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TMI Blog1996 (2) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax liabilities of the father of the assessee, from whom the property was inherited by the assessee and the other co-owners ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the abovesaid amount of Rs. 4,44,374 paid to the Income-tax Department cannot be treated as the cost of acquisition of the capital assets ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to exemption under section 54E of the Act, 1961, in respect of the deposits made by the assessee ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Commissioner of Income-tax (Appeals) was justified in not entertaining an additional ground taken by the assessee for the first time before the Commissioner of Income-tax (Appeals) that the property sold was agricultural land and that the sale of the property did not, therefore, attract tax on capital gains ? " The reference relates to the income-tax assessment for the year 1977-78 for which the previous year ended on March 31, 1977. The father of the assessee, the late Kesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal. Before the Commissioner of Income-tax (Appeals), the assessee took up a fresh contention by way of an additional ground that the property sold was agricultural land and, therefore, the transaction did not attract tax on capital gains. The contention was that the property was situated outside Quilon Municipal limits more than 8 k.m. away in a locality where the population was below 10,000. Coconut trees and other trees were planted and also seasonal crops like plantain and tapioca were being cultivated on the property. It was only a small portion of about one acre that was used for cashew factory. Reliance was placed on a certificate issued by the Village Officer to show that the property was agricultural land. The Commissioner of Income-tax (Appeals) declined to entertain the contention as the same has not been advanced before the Income-tax Officer and as the required particulars for deciding the issue were not on record. In support of the above finding the decision in Addl. CIT v. Gurjargravures Pvt. Ltd. [1978] 111 ITR 1 (SC) was relied on. Before the Tribunal, the assessee contended that the description of the property in the schedule on the sale deed itself woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of money. Any private transfer contrary to the attachment shall be avoided as against the claims enforceable under the attachment. Rule 48 provides the mode of attachment of immovable property. It shall be made by an order prohibiting the defaulter from transferring or charging the property in any way and prohibiting all persons from taking any benefit under such transfer or charge. Rule 52 authorises the Tax Recovery Officer to direct sale of any immovable property which had been attached or such portion thereof as may seem necessary to satisfy the certificate. It is contended on behalf of the assessee that an attachment of the immovable property made under the above provisions created a statutory obligation on the property. Therefore, the payment made to the Income-tax Department out of the sale consideration would be diversion of the amount by overriding title and only the balance which came to the hands of the assessee can be brought to tax. According to the assessee, the claim of the Income-tax Department on the property is higher than a charge. The Department can have the property sold even without having recourse to a suit. On the other hand, the Revenue submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable." On the facts of the case, the Supreme Court held that no overriding charge had existed either upon the property or upon his income and, therefore, the assessee was not entitled to deduct the amount paid towards satisfaction of the decree for maintenance. It was a case where the wife and children of the assessee continued to be members of the family and received a portion of the income of the assessee after the assessee had received the income as his own. In Raja Bejoy Singh Dudhuria's case [1933] 1 ITR 135 (PC), the step-mother of the Raja had brought a suit for maintenance and a compromise decree was passed under which the step-mother was to be paid Rs. 1,100 per month, which amount was declared a charge upon the properties in the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilise the income from the properties in the manner set out in the deed of trust, the assessee-family's full ownership of the properties got restricted and it created an overriding title in the beneficiaries to require that the income from the properties which were made the subject-matter of the trust be utilised in the manner set out therein and, therefore, the income from the properties could not be assessed in the hands of the family. As mentioned earlier, the Revenue also relied on CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 (SC) and contended that by applying the principles laid down in the above decision it has to be held in the present case that application of a portion of the sale consideration by the assessee towards income-tax liability of her late father cannot be treated as the amount which has to be diverted due to overriding title. According to the Revenue, no charge is created on the property as a result of the income-tax liability of the assessee's father. The only privilege is that the Union of India was entitled to claim priority in the matter of arrears of tax over other debts including decretal debts. Reference was made in this connection to Builders Supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the testator should be paid out of the property bequeathed. After the death of the assessee's father, the assessee transferred the property to his wife and in his returns he claimed the amount of debt due to his wife which was discharged by him as per the directions in the will as deduction for the purpose of computation of income for capital gains. Referring to Sitaldas Tirathdas' case [1961] 41 ITR 367 (SC), this court took the view that the obligation to discharge the debt due to the assessee's wife was self-imposed. There was no case that the assessee's wife had sought any charge on the property for the amount due to her. The payment of debt was not made by virtue of any overriding obligation to make such payment. But it was made to discharge an obligation created by the testator himself in favour of his daughter-in-law. Therefore, it cannot be taken as diversion at the source before it reached the assessee. What we have to consider in this case is whether going by the dictum laid down in CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 (SC) and affirmed in Addl. CIT v. Gurjargravures Pvt. Ltd. [1978] 111 ITR 1 (SC), the attachment of the property even during the lifetime of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the case of the very same assessee in the matter of wealth-tax assessment for the assessment years 1970-71 up to 1976-77, this court held that the tax liability of the assessee's deceased father should be deducted in determining the value of the immovable property for wealth-tax purposes. As far as the second question is concerned, viz., whether the amount paid to the Income-tax Department can be treated as cost of acquisition of the capital assets, it is agreed by both sides that the principles evolved in the decisions of this court in Ambat Echukutty Menon v. CIT [1978] 111 ITR 880 and K. V. Idiculla v. CIT [1995] 214 ITR 386, would govern. This court has held that when property is inherited by an assessee the cost of acquisition of the asset is deemed to be the cost for which the previous owner acquired it, as increased by the cost of any improvement effected to the assets incurred or borne either by the previous owner or the assessee. Since the amount paid towards tax liability cannot be treated as expenditure incurred for making any additions or alterations to the capital asset it cannot be taken as the cost of acquisition of the capital asset. As far as question No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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