Case Law Details
Lal Singh Naderia Vs ITO (ITAT Jaipur)
ITAT Jaipur held that amount paid towards settling the property dispute is absolutely necessary to affect the transfer and accordingly the same is allowed as expenditure covered by provision of section 48 of the Income Tax Act.
Facts- In spite of having no legal title on the property, the assessee had sold the property at distress value and the same was at Rs. 1,20,00,000/- where the share of the assessee was 40%. The stamp duty authority in the first instance valued that property at Rs. 5,76,54,492/- and thereafter, the same was reduced to Rs. 1,94,19,827/- by an order dated 15-06-2009. As per provision of section 50C of the Income Tax Act 1961, while computing the amount of capital gain chargeable to tax the AO had applied the revised stamp assessed value as actual consideration received and value of consideration had been substituted from Rs. 1,20,00,000/- to Rs. 1,94,19,827/.
Assessee contended before CIT(A) that expenditure in curing the title of the property be allowed.
Conclusion- Considering the wider scope of section 48 while computing the capital gain the payment made in relation the property if at the first instance be considered as additional consideration and at the same the payment of the said amount to settle the property dispute be considered as the payment which is absolutely necessary to affect the transfer made by the assessee and shall be considered as expenditure to which is covered by the provision of section 48.
Any amount, the payment of which is absolutely necessary to affect the transfer will be an expenditure covered under section 48(1)(i).
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal is filed by the assessee aggrieved from the order of the Commissioner of Income Tax (Appeal)-1, Jaipur [ here in after referred as Ld. CIT(A) ] for the assessment year 2009-10 dated 10.12.2012 which in turn arises from the order passed by the ITO, Ward-2(3), Jaipur passed under Section 143(3) of the Income tax Act, 1961 (in short ‘the Act’) dated 19.12.2011. In this appeal the assessee has taken the following grounds of appeal:
“1. That the ld. CIT(A) erred on facts in sustaining the disallowance of relief claimed by the appellant u/s 54 of the Income Tax Act. 1961 for a sum of Rs. 4,11,790 by disbelieving on a payment of Rs. 6,20,000/-made to the contractor for acquisition/development of house property, on superfluous grounds.
2. That the ld. CIT(A) erred in law in not appreciating the judgment of the Hon’ble Supreme Court rendered in the case of CIT vs. B.C.Srinivasa Shetty (128 ITR 294) in right perspective.
3. That the ld. CIT (A) erred on facts in not allowing the benefit of a sum of Rs. 70,00,000/- paid for acquiring title in the land sold resulting into charging of capital gains at very high figure.
4. The appellant craves leave to add, amend or alter any of the grounds of appeal before hearing.”
2. The co-ordinate bench has disposed off this appeal vide order dated 30-01-2014 read with corrigendum dated 31-01-2014 where in the coordinate bench has decided the appeal of the assessee on ground no. 2. Thus, the other ground becomes academic therefore. On 24-11-2016 revenue filed a miscellaneous application (MA) in ITA no. 59/JP/2013 praying for recalling of the order contending that the Hon’ble Punjab & Haryana High Court has decided the issue while considering the judgement of the Hon’ble Supreme Court in the case of B. C. Srinivasa Setty. The co-ordinate bench vide order dated 29-06-2017 recalled the order dated 30-01-2014 to be decided on merits in the light of judgment relied upon by the revenue.
