out of the transfer of a capital asset effected in the previous year. The capital gains is deemed to be the income of the previous year in which the transfer took place. Section 48 provides that the income chargeable under the head Capital gains shall be compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... option of the assessee, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee, and (ii) in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, by the previous owner ......... The rest of the provision has been omitted as not relevant for our present purpose. In the present case, by applying these provisions it would be clear that the full value of the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property prior to January 1, 1954. Having regard to this aspect also the sum of ₹ 6,000 given as deduction may not be a proper one. There is one other aspect. 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 1st day of January, 1954, would alone represent the cost of acquisition or the deductible amount. The cost of any improvements to the property by the successor to the previous owner would not be eligible for deduction. The learned counsel for the assessee submitted that the amount paid, namely, ₹ 6,943, represented the cost of acquisition of the property. The expression cost of acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en paid by the donee, the assessee here, the amount paid cannot qualify for deduction as cost of acquisition of the capital asset. The Tribunal in its order has not borne in mind the dichotomy between these two concepts, viz., cost of acquisition of, and cost of improvement to, the asset. The Tribunal's conclusion that the sum of ₹ 6,943 represents the cost of acquisition is contrary to s. 55(2) defining that expression. We have now to examine whether the amount can be allowed as deduction as cost of any improvement thereto . The expression thereto would appear to cover a case where the amount is expended on the asset itself. Improving the owner's title to the asset is different from improving the asset itself. There ..... X X X X Extracts X X X X X X X X Extracts X X X X
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