1979 (1) TMI 61 - HC - Income Tax

Summary

Issues:
The issue involved in this case is whether the sum paid by the assessee as per compromise decree can be included in the cost of acquisition for the purpose of computing capital gains.

Judgment Details:
The case involved a settlement deed where a house property was gifted to the assessee by her father. The property was later sold by the assessee, and the question arose regarding the computation of capital gains. The assessee claimed that an additional sum paid under a compromise decree should be included in the cost of acquisition. The Assessing Officer (AO) considered only the value shown in the gift deed for cost of acquisition. The Appellate Authority Commissioner (AAC) held that the sum paid did not qualify as capital expenditure for additions or alterations to the property. However, the Tribunal concluded that the amount paid under the compromise decree constituted the cost of acquisition and was eligible for deduction.

To analyze the issue, relevant provisions of the Income Tax Act were considered. Section 45 deals with the levy of tax on capital gains, while Section 48 outlines the computation of income chargeable under capital gains. Section 49(1) specifies the cost of acquisition for assets acquired under certain circumstances, such as through gift or will. Section 55(1)(b) defines the "cost of any improvement" in relation to a capital asset.

The Tribunal's decision was challenged by the revenue, arguing that the sum paid did not qualify as the cost of acquisition or improvement to the asset. The Court observed that the sum paid could not be considered the cost of acquisition as it was not paid by the previous owner. Additionally, the amount paid did not constitute an improvement to the asset itself but was related to improving the title of the owner.

Reference was made to a decision by the Calcutta High Court, highlighting the distinction between cost of acquisition and cost of improvement to the asset. The Court concluded that the amount paid under the compromise decree did not qualify as either and therefore could not be deducted under the relevant sections of the Act. The reference was answered in the negative and in favor of the revenue.

This judgment clarifies the interpretation of provisions related to the cost of acquisition and improvement in the computation of capital gains, emphasizing the specific criteria that must be met for an expense to be considered deductible.