2023 (4) TMI 467 - AT - Income Tax

Capital gain - Entitlement for indexed cost of acquisition benefit - capital gains arising of transfer of capital asset acquired by the assessee under the will - HELD THAT - We find that the issue in dispute is squarely covered by the decision of the Hon ble Jurisdictional High Court Manjula J Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT wherein after due consideration of CBDT Circular No.636 had held that while computing capital gains arising of transfer of capital asset acquired by the assessee under the will, the indexed cost of acquisition has to be computed with respect to the year in which the previous owner first held the asset and not in the year in which assessee became the owner of the asset. Respectfully following the said decision, we hold that assessee would be entitled for indexed cost of acquisition benefit from F.Y.1981-82 on the cost. Accordingly, the ground No.1 raised by the Revenue is dismissed. Eligibility of the assessee to claim deduction of brokerage, solicitor s fees and amounts paid to tenant for vacating the premises while computing capital gains on transfer of above mentioned property - HELD THAT - For claim of deduction on account of brokerage expenses the said brokerage has been paid to Mr. Hirji N Nagarwala only in connection with the sale of this subject mentioned property. The assessee had submitted that Mr. Hirji N Nagarwala and other agents involved had arranged and coordinated the meetings with respective Attorneys of buyers and had also contributed effectively for negotiating final sale consideration. The said confirmation also states that Mr. Hirji N Nagarwalla have attended over a dozen meetings on behalf of the sellers with the purchasers attorney Mr. Markand Gandhi and Mr. Hormaz Dyar Vakil (Attorney of the sellers) to fine tune the sale deed and other documents required to be executed by the sellers. In view of the above, we have no hesitation to hold that the brokerage amount of Rs.42,36,500/- paid by the assessee to Mr. Hiraj N Nagarwalla would be allowable in full as the deduction while computing capital gains of the assessee as against the sum of Rs.15,31,290/- allowed by the ld. AO towards brokerage on transfer of the subject mentioned property. Solicitor s fees - AO had already allowed a sum of Rs.18,07,258/- on account of Solicitor fees, which in our considered opinion, is very reasonable, considering the fact that invoice raised by the solicitor for professional services rendered from the years 2008 to 30/12/2015. Hence, we direct the ld. AO to allow only a sum of Rs.18,07,258/- on account of solicitor fees as deduction while computing capital gains. We hold that the other works carried out by the solicitor firm for which bill has been raised by them on the assessee , cannot be construed as expenditure incurred wholly and exclusively in relation to the transfer of the subject mentioned property. Payments made to tenant for vacating the property - Compensation was paid so as to get the premises vacated by the licensee before the lock in period of 12 months and thus to comply with one of the conditions of the sale of the property. These facts are further confirmed by the solicitor letter dated 02/12/2015 addressed to Mr. Stefano Funari which is enclosed in pages 95-96 and 99-100 of the paper book filed before us. The leave and license agreement is enclosed in pages 52-94 of the paper book. In our considered opinion, this payment would certainly be construed as an expenditure incurred in relation to the transfer of the property and therefore, allowable as deduction. Hence, we direct the ld. AO to allow the compensation paid to the tenant for vacating premises as an allowable deduction while computing capital gains as against Rs.3,61,452/- allowed by the ld. AO. Appeal of the Revenue is partly allowed.

Summary

Issues Involved:
1. Entitlement to indexation benefits from 1981.
2. Deduction of expenses incurred on transfer of property.
3. Allowability of payment to tenant for early termination of Leave and Licence.

Summary:

Issue 1: Entitlement to Indexation Benefits from 1981
The Revenue challenged the indexation benefits allowed from 1981. The assessee claimed the cost of acquisition from 1981, supported by a valuation report. The AO agreed to the cost but limited the indexation to the year the assessee became the owner (2008), citing CBDT Circular No.636. The CIT(A) followed the Bombay High Court decision in CIT vs. Manjula J Shah (355 ITR 474), allowing indexation from 1981. The Tribunal upheld this, dismissing Revenue's ground, stating the indexed cost of acquisition should be computed from the year the previous owner first held the asset.

Issue 2: Deduction of Expenses Incurred on Transfer of Property
The assessee claimed deductions for brokerage, solicitor's fees, and amounts paid to the occupier. The AO allowed an ad-hoc 2% of the sale consideration, amounting to Rs.37,00,000/-, and disallowed specific expenses, including CA fees and valuation fees. The CIT(A) allowed full deductions for brokerage and solicitor fees, stating the AO accepted the genuineness of expenses. The Tribunal found the brokerage of Rs.42,36,500/- fully allowable, given the services rendered. For solicitor fees, the Tribunal allowed Rs.18,07,258/-, considering the relevant services related to the property transfer.

Issue 3: Allowability of Payment to Tenant for Early Termination of Leave and Licence
The assessee paid Rs.10,00,000/- to the tenant for early termination of the agreement to vacate the premises. The AO allowed Rs.3,61,452/- on an ad-hoc basis. The CIT(A) held the payment necessary for the transfer of the property. The Tribunal agreed, directing the AO to allow the full Rs.10,00,000/- as a deduction.

Conclusion:
The Tribunal allowed the assessee's claims for indexation from 1981, full brokerage, and partial solicitor fees. It also allowed the full payment to the tenant for vacating the premises. The Revenue's appeal was partly allowed.