Section 48 deductions limited to transfer-linked expenditure; building improvement cost disallowed where only land was transferred.

Compensation paid to cancel a JDA and related agreements was deductible under section 48 only to the extent it was wholly and exclusively connected with the transfer of the property actually sold; the amount had to be restricted proportionately by reference to the cancelled arrangements and the sale deed, so full allowance was denied. Indexed cost of improvement attributable to a building was not deductible where the documents showed transfer of land only and no registered transfer or inclusion of the superstructure in the transaction. The cited contrary authorities were distinguished on facts, and the Revenue succeeded on the building-related claim while obtaining only partial relief on the compensation claim.

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Issues: (i) Whether compensation paid for cancellation of the JDA and related agreements was allowable as expenditure incurred wholly and exclusively in connection with the transfer of the property; (ii) Whether indexed cost of improvement attributable to the building was allowable while computing capital gains on the sale of the land.

Issue (i): Whether compensation paid for cancellation of the JDA and related agreements was allowable as expenditure incurred wholly and exclusively in connection with the transfer of the property.

Analysis: The transfer of the property to the ultimate purchaser could not have been completed unless the earlier arrangements with the developer were cancelled and the encumbrance removed. The expression in section 48 is wider than mere expenditure for transfer and covers payments necessarily made in connection with the transfer. At the same time, only such compensation as related to the property actually sold could be allowed, and the earlier cancellation deeds had to be compared with the sale deed to identify the admissible portion.

Conclusion: The claim was not allowable in full. The matter was required to be restricted to the proportionate amount relatable to the property transferred, so the Revenue succeeded to that extent.

Issue (ii): Whether indexed cost of improvement attributable to the building was allowable while computing capital gains on the sale of the land.

Analysis: The sale deed and surrounding documents reflected transfer of land only and did not show any registered transfer of the building. In the absence of evidence that the building itself formed part of the consideration or was transferred, the cost of that building could not be deducted from the sale consideration of the land. The cases relied on by the assessee were distinguished on facts because they involved situations where the superstructure was treated as transferred along with the land or was otherwise integral to the transaction.

Conclusion: The indexed cost of improvement was not allowable and the disallowance was upheld.

Final Conclusion: The Revenue's appeal succeeded on the building-related claim and succeeded only partly on the compensation claim, resulting in partial relief to the assessee and partial relief to the Revenue.

Ratio Decidendi: For section 48, only expenditure that is ally and necessarily incurred in connection with the transfer of the capital asset can be deducted, and where the record shows transfer of land alone without transfer of the superstructure, the cost of that building cannot be allowed as indexed improvement cost.

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