1977 (6) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 15,863 can be allowed as a deduction for computing the assessee's share in the capital gains earned by the firm, M/s. Bagaria Building Corporation.

Detailed Analysis:

1. Background and Facts:
M/s. Bagaria Building Corporation, Calcutta, a firm with three partners, sold a house property for Rs. 3,25,000. The cost of the building was Rs. 2,23,212, leading to a long-term capital gain of Rs. 1,01,788. After deductions under section 80T of the Income-tax Act, 1961, the capital gain was assessed at Rs. 53,233 and allocated equally among the partners, including the assessee, resulting in each partner's share being Rs. 17,744.

The assessee claimed a deduction of Rs. 25,863 from his share of the capital gains, comprising Rs. 15,000 paid to the outgoing partner, Shewbhagawan Saraf, Rs. 10,000 paid to the lessor, and Rs. 863 as related expenses. The Income-tax Officer and the Appellate Assistant Commissioner rejected this claim, leading the assessee to appeal to the Income-tax Appellate Tribunal.

2. Tribunal's Findings:
The Tribunal held that the sum of Rs. 15,863 was spent by the assessee to become a partner in the firm and could not be deducted for computing his share in the capital gains. The Tribunal dismissed the appeal, leading to the reference of the legal question to the High Court.

3. Legal Provisions:
Sections 45 to 55 of the Income-tax Act, 1961, deal with capital gains. Section 45 specifies that profits from the transfer of a capital asset are chargeable to income-tax under the head "capital gains." Section 48 outlines the mode of computation and deductions, including the cost of acquisition of the capital asset. Section 80T provides deductions for long-term capital gains for assessees other than companies. Section 67(2) specifies that a partner's share in the firm's income must be apportioned in the same manner as the firm's income.

4. High Court's Analysis:
The High Court emphasized the significance of the phrase "in the same manner" in section 67(2), indicating that the provisions of section 48 apply to the assessee's capital gain computation. The Court noted that section 80A(3) prevents double deductions under section 80T for both the firm and the partner.

The Court examined whether the Rs. 15,000 paid to the outgoing partner could be considered the cost of acquisition of the capital asset under section 48(ii). It concluded that the payment was for acquiring the interest in the house property, not merely for becoming a partner. Thus, this amount should be treated as the cost of acquisition of the capital asset for the assessee.

5. Conclusion:
The High Court held that the Tribunal was not justified in disallowing the deduction of Rs. 15,863 for computing the assessee's share in the capital gains. The sum of Rs. 15,000 and Rs. 863 were spent to acquire the interest in the house property and are deductible under section 48(ii).

Judgment:
The High Court answered the question of law in the negative and against the department, allowing the deduction of Rs. 15,863 for the assessee. No order as to costs was made, and a copy of the judgment was directed to be sent to the Income-tax Appellate Tribunal, Gauhati Bench, Gauhati.