Assessee's Payment to Sons for Property Shares Allowed as Acquisition Cost under Income Tax Act

The High Court held that the assessee was entitled to claim Rs.14,33,000 as an additional cost of acquisition for computing capital gains. The Court found that the amount paid to their sons for acquiring their shares in the property should be considered as the cost of acquisition under the Income Tax Act. Additionally, the Court determined that the payment constituted an obligation for being allotted a 1/2 share instead of a 1/4th share in the property at the time of partition. The Court ruled in favor of the assessee, allowing the Tax Appeal and disposing of the Reference with no order as to costs.

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Issues Involved:
1. Whether the assessee was entitled to claim Rs.14,33,000/- as additional cost of acquisition of the interest in property for computation of capital gainsRs.
2. Whether the assessee undertook an obligation to pay Rs.14,33,000/- to his son for being allotted 1/2 share instead of 1/4th share in the property at the time of partitionRs.

Analysis:

Issue 1:
The case involved the question of whether the assessee was entitled to claim Rs.14,33,000/- as additional cost of acquisition of the interest in property for computation of capital gains. The Assessing Officer disallowed the claim, stating that as the property belonged to a Hindu Undivided Family (HUF), only the cost of acquisition under section 49 of the Income Tax Act could be allowed. However, the assessees argued that the amount was paid to their sons for acquiring their shares in the property, and the partition had been recognized by the Revenue. The Tribunal initially allowed the claim, but later reversed its decision. The High Court held that the Tribunal erred in law by not recognizing the declarations made by the HUF members and misinterpreting the provisions of section 171 of the Act. The Court concluded that the assessees were entitled to claim the amount as additional cost of acquisition for computation of capital gains.

Issue 2:
The second issue revolved around whether the assessee undertook an obligation to pay Rs.14,33,000/- to his son for being allotted a 1/2 share instead of a 1/4th share in the property at the time of partition. The High Court analyzed previous judgments and determined that the amount paid by the assessees to their sons constituted the cost of acquisition of the additional interest acquired by them at the time of partition. The Court held that this amount should be considered as the cost of acquisition under section 48 of the Act. Therefore, the Court answered both questions in favor of the assessee and against the Revenue, allowing the Tax Appeal and disposing of the Reference accordingly, with no order as to costs.

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