1984 (1) TMI 40 - HC - Income Tax

Summary

Issues:
- Deductibility of cost of improvement to property under section 49 of the Income-tax Act, 1961 while computing capital gain.

Analysis:
The case involved a dispute regarding the deductibility of the cost of improvement to a property under section 49 of the Income-tax Act, 1961 while computing capital gain. The assessee, who owned an immovable property, sold one-third of it and declared a certain amount as capital gain. However, the Income Tax Officer (ITO) calculated a higher capital gain due to discrepancies in the cost of improvement. The difference arose because the expenses on the property's extension or renovation were debited in the books of a firm in which the assessee was a partner, not in her personal account. The Commissioner (Appeals) and the Income-tax Tribunal upheld the ITO's decision, emphasizing that only expenses incurred by the assessee should be considered for computing capital gains. The Tribunal also rejected the argument that expenses borne by the firm should be treated as gifts to the assessee.

The assessee contended that a partnership firm's property is jointly owned by all partners and referred to legal precedents to support the argument that expenses borne by the firm should be considered as gifts to the assessee. However, the court rejected these contentions, stating that only expenses actually incurred by the assessee for property improvement should be taken into account for computing capital gains. The court highlighted that since the property was self-acquired by the assessee, section 49 of the Income-tax Act, which deals with the mode of property acquisition, was not applicable in this case.

In conclusion, the court answered the referred question in the negative, favoring the Department and ruling against the assessee. The court emphasized that only expenses directly incurred by the assessee for property improvement should be considered for calculating capital gains, and expenses borne by the firm or other partners should not be included in the computation. The court also clarified that section 49 of the Income-tax Act did not apply as the property was self-acquired by the assessee. The judgment concluded by stating that each party would bear its own costs in the matter.