Deductibility of tenant payment for vacant possession upheld as transfer-related expenditure in capital gains computation.

Payment made to a tenant to secure vacant possession before transfer was treated as expenditure incurred wholly and exclusively in connection with the transfer under section 48(1) of the Income-tax Act, 1961. The sale agreement required delivery of possession free from encumbrance, creating a direct nexus between the payment and the transfer of the property. On that basis, the amount spent to obtain vacant possession was held deductible in computing capital gains, and the departmental appeal failed.

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Issues: Whether the sum paid to the tenant for obtaining vacant possession of the property was deductible as expenditure incurred wholly and exclusively in connection with the transfer while computing capital gains under section 48(1) of the Income-tax Act, 1961.

Analysis: The payment was made to secure vacant possession so that the property could be transferred without encumbrance and dispute. The sale agreement indicated that possession was to be given free from encumbrance, showing a direct connection between the expenditure and the transfer. The amount spent to obtain vacant possession was therefore treated as having a sufficient nexus with the sale.

Conclusion: The expenditure of Rs. 17,000 was allowable under section 48(1) as expenditure incurred wholly and exclusively in connection with the transfer, and the departmental appeal failed.

Ratio Decidendi: An amount paid to a tenant to obtain vacant possession, where such possession is part of the transfer arrangement, is deductible as expenditure wholly and exclusively incurred in connection with the transfer for capital gains purposes.

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