Capital gains computation excludes urban land and corporation taxes as they are neither transfer nor acquisition cost.

Urban land tax and corporation tax paid in respect of land are not deductible under section 48 of the Income-tax Act, 1961 when computing short-term capital gains. Section 48 allows only expenditure wholly and exclusively connected with transfer, cost of acquisition, and cost of improvement; these taxes do not fall within any of those categories and are merely holding costs. They also do not become part of acquisition cost merely because they are borne by the assessee. The issue was decided against the assessee and in favour of the Revenue.

---

---

Issues: Whether urban land tax and corporation tax paid by the assessee formed part of the cost of acquisition of the urban land or were otherwise deductible under section 48 while computing short-term capital gains.

Analysis: Section 48 of the Income-tax Act, 1961 permits deduction only of expenditure incurred wholly and exclusively in connection with the transfer, the cost of acquisition, and the cost of improvement. Urban land tax and corporation tax are not expenditure incurred for transfer, do not constitute cost of acquisition, and do not amount to improvement of the land. Such taxes are merely holding costs and cannot be included in the computation of capital gains. The reasoning is reinforced by the principle that amounts paid to clear or bear a burden on property do not necessarily become part of acquisition cost unless they create or preserve title in the asset.

Conclusion: The taxes paid by the assessee were not deductible under section 48 and did not form part of the cost of acquisition; the issue was decided against the assessee and in favour of the Revenue.

---