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TMI Blog2018 (7) TMI 1820X X X X Extracts X X X X X X X X Extracts X X X X ..... d rights to complete ownership had, in such circumstances, to be regarded as a cost of acquisition within the meaning of such expression in Sections 48 and 55 of the Act. Indeed, the assessee in this case was no longer transferring the leasehold rights to the assessee’s transferee; the assessee was transferring complete ownership rights therein. As to the second issue, it will be governed by the same legal principle as in the recognition by the Supreme Court in R.M. Arunachalam [1997 (7) TMI 5 - SUPREME COURT] that the discharge of a mortgage debt created by the predecessor-in-interest of the assessee had to be regarded as a part of the cost of acquisition. The encumbrances to the property in this case were created by the Will and the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort-term capital gains tax; and, the payments allegedly made by the assessee to others asserting rights over the same immovable property could not have qualified for deduction under Section 55(1)(b)(2)(ii) of the Income Tax Act, 1961 since the payments made thereunder could not be regarded as cost of improvement to the relevant immovable property. There is no dispute that the assessee in this case obtained the property under a Will. The Will apparently gave some interest to a trust and, thus, the assessee s acquisition of the perpetual lease was subject to rights of the trust as flowing from the Will. In addition, the testator had entered into an agreement for sale of the property with a third party and had even obtained clearance under Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee to the plaintiff in a suit where the plaintiff sought to assert some rights in respect of the property in question and the compromise amount was sought to be cited as cost of improvement to the asset. It was in such context that the Division Bench of the Madras High Court held that the relevant expression was cost of any improvement thereto and the use of the word thereto implied that it had to be a cost on the asset itself and not a cost for improving the owner s title to the asset. A distinction was made between improving the asset itself, which would be covered by the relevant expression, and improving the owner s title thereto, which would fall beyond such expression. On behalf of the assessee Sections 45, 47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmits that the judgment in V. Indira was referred to a larger Bench in the Madras High Court and the larger Bench judgment of such Court fell for consideration of the Supreme Court in a judgment reported at 227 ITR 222 (R.M. Arunachalam v. CIT). The appellant relies on the later part of the judgment where the law as relevant for the present purpose is discussed by the Supreme Couert in the context of the contrary views rendered by the Kerala and Gujarat High Courts in a situation where the mortgage debt was discharged prior to the transfer of the immovable property. The Supreme Court held that if the mortgage had been created by the previous owner and the assessee after inheriting the same had discharged the mortgage debt, the amount pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and transferred to the assessee s transferee. For the same principle as recognised in the Supreme Court judgment, the cost of getting rid of such encumbrances in any immovable property has to be accepted as a part of the cost of acquisition of the property, subject, however, to the assessment as to the genuineness and validity of such encumbrances. To spell it out in more clear terms, merely because an assessee seeks deductions by adding to the cost of acquisition upon citing payments to other claimants in respect of the property may not pass muster unless, on facts, the claims are found to be genuine and the transactions discovered to be at arm s length. The final contention of the Revenue cannot be gone into in view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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