1999 (3) TMI 38 - HC - Income Tax

Hutment dweller eviction payments to get vacant land possession counted as deductible 'cost of improvement' for capital gains

Whether amounts paid by an assessee and co-owners to hutment dwellers to secure vacation of land constituted 'cost of improvement' deductible in computing ... Capital Gains - Deductions - Cost Of Improvement - Whether compensation paid by the assessee and other co-owners to the hutment dwellers for vacating the land was an allowable expenditure within the meaning of section 48 read with section 55 of the Income-tax Act, 1961 - HELD THAT:- Tribunal came to the conclusion that giving vacant possession of the land to the Municipal Corporation was a condition precedent under the terms of the negotiation-cum-acquisition agreement and that by removing hutment dwellers, the property improved in value. The answer to this question will depend on whether the expenses incurred by the assessee and other co-owners constitute cost of improvement under section 48(ii). The said point is covered by the judgment of the Division Bench of this court in the case of CIT v. Shakuntala Kantilal [1991 (3) TMI 123 - BOMBAY HIGH COURT] and the judgment of the Division Bench of this court in the case of Hardiallia Chemicals Ltd. [1995 (12) TMI 61 - BOMBAY HIGH COURT]. On eviction of the hutment dwellers from the land in question, the value of the land increases and, therefore, the expenditure incurred for having the land vacated would certainly amount to cost of improvement. Accordingly, the above question is answered in the affirmative, i.e., in favour of the assessee and against the Department. The reference accordingly stands disposed of with no order as to costs. Issues involved: The judgment involves determining whether the compensation paid by the assessee and other co-owners to hutment dwellers for vacating the land is an allowable expenditure under section 48 read with section 55 of the Income-tax Act, 1961 for the assessment year 1975-76.Summary:The assessee and other co-owners owned a piece of land at Andheri, which was acquired by the Bombay Municipal Corporation after being notified for a public purpose under relevant Acts. The hutment dwellers on the land agreed to vacate it upon receiving Rs. 2,30,000. The assessee sought to deduct this amount as expenditure incurred on the transfer of the property. The Commissioner of Income-tax disallowed the deduction, leading to an appeal before the Tribunal. The Tribunal allowed the appeal, considering the removal of hutment dwellers as a condition for improving the property's value.The main issue in this case is whether the compensation paid to vacate the land constitutes a cost of improvement under section 48 of the Income-tax Act, 1961. Citing precedents, the court held that the expenditure for vacating the land resulted in an increase in its value, thus qualifying as a cost of improvement. Consequently, the question was answered in favor of the assessee and against the Department.The judgment disposed of the reference with no order as to costs, and expedited the issuance of a certified copy.