Court allows deduction for additional interest in property acquisition beyond partition portion.

The Court held that the assessee was entitled to deduct Rs. 23,000 in the computation of capital gain as the cost of acquisition for additional interest in the property, beyond what was obtained during partition. The Revenue's argument for a modified cost based only on the original acquisition cost was rejected. The Court emphasized that the cost of acquisition under section 49(1)(i) applies to the portion obtained during partition and not to additional interests acquired later. The judgment favored the assessee, and the reference was disposed of in their favor with no order as to costs.

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Issues involved:
Deduction of additional cost in the computation of capital gain on the transfer of a bungalow.

Analysis:
The case involved a dispute regarding the deduction of Rs. 23,000 in the computation of capital gain on the transfer of a property. The assessee had paid Rs. 23,000 to the Hindu undivided family for acquiring additional interest in the property beyond what was allotted at the time of partial partition. The Income-tax Officer rejected this claim, stating it was not a permissible deduction under section 49(1) as no improvement was made to the property obtained during partition. The Appellate Assistant Commissioner allowed a deduction of Rs. 1,855 but disallowed the Rs. 23,000 claim. The Tribunal, however, accepted the assessee's argument that the payment of Rs. 23,000 was the cost of acquisition for the additional interest in the property. The Revenue contended that the cost of acquisition should only be based on the original acquisition cost of the property. The assessee argued that the Rs. 23,000 was paid to obtain full ownership rights in the property beyond the partial partition share.

In the judgment, the Court considered the provisions of section 49(1)(i) which deem the cost of acquisition to be the original cost increased by any improvement costs. The Revenue argued that the cost of acquisition should only be Rs. 44,209, the original acquisition cost. The assessee contended that the Rs. 23,000 was necessary to acquire additional interest in the property. The Court agreed with the assessee, stating that the Rs. 23,000 was the cost of acquisition for the additional interest obtained beyond the partial partition share. The Court emphasized that section 49(1)(i) applies only to the portion obtained during partition, not to additional interests acquired later. The Revenue's alternative argument for a modified cost of acquisition was rejected as it contradicted its previous stance and was not raised earlier in the proceedings.

Ultimately, the Court held that the assessee was entitled to the deduction of Rs. 23,000 in the computation of capital gain as the cost of acquisition for the additional interest in the property. The judgment favored the assessee, and the reference was disposed of in their favor with no order as to costs.

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