3. The fact as culled out from the records is that the assessee filed the return of income for the assessment year 2009-10 on 04.08.2009 declaring total income of Rs. 1,45,630/-. The assessee has shown the Long Term Capital Gain on sale of residential property at Rs. 36,07,507/-. The assessee has shown the long term capital gain on sale of residential property at Rs. 36,07,507/- which has been computed as under:
“Land and Building at Ajmer Road, Jaipur on 08-07-2008
| Value | Rs. 48,00,000/- | |
| Sales consideration received | Rs. 48,00,000/- | |
| Sales consideration | Rs. 48,00,000/- | |
| Less: Transfer Exp. | Rs. 9,53,640/- | |
| Rs. 9,53,640/- | ||
| Less: Indexed cost | Rs. 2,38,853/- | |
| FMV as at 01-04-1961 | ||
| F.Y 1981-82 41,040/100*582 | Rs. 2,38,853/- | |
| Deduction u/s 54 | Rs. 36,07,507/0 | Rs. 36,07,507/- |
| Rs. 36,07,507/- | ||
| Rs. 0/- | ||
| Investment in house property u/s 54 | Rs. 36,61,600/-” |
The AO noticed that as per sale deed the stamp valuation authority had assessed the value of the property at Rs. 5,76,54,492/- for the purpose of stamp duty. However, this was finally assessed when the assessee went in appeal before the Additional Collector (Stamp) to Rs. 1,94,19,827/-. As per the AO for calculating the Long term capital gain, Rs. 1,94,19,827/- is needed to be taken into consideration u/s 50C of the Act. But at the instance of the assessee, this matter was referred to the DVO who vide his order dated 30.11.2011 valued the fair market value of the property as on 08-07-2008 at Rs. 4,15,00,000/-. Since the value determined by the DVO was more than that by the Stamp Valuation Authority, the AO adopted the value of this property at Rs. 77,67,931/- being 40% of the assessee’s share in the property u/s 50C(3) of the Act.”
Thus, finally AO has calculated the capital gain as reproduced here in below:
|
“1. Income from business or profession |
Rs. 91,724/- | |
| 2. Income from capital gain (LTCG) | ||
| Sales consideration u/s 50C read with | ||
| sub-section 3 of section 50C (40% share) | Rs. 77,67,931/- | |
| Less: | ||
| 1. Indexed cost of acquisition as shown by the assessee | Rs. 2,38,853/- | |
| 2.Expesnes on account of patta and registration charges paid to JDA | Rs. 9,53,640/- | |
| Long term capital gain Deduction u/s 54 | Rs. 65,75,438/- | |
| Investment in new asset (Purchase consideration & registry charges) | Rs. 32,09,810/- | |
| Long term capital gain | Rs. 33,65,628/- | |
| Income from other sources as shown | Rs. 73,906/- | |
| Gross total income | Rs. 35,31,258/- | |
| Less: Deduction under chapter VIA | Rs. 20,000/- | |
| Total income | Rs. 35,11,258/- | |
| R/o | Rs. 35,11,260/- |
4. Being aggrieved, the assessee carried the matter in appeal before the ld CIT(A) challenging the computation of capital gain. The assessee did not find any favour, carried the matter before this tribunal and the same was in the earlier order decided on technical ground but based on the revenue’s MA the same was recalled to be decided on merits of the case.
5. Before us the ld. AR of the assessee thus has supported his argument for ground no. 1 & 3 only and ground no. 2 is not pressed by him. The ld. AR appearing on behalf of the assessee has placed their written submission which is extracted in below;
The appellant`s father Late Shri Kishan Singh took possession of land situated at Near Sohan Service Station, Ajmer Road, Jaipur in the year 1975 without any legal title and constructed few rooms,, kitchen etc. and had been residing therein along with his family. At the relevant time Jaipur used to be a very small city wherein the area was outside the city. After the death of said Shri Kishan Singh his said property was inherited by his wife Smt. Sawarani and his two sons viz. Shri Lal Singh (Present appellant) and Shri Hakim Singh (younger brother of the appellant). In fact this land wherein the family of Late Shri Kishan Singh started residing belonged to HH of Jaipur wherein at present a 5 star Hotel namely Jai Mahal Palace is being run. Due to mistake of the government authorities this land vested in Jaipur Development Authority due to some wrong entry in revenue records. In the year of sale i.e. 2008 a developer contacted the assessee, his mother and brother and showed his interest in buying the land. The assessee conveyed to him about non existence of title. The developer made enquiries and came to know that Lease Deed could be issued due to above said error in recording the land in the name of JDA and hence he bargained for buying the land and the deal was finalized. Thereafter just few days back from the date of registration of Sale Deed Lease Deed was obtained from JDA in the name of all these three persons for which all efforts were made by the developer and the Lease Deed was granted by JDA to them on 28.06.2008. Thereafter a sale deed was executed by all these three owners in favour of M/s Shubh Shanti Estates P Ltd. vide sale deed dated 08.07.2008 for selling the said property for an apparent sale consideration of Rs. 1,20,00,000 in which share of the appellant was Rs. 48,00,000. The said sale deed was initially assessed at declared value by the assessing authority. The appellant worked out taxable capital gain as under and filed ITR of the appellant declaring said LTCG :-
