TMI Blog1977 (6) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances of the case, the Tribunal was right in holding that the sum of Rs. 58,643 spent by the assessee did not represent the cost of improvement within the meaning of section 48 read with section 55(1)(b) of the Income-tax Act, 1961 ? (iii) Whether, on the facts and circumstances of the case, the Tribunal was right in finding that the assessee cannot get a deduction under section 48(ii) of the Income-tax Act, 196 1, of anything more than Rs. 58,643 ? " The relevant facts which have given rise to the aforesaid questions fall within a short compass. One Shri A. Padmanabha Menon purchased an item of immovable property for Rs. 48,500 on December 10, 1953. He had to incur an additional expenditure of Rs. 1,420 by way of stam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... January 1,1954, by virtue of succession to the previous owner who died in 1957, and he treated the cost of acquisition as Rs. 58,643 which was the amount paid by the assessee and the co-heirs for clearing off the encumbrance. By adopting the said method the Income-tax Officer held that the 1/5th share of the income chargeable to capital gains at the hands of the assessee was Rs. 30,341 and assessment was accordingly completed. An appeal was filed by the assessee before the Appellate Assistant Commissioner of Income-tax, Trichur, contending that the amount of Rs. 58,643 expended on discharging the mortgage ought to have been treated as the cost incurred by the assessee in effecting an improvement to the capital asset and that hence a deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch as the Income-tax Officer had already allowed a deduction in respect of Rs. 58,643, the Tribunal held that the assessee was not entitled to have the cost of acquisition fixed at any higher figure and the appeal was accordingly dismissed. Thereafter, at the instance of the assessee, the Tribunal has drawn up a statement of the case and referred the aforementioned questions to this court. Section 45 of the Act lays down that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, except as otherwise provided in sections 53, 54, 54B, 54C and 54D, be chargeable to income-tax under the head "capital gains ", and shall be deemed to be the income of the previous year in which the transfer took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition at the option of the assessee, the expression " cost of improvement " in relation to such capital asset shall mean 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. Sub-section (2)(ii) of the said section states that in relation to a capital asset where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and it had become the property of the previous owner before the 1st day of January, 1954, the expression " cost of acquisition " means the cost of the capital asset to the previous owner or means the fair market value of the asset on the 1st day of Jan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was later discharged either by himself or by his successor-in-interest, that would not constitute an improvement to the capital asset which originally became the property of the previous owner. In the present case, when Padmanabha Menon purchased the property it was free from any encumbrance. It was he who created an encumbrance by way of mortgage after the capital asset had become his property. When the assessee and his co-owners cleared off that mortgage it cannot be said that they have incurred any expenditure by way of cost of effecting any improvement to the capital asset that was originally purchased by the previous owner. The Tribunal was, therefore, perfectly right in holding that the assessee is not entitled to claim any deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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