2009 (3) TMI 66 - HC - Income Tax

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 ... Sale of property - partition of HUF - capital gains – amount paid by each of the assessees (mother and father) to the other two members (their sons) of the HUF for acquisition of their share in the immovable property - amount paid would be termed to be the cost of acquisition to the assessees u/s 48, being cost of acquisition of the additional interest or additional share – while computing capital gains on sale of their respective share, deduction of amount paid is admissibleSale of property - partition of HUF - capital gains – amount paid by each of the assessees (mother and father) to the other two members (their sons) of the HUF for acquisition of their share in the immovable property - amount paid would be termed to be the cost of acquisition to the assessees u/s 48, being cost of acquisition of the additional interest or additional share – while computing capital gains on sale of their respective share, deduction of amount paid is admissibleSale of property - partition of HUF - capital gains – amount paid by each of the assessees (mother and father) to the other two members (their sons) of the HUF for acquisition of their share in the immovable property - amount paid would be termed to be the cost of acquisition to the assessees u/s 48, being cost of acquisition of the additional interest or additional share – while computing capital gains on sale of their respective share, deduction of amount paid is admissible 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.