| Sale Consideration of Residential House (40%) | 48,00,000 | |
| Less : Transfer Expenses : | 9,53,640 | |
| Paid to JDA for issue of Patta & Registry etc. (Paid th. Ch. No. 744572 dated 23/06/2008) | ||
| Less : FMV as at 01/04/1981 @ Rs. 100/- per sq. sq. mtr
(40% of Rs. 1,02,600 i.e. Rs 41,040 ) |
2,38,853 | |
| Taxable Capital Gains
Less : Deduction u/s 54 |
36,07,507 | |
| Investment in House property | 38,29,810 | |
| Purchase consideration as per Registry | 30,00,000 | |
| Add : Registry Charges | 2,09,810 | |
| Add : Spent for construction work | 6,20,000 |
It is pertinent to note that in the cost of acquisition the appellant had adopted only the cost of construction and not the purchase price/ market value of land. However later on the value was enhanced by the registering authority at Rs. 5,76,54,492 which was questioned by the buyer before the Hon`ble Revenue Board and finally the value was assessed at Rs. 1,94,19,827 and hence the ld. AO assessed the LTCG as under :-
| Sale Consideration of Residential House (40% of 19419,827) | 77,67,931 | |
| Less : Transfer Expenses
Paid to JDA for issue of Patta & Registry etc. (Paid th. Ch. No. 744572 dated 23/06/2008) |
9,53,640 | |
| Less : FMV as at 01/04/1981 @ Rs. 100/- per sq. sq. mtr
(40% of Rs. 1,02,600 i.e. Rs 41,040 ) (Indexed cost : 41,040 * 582/100) |
2,38,853 | |
| Taxable Capital Gains Less : Deduction u/s 54 | 65,75,438 | |
| Investment in House property | 32,09,810 | |
| Purchase consideration as per Registry | 30,00,000 | |
| Add : Registry Charges | 2,09,810 | |
| Taxable LTCG | 33,65,628 |
The ld. AO did two corrections in the above said computation filed by the appellant i.e. He had adopted sale consideration in terms of section 50C which is not disputed and he restricted the claim of deduction u/s 54 by considering a sum of Rs. 6,20,000 claimed to had been paid to contractor for constructing first floor in the house, just after purchasing the same. This fact is confirmed from the registered purchase deed of said property by the appellant which shows that the appellant had purchased only ground floor constructed thereon. A photograph of the property is also being submitted proving construction of first floor thereon.
The matter was carried in appeal before the Ld. CIT (A) who sustained the order of the ld. AO. On further appeal the Hon”ble Bench allowed the appeal on the ground that since the land had been acquired without incurring any cost of acquisition and hence no Capital Gain can be taxed by relying on the judgement of the Hon”ble SC in the case of CIT v/s B.C. Srinivas Shetty (128 ITR 294) vide order dated 30.01.2014. The ld. AO filed an MA before the Hon”ble Bench vide MA No. 167/JP/2016 and the Hon”ble Bench recalled the order vide its order dated 29.06.2017 by holding that reliance on the case of B.C. Srinivas Shetty was misconceived. Hence the present hearing.
For the sake of convenience with your honour”s permission I would like to take ground no. 3 first.
Ground No. 3 : That the ld. CIT (A) erred on facts in not allowing the benefit of a sum of Rs. 70,00,000 paid for acquiring title in the land sold resulting into charging of capital gains at very high figure.
The facts of the case are very clear to the extent of Sale Consideration as per section 50C i.e. Rs. 1,94,19,827 in which the share of the appellant is Rs. 77,67,931 (being 40%). As submitted above the father of the appellant had taken possession of the land without any title which land in fact pertained to M/s. Jai Mahal Hotels Pvt. Ltd. After sale of the property the said Taj Mahal Hotels Pvt. Ltd. filed a suit before the Hon`ble District and Session Court, Jaipur City on 09.02.2009 (APB 2747) wherein the appellant, his mother, his brother, the buyer, Mayor, Jaipur Nagar Nigam, Secretary JDA, Deputy Commissioner Zone 2 of JDA and the Registrar were made parties and allegations were made that the appellant with the collusion of JDA, JMC and Registering authorities obtained lease deed and executed a registered sale deed in favour of the buyer and following requests were made by above named Jai Mahal Hotels P Ltd in the suit :-
1. To declare the proceedings for transposing name of the appellant in house tax records by Jaipur Nagar Nigam as null and void (APB 33 – Para 14).
