Cost of acquisition and declared consideration rules applied to tenancy compensation, with fair market value issue remanded.

Compensation paid to tenants for surrender of tenancy rights was treated as part of the cost of acquisition because the payment was supported by the agreement and acted upon by both sides, but the deduction was restricted proportionately to the portion of the property actually transferred. A taxpayer who had declared a consideration before the statutory authority under Chapter XXC could not later adopt a different value for tax computation, as the principle against approbation and reprobation applied. The question on lower fair market value as on 1 April 1981 was remanded for fresh adjudication because no finding had been recorded.

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Issues: (i) whether compensation paid to tenants for surrender of tenancy rights was allowable as part of the cost of acquisition and, if so, to what extent; (ii) whether the assessee could adopt a different consideration for tax computation from the value declared before the statutory authority under Chapter XXC; (iii) whether the grounds relating to lower fair market value as on 1 April 1981 required remand for fresh adjudication.

Issue (i): whether compensation paid to tenants for surrender of tenancy rights was allowable as part of the cost of acquisition and, if so, to what extent.

Analysis: The compensation payment was supported by the agreement and had been acted upon by both sides in their accounts. The revenue had earlier proceeded on the basis that the transaction existed and had sought to tax the receipt in the hands of the recipient. In view of that settled factual position, the payment could not be treated as nonexistent. However, the payment was made to clear the entire property of encumbrances, while only a part of the land was transferred in the relevant year. The expenditure therefore had to be apportioned in proportion to the area actually transferred.

Conclusion: The claim was allowed in part, and the deduction was restricted proportionately to the portion of the property sold.

Issue (ii): whether the assessee could adopt a different consideration for tax computation from the value declared before the statutory authority under Chapter XXC.

Analysis: The assessee and the transferee had declared the consideration before the appropriate authority, and the transaction was approved on that basis. Having represented one value for statutory approval, the assessee could not later assert a different value for computation of taxable income. The principle that a party cannot approbate and reprobate applied, and the declared consideration was accepted for tax purposes.

Conclusion: The issue was decided against the assessee and in favour of the revenue.

Issue (iii): whether the grounds relating to lower fair market value as on 1 April 1981 required remand for fresh adjudication.

Analysis: The related authority had not recorded a finding on the ground, so the matter required reconsideration at the first appellate stage with an opportunity of hearing to both sides.

Conclusion: The issue was remanded for fresh adjudication.

Final Conclusion: The assessee obtained partial relief on the compensation issue, the revenue succeeded on the declared consideration issue, and the remaining fair market value question was sent back for decision afresh.

Ratio Decidendi: A taxpayer who has represented and acted upon a consideration before the statutory authority cannot later adopt a contrary value for taxation, and expenditure incurred to remove encumbrances is allowable only to the extent relatable to the asset or portion transferred.

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