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TMI Blog1991 (3) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... (Pvt.) Ltd. is deductible in computing the capital gains arising on sale of the plot of land under section 45 of the Income-tax Act, 1961? (2) Whether, on the facts and in the circumstances of the case, the assessee was rightly allowed by the Tribunal to exercise the option of substituting the fair market value of the plot of land as on January 1, 1954 for the actual cost thereof as contemplated under section 55(2) of the Income-tax Act, 1961, in computing the capital gains arising on sale of the plot under section 45 of the Income-tax Act, 1961 ?" The assessee had purchased a plot of land admeasuring 5,072 sq. yards at Borivli in the year 1948 for Rs. 15,774. On August 2, 1963, the assessee entered into an agreement for sale of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the completion of sale, they would deduct Rs. 35,504 from the total sale consideration of Rs. 2,58,672 and would pay the same to Radia and Sons (Pvt.) Ltd. The assessee claimed that this amount of Rs. 35,504 should be allowed as deduction for the purpose of computing her income under the head "Capital gains" either as expenditure incurred in connection with the transfer or as cost of improvement or under section 48 itself. The departmental authorities rejected the claim. On further appeal, the Tribunal accepted the assessee's contention that the transfer of the property to Messrs. Cosmos Co-operative Housing Society Ltd. could not have taken place unless the compensation of Rs. 35,504 was paid to Messrs. Radia and Sons (Pvt.) Ltd. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of the capital asset the following amounts, namely: (i) expenditure incurred wholly and exclusively in connection with such transfer, (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto." The section broadly contemplates three amounts for the purpose of computing income chargeable under the head "Capital gains". The first is the full value of the consideration for which the capital asset has been transferred. The second is the expenditure incurred wholly and exclusively in connection with such transfer and the third and the last is the cost of acquisition of the capital asset including the cost of any improvement thereto. We have already referred to the facts of the case in detail earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f, without removing any encumbrance including the encumbrance of the type involved in this case, sale or transfer could not be effected, the amount paid for removing that encumbrance will fall under clause (i). Accordingly, we agree with the Tribunal that the sale consideration requires to be reduced by the amount of compensation. The first question is, therefore, answered in the affirmative and in favour of the assessee. Before concluding, it may be desirable to observe that Dr. Balasubramanian fairly stated that there are no judgments on the issue either way and that the question is required to be decided on first principles and that is what we have done. As regards the second question, Dr. Balasubramanian's argument appears to be tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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