1996 (2) TMI 171 - AT - Income Tax

Summary

Issues:
1. Whether the amount paid to the assessee's brothers for vacating the premises can be allowed as a deduction while calculating the capital gains on the sale of the flat.

Detailed Analysis:
The case involved an appeal by the revenue against the order of the Commissioner of Income-tax (Appeals)-IX, Mumbai, concerning the assessment year 1987-88. The key question was whether the CIT(A) was correct in directing the Assessing Officer to allow the amount of Rs. 12 lakhs, paid by the assessee to his brothers for vacating the premises, as a deduction in the computation of capital gains from the sale of a flat. The assessee had purchased the flat with his own funds, sold it, and claimed the deduction based on a family settlement where the brothers were paid Rs. 4 lakhs each to relinquish their rights to stay in the flat for selling it with vacant possession. The Assessing Officer rejected the claim, leading to the appeal.

The revenue contended that there was no evidence to show that the brothers had acquired any legal right in the flat, emphasizing that the property was personal and not a family property subject to settlement. The brothers were allowed to stay out of affection without any tenancy or rent agreement. The revenue relied on the Assessing Officer's order to support their argument.

On the other hand, the assessee argued that the payment was made to expedite the sale by getting the premises vacated, as the brothers had acquired a right through uninterrupted possession. The assessee claimed the payment was part of a family settlement and produced documents like ration cards, passports, and marriage certificates to support the claim. The assessee also relied on the CIT(A)'s order.

The Tribunal analyzed the situation and highlighted that allowing relatives to stay in a property does not confer legal rights or ownership. The Tribunal emphasized the absence of evidence indicating a legal right acquired by the brothers, stating that the payment was a personal obligation and not a necessary expense to expedite the sale. The Tribunal rejected the notion of a family arrangement due to the lack of a genuine legal dispute or conflict. Ultimately, the Tribunal concluded that the payment to the brothers could not be deducted while computing capital gains, reversing the CIT(A)'s order and upholding the Assessing Officer's decision.

In conclusion, the appeal of the revenue was allowed, and the Tribunal held that the amount paid to the assessee's brothers could not be considered a deductible expense in calculating the capital gains from the sale of the flat.