AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 608
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an individual and had shown sale of flat during the relevant previous year for a consideration of Rs. 3,47,00,000/-. While computing LTCG, the assessee has deducted various amounts from the sale consideration which included a sum of Rs. 40 lakhs paid as compensation to her son Mr Ketan C Shah. In response to the show cause notice as to why such a compensation given to her son can be reckoned as expenditure in connection with the sale of flat, the assessee submitted that unless the said compensation was paid to her son Ketan C Shah, the sale would not have been effected as there was a dispute with regard to the rights in the said flat and he was not agreeing for sale. In support copy of Family Arrangement in respect of said compensation paid was filed. However, the AO rejected the assessee's contention and noted that, the assessee had also given sum of Rs. 65 lakhs has "gift" to same son, therefore, it was a some kind of appropriation of sale proceeds. He further observed that assessee was sole owner of the sold flat at the time of sale and no one else including Mr Ketan Shah had any legal right in the flat. Neither the said payment of Rs. 40 lakhs to him was mentioned in the sale ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of sale proceeds. The assessee had also given gift of Rs. 65 lakhs from the appropriation of sale proceeds, therefore, compensation of Rs. 40 lakhs is also towards appropriation of sale proceed and hence, the same cannot be allowed as deduction u/s 48. Regarding disallowance on unsubstantiated cost of improvement on account of unaccounted payment to the builder, he confirmed the action of the AO on the ground that there is no credible evidence for claim of such expenses. 4. Before us, Ld. Counsel submitted that the assessee had two sons and both the sons had the legal right in the property of their father after his demise. From the records he pointed out that the flat was purchased in the year 1976 by the husband of the assessee, Mr. Chandrakant Shah who was an actual co-owner in the flat. Her husband was co-owner right from the date of the purchase agreement and later on at the time of execution of purchase of flat situated in Navgaytri Building 80-A at Walkeshwar Road, Mumbai. Not only that he was a co-owner in the purchase deed but in the Society's records also his name was shown. After the demise of Chandrakant Shah on 30th May, 2005, the name of both the sons were shown as co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Agreement" dated 12.04.2008 was arrived at between the family members out of compulsion and necessity to get the perfect title to the property so that clear title to the purchaser can be passed on. Hence, once for all settlement was arrived at to clear the property for Family peace and harmony. As per the Family Arrangement, it was again agreed that, Mr. Ketan Shah should be paid the money as he wanted to stay separately along with his wife away from his mother and brother. Even in the sale deed, the assessee has been referred as vendor, whereas her two sons have been referred as confirming party which shows that they had a right, title, interest or claim in the flat. Thus, the Ld. Counsel submitted that both the son had a right and since there was family dispute therefore, to remove such encumbrance from the property, sum of Rs. 40 lakhs has been paid. Regarding gift of Rs. 60 lakhs, it was submitted by him that assessee had filed an affidavit, wherein it was stated sum of Rs. 60 lakhs was demanded over and above by Mr. Ketan C Shah which has been given to her son. Said amount was given so that once for all he should not have any claim on the sale proceeds of the said flat or in f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid property was purchased for sum of Rs. 1,10,000/-. In the Society's records of 'Navgayatri CHS', the assessee and her husband, Chandrakant V Shah were shown as the owner and the membership was transferred in their name on 31st August, 1976 itself. On 30th May, 2005, the assessee's husband, Shri Chandrakant V Shah died interstate survived by his wife (assessee) and their two sons Mr. Samir Shah and Mr. Ketan Shah. It appears from the record that her younger son, Mr. Ketan C Shah did not had good terms with his mother and brother and family dispute has arisen with regard to the right and interest in the said flat after demise of father. To resolve the family dispute, Arbitrators were appointed and "Arbitration Agreement" was entered into on 26th December, 2006 between the assessee, Mr. Samir C Shah and Mr. Ketan C Shah. The important terms of recitals of the said agreement has already been referred above. In pursuance of such an 'Arbitration Agreement' award was given by the arbitrators on 25th Mach, 2008, the relevant clauses of the award highlighting the dispute and the terms of award are reproduced hereunder :- "AND WHEREAS that disputes arisen between Mrs. Hiraben Chandrakan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n's namely (A) Mr. Samir Chandrakant Shah and (B) Mr. Ketan Chandrakant Shah along with their family as Joint Hindu Family. The flat under dispute is accepted as family house and each one has a right or claim of occupation. All parties who are living together, shall have certain claims and right in the said flat under dispute. 2. That Mrs. Hiraben Chandrakant Shah, shown as owner in the Flat No. 21, 6th Floor, Navgaytri Building 80 A Walkeshwar Road, Mumbai -400 006, on the records of the society, admeasuring 1050 sq. ft. Carpet area. 3. That we, direct and award to resolve the disputes forever and to do justices to all of them and to decide their claims and their right, and bring harmony in the family. 4. We have confirmed after taking into consideration various factors that Mrs. Hiraben Chandrakant Shah will make payment of Rs. 40,00,000/- (Rupees Forty Lakh only) to Mr. Ketan Chandrakant Shah to purchase and acquired new premises either out of savings of the family or out of borrowed funds or by selling the Flat No. 21, 6th Floor, Navgaytri Building, 80 A Walkeshwar Road, Mumbai - 400 006, after taking into consideration various factors and we further direct that paymen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er along with their mother (assessee). It is also not in dispute that, there arose a family dispute with regard to rights and interest in the said flat, which has lead to appointment of Arbitrators and agreement was signed. In the 'Arbitration Agreement', the main dispute was with regard to the interest and right in the flat only. Mr. Ketan Shah opted to separate out from the family, therefore, it was decided that all his right should be settled once for all and it was decided that a sum of Rs. 40 lakhs would be given to him as and when the flat would be sold. Accordingly, the Arbitral Award as incorporated above was given. Later on, when the flat was sold at a very high price, then some more amount in the form of a gift was given which here is not an issue of dispute albeit it has been adversely viewed by the AO and CIT(A) for disallowing the claim of deduction of Rs. 40 lakhs. 8. If the assessee inherits any property with encumbrance or any debt on the property, then any expenditure incurred to discharge or remove such encumbrance or debt is to be regarded as expenditure connected with the transfer of the property as contemplated in section 48. This proposition has been elaborat....