2. To declare the registered sale deed executed in favour of the buyer as null and void (APB 35 – Para 16).
3. To stay the construction activities started by the buyer in the disputed land (APB 36 – Para 17).
4. To bind Jaipur Nagar Nigam, JDA not to grant permission to the buyer for construction and if constructed to demolish the same
(APB 36-37 – Para 18)
5. To levy cost on sellers and the buyer @ Rs. 1,00,000 per month for their wrong doings (APB 37 – Para 19)
6. To bind the Registrar not to accept any document or register the same on request of any party other than Jai Mahal Hotels P Ltd. (APB 37 – 38 – Para 21)
Main ground for seeking above stated reliefs was that the appellant, his mother and brother took possession of the land illegally (APB 28 – Para 3) and constructed seven rooms, lat, bath and obtained lease Deed from JDA in collusion with the officers and sold the same. Since the buyer viz M/s. Shubh Shanti Estates Pvt. Ltd. was to construct a multistoried building on the land purchased by it and was quite aware about non availability of the title with the appellant, his mother and brother (as the lease deed was obtained from JDA by active involvement of the buyer only) he and the appellant entered into a compromise cum Settlement with above named M/s. Jai Mahal Hotels P Ltd. and the buyer party had paid a sum of Rs. 70,00,000 to Jai Mahal Hotels P Ltd. (APB 48-50). From the documents it is quite apparent that the above said sum of Rs. 70,00,000 was paid by the buyer to Jai Mahal Hotels P Ltd. for buying title in the land. It is also relevant to mention that from the events narrated hereinabove the said payment of Rs. 70,00,000 which was to be done by the appellant, his mother and brother has been paid by the buyer on their behalf.
The value of any land assessed by registering authority (which is called as DLC rate) is for a land with clear title and without any encumbrance whereas in the instant case the property sold by the appellant was not having any legal title and whatever title was obtained was due to some wrong entry in the revenue records of JDA. Due to non availability of clear title in the name of the appellant, his mother and brother the buyer agreed for buying the land at discounted price as the price bargained was for land without any clear title thereon. Therefore in order to reach at the level of DLC rate the amount paid by the buyer for buying title in the land has to be considered as paid towards purchase of land only. Therefore the sale of the property by the appellant, his mother and his brother was sale of a land without any clear title which was bought by the buyer from M/s. Jai Mahal Hotels P Ltd. Therefore the same must be considered as part of cost incurred by the assessee, his mother and brother. This claim was raised before the ld. CIT (A) (Page 17-19 of the CIT (A) Order) who rejected the same by holding that the sellers had clear title in the land as JDA had granted lease deed to them and the sellers had clearly stated in the sale deed that they had clear title in the land and there is no encumbrance on the property being sold and also held that in absence of any clear finding given by the Hon`ble Court on the title of the land, claim of the appellant could not have been entertained. Hence she did not accept the contention of the appellant that said sum of Rs. 70,00,000 had been paid by the buyer to M/s. Jai Mahal Hotels P Ltd. for buying title.
In this connection it is submitted that the ld. CIT (A) seems to had not gone through the contentions of the above named M/s. Jai Mahal Hotels P Ltd. raised in the suit filed for cancellation of the sale deed executed by the appellant, his mother and brother. It is absolutely apparent from the contentions raised by M/s. Jai Mahal Hotels P Ltd. in the suit that the appellant, his mother and brother had obtained the lease deed in collusion with the JDA officers and the said land in fact belonged to it as per history provided in the suit. Further in the compromise deed it is clearly mentioned that this compromise deed relates to suit filed for land having municipal number 117, Santosh Nagar, Ajmer Road, Jaipur and covered by lease deed dated 28.06.2008 issued by JDA and transferred in the name of Subh Shanti Estates P Ltd. through registered sale deed dated 08.07.2008. (APB 48-50). A conjoint reading of both the documents clearly depict that the whole issue related to title of the land sold by the appellant and same was settled by the buyer on behalf of the sellers. The ld. CIT (A) was of the opinion that since lease deed had already been issued by JDA in favour of the appellant and hence there was no dispute about title of the land. She seems to had not read the full contents of both the documents. It is therefore sincerely requested that the above said sum of Rs. 70,00,000 paid by the buyer to M/s Jai Mahal Hotels P Ltd. may please be considered as part of cost incurred by the appellant for buying title. Therefore the cost of acquisition of the property may please be increased with Rs. 28,00,000 (being 40% of above said sum) and same may please be taken at Rs. 30,38,853 (i.e. Rs 238853 + 2800000) for computing LTCG on the deal.
