1997 (3) TMI 126 - AT - Income Tax

Summary

Issues Involved:
1. Computation of capital gains.
2. Deduction of Rs. 14,33,000 as cost of acquisition.
3. Validity of self-created charge on property.

Detailed Analysis:

1. Computation of Capital Gains:
The primary issue in the appeal filed by the revenue pertains to the computation of capital gains. Specifically, whether a deduction of Rs. 14,33,000 claimed by the assessee as the cost of acquisition of the immovable property sold during the year under appeal is allowable. The revenue contested the decision of the CIT(Appeals) who directed the Assessing Officer to compute the capital gains and tax thereon by substituting the cost of acquisition of the immovable property to Rs. 14,09,040.

2. Deduction of Rs. 14,33,000 as Cost of Acquisition:
The assessee argued that at the time of partition of the HUF property, she undertook an obligation to pay Rs. 14,33,000 to her son, which should be considered as part of the cost of acquisition. The Assessing Officer rejected this claim, stating that the cost of acquisition should be the cost to the previous owner (HUF), which was Rs. 3,75,000, making the assessee's share Rs. 1,87,500. The CIT(Appeals) allowed the assessee's claim, recognizing her obligation to pay Rs. 14,33,000 to her son as part of the cost of acquisition.

3. Validity of Self-Created Charge on Property:
The revenue argued that the obligation to pay Rs. 14,33,000 was a self-created charge and not legally binding. The declarations made by the assessee and her husband were considered self-serving statements without legal sanction. The revenue contended that the partition deed was not produced, and the charge was created to reduce the capital gains tax liability.

Judgment Analysis:

Assessing Officer's Position:
The Assessing Officer held that the assessee received the property on partition, and the cost of acquisition should be the cost to the previous owner (HUF), which was Rs. 1,87,500 for her share. The officer rejected the claim of Rs. 14,33,000 as it was not a legally binding obligation.

CIT(Appeals) Decision:
The CIT(Appeals) accepted the assessee's claim, recognizing the obligation to pay Rs. 14,33,000 to her son as part of the cost of acquisition. The CIT(A) held that the assessee's inherent right in the property was only one-fourth, and the payment was necessary to equalize the distribution on partition.

Tribunal's Findings:
The Tribunal reversed the CIT(Appeals) decision, agreeing with the Assessing Officer. The Tribunal held that the so-called charge of Rs. 14,33,000 was a self-created charge without legal sanction. The declarations made by the assessee and her husband were considered self-serving statements. The Tribunal emphasized that the partition deed was not produced, and the charge was created to reduce the capital gains tax liability. The Tribunal distinguished the facts of the case from other cited cases where real charges or obligations were present.

Conclusion:
The Tribunal concluded that the assessee was not entitled to a deduction of Rs. 14,33,000 while computing the capital gains on the sale of her share in the property. The Tribunal reversed the findings of the CIT(Appeals) and restored those of the Assessing Officer. Consequently, the appeal filed by the revenue was allowed, and the assessee's cross-objection was dismissed.