2001 (10) TMI 14 - HC - Income Tax

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

Commissioner of Income-Tax Versus Narendra N. Chauhan.

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 ... Claim for deduction of Rs. 23,000 in the computation of capital gain accrued on the transfer of the bungalow - The provisions of section 49(1)(i) are applicable to only that portion of the property which the assessee got as the assessee's share in the property of the larger Hindu undivided family and not in respect of the property or interest which was in excess of such share. since at the time of partial partition the assessee was not entitled to get the entire property valued at Rs. 67,000 as the assessee's share in the property of the larger Hindu undivided family and since the entire amount of Rs. 23,000 paid by the assessee to the larger Hindu undivided family pertained to the additional interest in the property, i.e., interest in addition to the interest allottable to the assessee at the time of partial partition quantified at Rs. 44,000, the Tribunal was right in allowing the said amount of Rs. 23,000 as cost of acquisition to the assessee for the additional interest under section 48 – deduction available 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.