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2022 (8) TMI 427 - AT - Income TaxCapital capital computation - expense deductible u/s 48 - payment made to a person who helped the assessee in obtaining favorable decision in her favour - it is apparently clear that right from the beginning of the agreement with that person that all the expenses involved in the process of obtaining vacant possession by evicting the Indian Navy would be borne by that person only - HELD THAT - It is evident from the chronology of the events discussed (supra) and relying on the findings in the matter Mrs. Meher Rusi Dalal 2011 (9) TMI 1235 - ITAT MUMBAI , wherein coordinating bench of tribunal have allowed 33.33% of the total consideration to obtain a compensation as early as possible from the land acquisition authorities .Here also assessee availed the same services in the similar circumstances. A.O. and LD CIT (Appeal) himself observed that the matter was in litigation in court and compensation could be enhanced, if at all, only in a legal manner. It is not the case that there was no legal battle and just to avoid tax liability assessee as a matter of diversion of income opted for any colorable device by including Mr. Kishore Manusukhani the whole scenario of the matter clearly indicates that the assessee was suffering with the illegal occupancy of her land and requires a help to come out this adverse situation. Without any advance payment or any commitment to Mr. Kishore Manusukhani other than on successful outcome. This material fact can t be ignored by the authorities below and this amount is clearly not a diversion of income rather it s an expense deductible u/s 48 of the act. This amount is in extricable part of the whole transaction hence allowable u/s 48, in the result ground no 1 and 2 of the assessee are allowed and A.O. is directed to delete the disallowance while computing the income of the assessee. Cost inflation index (CII) till F.Y. 1994-95 instead of CII for Financial year 2010-11 - HELD THAT - As in our considered view assessee is entitled for CII till F.Y. 2010-11 in the light of above Ground No. 3 of the appellant is allowed and A.O. is hereby directed to give effect of this finding while computing the income of assessee. Quantum of interest received by the assessee on compensation up to the date of land acquisition by the Ministry of Defense/Special Land Acquisition Officer pursuant to the Supreme Court order - Whether to be tax the same under the head 'Capital Gain' in terms of section 45(5)(b) r.w.s. 48 and the balance interest paid to assessee for any delay in payment of the compensation, from the date of acquisition of the property in pursuance to High Court/Supreme Court order, as 'Income from Other Sources'? - HELD THAT - As interest paid to the assessee for any delay in payment of the compensation from the date of acquisition of the property in pursuance to Hon ble Supreme Court order, the same should be taxed under the head Income from other sources and compensation with interest received by the assessee up to the date of land acquisition pursuant to the Hon ble Supreme Court order should be taxed under the head Capital Gains . We confirm the view of Ld. CIT (A) and resultantly dismiss the ground of appeal taken by revenue on this issue. Deduction of 50% of that portion of the aggregate compensation received by the assessee liable to be taxed under the head Income from Other Sources - HELD THAT - In this regard claim of the assessee is very much unambiguous and any income of the assessee falling under section 56(2)(viii) is liable for deduction @ 50% under section 57(iv). On this ground, we are not inclined to interfere with the findings of Ld. CIT(A), hence, this ground of Revenue is dismissed.
Issues Involved:
1. Taxation of interest received on compensation. 2. Deduction of legal expenses under Section 48(1) of the Income Tax Act. 3. Application of Cost Inflation Index (CII) for different financial years. 4. Deduction under Section 54F of the Income Tax Act. 5. Diversion of income by overriding title. Detailed Analysis: 1. Taxation of Interest Received on Compensation: The primary issue is whether the interest received by the assessee on compensation should be taxed under the head 'Capital Gains' or 'Income from Other Sources'. The CIT(A) directed the AO to ascertain the quantum of interest received up to the date of land acquisition and tax it under 'Capital Gains' as per Section 45(5)(b) r.w.s. 48 of the Income Tax Act. The balance interest for any delay in payment of compensation should be taxed under 'Income from Other Sources'. The Tribunal upheld this view, confirming that the portion of the compensation termed as 'interest' is actually part of the market value of the property transferred and should be taxed under 'Capital Gains', while any delay-related interest should be taxed as 'Income from Other Sources'. 2. Deduction of Legal Expenses under Section 48(1): The assessee claimed that payments made to Mr. Kishore Mansukhani should be considered as a diversion of income by overriding title and thus deductible. The CIT(A) restricted the deduction to legal expenses incurred by Mr. Mansukhani. The Tribunal, however, allowed the entire payment to Mr. Mansukhani as deductible under Section 48, stating that it was an expenditure incurred wholly and exclusively in connection with the transfer of the property. The Tribunal relied on various case laws to support this position, emphasizing that any expenditure incurred in connection with the transfer is allowable as a deduction. 3. Application of Cost Inflation Index (CII): The assessee challenged the AO's application of CII for FY 1994-95 instead of FY 2010-11. The Tribunal concluded that the transfer of property, for the purposes of computing capital gains, was completed only after the Supreme Court's dismissal of the SLP in October 2009. Therefore, the CII applicable should be for FY 2010-11, the year in which the compensation was received. The Tribunal directed the AO to apply the correct CII while computing the income. 4. Deduction under Section 54F: The Revenue contested the CIT(A)'s direction to allow a deduction under Section 54F. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee is entitled to the deduction as per the provisions of Section 54F, aggregating to Rs. 17,65,16,000/-. The Tribunal found no reason to interfere with the CIT(A)'s findings on this matter. 5. Diversion of Income by Overriding Title: The assessee argued that the payment to Mr. Kishore Mansukhani should be considered as a diversion of income by overriding title. The Tribunal agreed with the assessee, stating that the entire payment to Mr. Mansukhani represents an expenditure incurred wholly and exclusively in connection with the transfer of the property and is thus fully deductible under Section 48. The Tribunal emphasized that the arrangement with Mr. Mansukhani was necessary to secure the compensation and that the payment was a legitimate business expense. Conclusion: The Tribunal allowed the assessee's appeal in part, confirming the deductions and the correct application of CII while dismissing the Revenue's appeal. The Tribunal's detailed analysis upheld the CIT(A)'s directions on most issues, ensuring that the compensation and related expenses were taxed appropriately.
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