2001 (5) TMI 146 - AT - Income Tax

Summary

Issues Involved:
1. Deduction for expenditure incurred by the assessee by way of legal fee, etc., for obtaining extra compensation.
2. Deduction allowable to the assessee under the provisions of section 48(2)(b)(i)(B).
3. Exemption allowable to the assessee under the provisions of section 54F on account of investment of the capital gains in the construction of a residential house.
4. Interest leviable under the provisions of section 234B.

Detailed Analysis:

1. Deduction for Expenditure Incurred by the Assessee by Way of Legal Fee, etc., for Obtaining Extra Compensation:
The assessee claimed deductions under section 48(1)(a) for legal fees and other expenditures incurred to obtain additional compensation. The Assessing Officer initially denied this deduction, citing clause (i) of Explanation to section 45(5), which prohibits such deductions for additional compensation. However, the Officer allowed a restricted 10% deduction from interest income under 'Other sources'. The CIT(Appeals) agreed with the denial under section 45(5) and further withdrew the restricted deduction allowed by the Assessing Officer.

The Tribunal held that the assessee is entitled to some expenditure deduction on an estimate basis. Citing the Kerala High Court decision in CIT v. Dr. P. Rajendran, it was established that expenditures incurred in civil court proceedings for enhanced compensation are integral to the transfer of property and deductible under section 48(1)(a). The Tribunal allowed a round sum deduction of Rs.15,000, split as Rs.10,000 against capital gains and Rs.5,000 against interest income.

2. Deduction Allowable to the Assessee under the Provisions of Section 48(2)(b)(i)(B):
The assessee claimed deductions under section 48(2)(a) and (b). The Assessing Officer rejected the Rs.10,000 deduction under section 48(2)(a), deeming it already allowed in 1983-84, but allowed a 50% deduction under section 48(2)(b)(i)(B). The CIT(Appeals) disagreed and withdrew the deduction.

The Tribunal found merit in the assessee's contention, noting that the second proviso to section 48(2) only restricts the initial Rs.10,000 deduction, not the 50% deduction under section 48(2)(b). The Tribunal directed the Assessing Officer to rework the correct amount of deduction, considering the allowed expenditure.

3. Exemption Allowable to the Assessee under the Provisions of Section 54F on Account of Investment of the Capital Gains in the Construction of a Residential House:
The assessee claimed exemption under section 54F for constructing a residential house. The Assessing Officer and CIT(Appeals) denied this, arguing the construction did not occur within three years from the 1976 transfer date.

The Tribunal agreed with the Revenue authorities, noting that the decision in S. Gopal Reddy v. CIT, which extended the construction period based on additional compensation receipt, applied to section 54E, not section 54F. The Tribunal also rejected the applicability of the proviso to section 54H, which extends the investment period for initial compensation, not additional compensation.

4. Interest Leviable under the Provisions of Section 234B:
The assessee contested the interest levied under sections 234A, 234B, and 234C, arguing that attachment under section 281B precluded advance tax payment. The Tribunal found no merit in this argument, distinguishing it from the Delhi Tribunal's decision in Haryana Warehousing Corpn. v. Dy. CIT. The Tribunal noted that the assessee could have requested the attachment lifting to pay advance tax, which was not done. Thus, the interest levied was upheld.

Conclusion:
Both appeals by the assessee are partly allowed. The Tribunal allowed deductions for legal expenditures and upheld the 50% deduction under section 48(2)(b)(i)(B) but denied the exemption under section 54F and upheld the interest levied under section 234B.