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2013 (9) TMI 527

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....which both of them claim to be based on the Stamp Duty Rates:- Sr. No. Particulars Area (sq. ft.) Rate (in Rs.) 1 By the assessee 1775 1600/- 2 By the Assessing Officer 1356 1344/-                                 The ld. AR, the assessee's counsel, was during hearing enquired by the Bench as to why, with both the sides basing their valuation on the same source, should there at all be any difference, which is in any case only marginal. It was explained, while conceding to the difference being nominal, that this was as while the assessee adopts the carpet area, the Assessing Officer (A.O.) has taken the built-up area. As regards the rate applied, the A.O. has discounted the base rate of Rs. 1,600/- by 20%, after adding another Rs. 80/- sq. ft. toward one lift, while there are in fact two lifts. 4. We have heard the parties, and perused the material on record. The primary facts are not in dispute. Even as conceded by the ld. AR during hearing, it is the built-up area that is to be taken into account. This is as it is this ....

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....usively in connection with such transfer;      (ii) the cost of acquisition of the asset and the cost of improvement thereto. Reliance was placed by him on the decisions in the case of Smt. Rugmani Varma v. CIT; K.V. Idiculla v. CIT; Ambat Echukutty Menon v. CIT [1978] 111 ITR 880 (Ker.); and CIT v. A. Venkataraman. In appeal, the ld. CIT(A) found that no amount was specified in the Will. He further found that neither was the impugned payment in connection with the sale of the property nor could be said to have been expended toward improvement of the asset transferred. The same was, therefore, not deductible, finding the reliance on the case law by the AO as apposite. Aggrieved, the assessee is in second appeal. 6. We have heard the parties, and perused the material on record as well as the case law cited. 6.1 Before us, the assessee's case was principally with regard to the application of the principle of diversion of income by overriding title. Adverting to the relevant clauses in the Will dated 13.08.2003 of Ms. Dena Patil (PB pgs. 1-8), it was submitted by the ld. AR that but for the payment to the two payees concerned (as specified in clauses 3 and 4 of....

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....e subject matter of transfer, devolves on him, we find again unanimity of view point. It is the entire bundle of rights as acquired by previous owner that constitute the asset or the property under reference, and it is its cost to the previous owner, i.e., where the capital asset stands acquired by the assessee under any of the modes specified u/s.49, as in the instant case (section 49 (iii)(a)), which is deemed to be the cost of acquisition to the successor-owner, and which continues unabated as long as the property is 'transferred' under any of the modes specified u/s. 49. The fiction extends to the holding period of the asset as well, so that the lives of the testator and the legatee/s are combined for reckoning the holding period and, consequently, for the purpose of the benefit of cost indexation. It is only on account of this clear position of the law that the Tribunal found little difficulty in extending the indexation benefit with reference to the period of holding by the previous owner where the Revenue sought to restrict the same only to the period of holding by the successor in the case of Dy. CIT v. Manjula J. Shah [2010] 35 SOT 105 (Mum.)(SB), which stands since upheld....

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....f the title of the previous owner was itself defective or subject to some encumbrance, the cost incurred on its removal or discharge would qualify for deduction u/s. 48(ii). The same also follows considering the principle of parity inasmuch as it is the cost of the un-encumbered asset that would stand to be adjusted or set off against its sale or transfer consideration in computing income by way of capital gain arising thus, i.e., on its transfer. In the instant case, the capital asset having become the asset of the previous owner prior to 01.04.1981, the fair market value (FMV) of the same as on 01.04.1981 has been adopted as the deemed cost of acquisition in the hands of the assessee as well, and on which aspect of the matter we observe no dispute. How could then, that being the case, the assessee claim further deduction toward the claimed cost in removing the encumbrance or satisfying the condition precedent, i.e., assuming so, subject to which the property stands bequeathed to her? This aspect stands particularly taken note of by the hon'ble High Court in the case of Smt. Rugmani Varma (supra) (refer pgs. 369-370). It is, thus, only the cost, where so, as incurred by the previo....

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....y, i.e., independent and de hors the subsequent transfer by the assessee-respondent, which he could and, rather, sought to enforce through a suit for specific performance, and the amount under reference represented the compromise amount in settlement of the said suit. As such, it could well be that the payment to him stood made, or was to be made, even if no transfer was in contemplation. In fact, that is also what the hon'ble court itself clarifies (at pg. 60 of the report), admitting to no precedents being available, so that it had decided the case on first principles. The hon'ble jurisdictional High Court, thus, upheld the tribunal's order by invoking and applying the principle of diversion of income by overriding title, which is an accepted principle under the Income Tax Law, having been expounded upon by the hon'ble apex court as far back as in CIT v. Sitaldas Tirathdas [1961] 41 ITR 367. As explained therein, the true test for the application of the rule of diversion of income by an overriding charge is whether the amount sought to be deducted in truth never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obliga....

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....es in its record had been completed (PB pg. 40), and which is not understandable given that no payment has admittedly been made, so that the 'condition precedent' had not been satisfied. Further, the same also bears no reference to any interest in the said flat in favour of any person other than the legatees. So much so, the membership (share) certificate in the housing society stands transferred in the name of the legatees as far back as on 01/2/2005, i.e., even prior to the execution of the tripartite agreement. The said transfer is on the basis of a nomination filed by the testator, and bears no reference to her subsequent Will, only through which, where so, inheritance could take place, so that the same is de hors and without reference to and/or taking cognizance of the rights bestowed by the testament. How could it be? There is even no reference in the deed of transfer dated 24.03.2006 (PB pgs. 27 - 38), vide which the subject property stands transferred, to either the testator's Will or to the compromise agreement dated 04.04.2005 (PB pgs. 9-12), or even of any interest of the Gadatwalas (the persons specified in clause 3 of the Will). That is, the instrument of transfer, th....

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....he Transferee by reason or virtue of any non-performance or non-observance by the Transferors or any of them of any of the terms, conditions, agreements, covenants and provisions stated herein AND the Transferors will at all times hereafter at the request and cost of the Transferee do and execute and caused to be done and executed all such further and other lawful and reasonable acts, deeds, matters and things for the better, further and more perfectly assuring the said shares and the said flat unto and to the use of the Transferee.      (c) The Transferors have not in any way encumbered or agreed to encumber by way of mortgage, charge, lien, trust, sale, pledge or otherwise howsoever their right, title and interest in the said shares and/or the said flat and that the same are free from all encumbrances.      (d) The Transferors have not let out the said flat to any person on lease, leave and license, tenancy or any other basis whatsoever and no lease/leave and license/tenancy agreement in respect of the said flat entered into by the Transferors prior to the execution of this Deed with any party or parties, or any third party rights howsoev....

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.... rather, being not satisfied by an undertaking from its solicitors to pay the agreed compromise amount thereto from the sale proceeds, 'C' had itself to give an assurance to 'R' that it would deduct the said amount from the sale consideration and pay the same to it. 'R' was thus recognised by both the parties as holding an interest antecedent in the property. It was under these circumstances that the said payment was considered by the hon'ble court to have become an absolute necessity to effect the transfer, so that the same ought to be considered as an expenditure covered by clause (i) of section 48, i.e., an expenditure incurred wholly and exclusively in connection with the such transfer. In the facts of the present case, on the other hand, the sale has been effected independent and de hors the amount ostensibly agreed to paid to the payees, so that we are unable to see as to how it could be regarded as an expenditure incurred in connection with the transfer, entitled to deduction u/s. 48(i). In fact, the instrument of transfer, which is under the circumstances a title deed, recognises no interest, right, title, etc. of any other person other than the transferees, either in the m....