The appellant relies on V. Lakshmi Reddy v/s ITO (241 CTR 364) wherein the Hon”ble Madras High Court held that expenditure incurred for curing defect in title deserves to be allowed as cost of the property sold. In this case the property sold by the assessee was under litigation and in order to get the property free from litigations she had to pay substantial amounts and such amounts were held to be deductible by the Hon”ble Madras High Court.
It is therefore sincerely submitted that the appellant may kindly be allowed deduction for Rs. 28,00,000 being 40% of Rs. 70,00,000 paid for buying title in the land for working out taxable capital gain and oblige.
Ground no. 1 : That the ld. CIT (A) erred on facts in sustaining the disallowance of relief claimed by the appellant u/s 54 of the Income Tax Act, 1961 for a sum of Rs. 4,11,790 by disbelieving on a payment of Rs. 6,20,000 made to the contractor for acquisition/ development of house property, on superfluous grounds.
The appellant sold his residential land and building and claimed deduction u/s 54 by investing a sum of Rs. 38,29,810 in the new residential property (APB 11) (wrongly taken as Rs. 36,21,600 in the computation, Assessment Order and Appeal Order). This said sum of Rs. 38,29,810 comprised of Rs. 32,09,810 paid for purchase of ground floor and balance Rs. 6,20,000 paid to contractor for undertaking construction work on first floor. The appellant had executed an agreement with the contractor (APB 60-61) dated 03.06.2009 for doing this work and obtained receipt evidencing payment of Rs. 6,20,000 on various dates (APB 62) The AO disallowed the claim on the ground that his ward inspector reported that no person of the name Lalit (Contractor) was residing on the address mentioned in the Agreement and further the signatures of the contractor were different on Agreement and the receipt issued. Such view was upheld by the ld. CIT (A) also. Both of them also stated that the appellant also could not produce the contractor for confirmation.
The appellant has submitted following documents in support of genuineness of payment made for further construction work :-
1. Agreement of the appellant with the contractor dated 03.06.2009 (APB 60-61)
2. Receipt of payments made by appellant to Contractor (APB 62)
3. Bank passbook of the appellant showing source of payments made to the contractor (APB 63)
It is very clear from the Registered Purchase deed of new residential house purchased by the appellant (APB 51-59) that the appellant had purchased the land along with construction admeasuring 1500 sq. ft on ground floor only (Please refer map annexed with the registered deed at APB 59). Thereafter the appellant gave the contract for construction of first floor on the said house and the contractor constructed around 1180 sq. ft on the first floor. The said construction work was given to the contractor immediately after purchase of ground floor. The ground floor was purchased by the assessee on 16.01.2009 and the contract for construction of first floor was given on 03.06.2009 and hence the const so incurred deserves to be allowed for deduction u/s 54 of the Income Tax Act, 1961. It is therefore sincerely requested that the claim of the appellant for spending additional sum of Rs. 6,20,000 for making the house inhabitable may please be allowed and same may be considered for working out deduction u/s 54 of the Income Tax Act, 1961.
Therefore the computation of LTCG may please be directed to be made as under :-
| Sale Consideration of Residential House (40%) | 77,67,931 | |
| Less : Transfer Expenses Paid to JDA for issue of Patta & Registry etc.
(Paid th. Ch. No. 744572 dated 23/06/2008) |
9,53,640 | |
| Less : FMV as at 01/04/1981 @ Rs. 100/- per sq. sq. mtr
(40% of Rs. 1,02,600 i.e. Rs 41,040 ) (Indexed cost : 41,040 * 582/100) Amount paid for title (40% of 70,00,000) |
30,38,853 | |
| Taxable Capital Gains Less : Deduction u/s 54 | 37,75,438
|
|
| Investment in House property | 38,29,810 | |
| Purchase consideration as per Registry | 30,00,000 | |
| Add : Registry Charges | 2,09,810 | |
| Paid to Contractor | 6,20,000 | |
| Taxable LTCG | NIL |
Ground No. 2 : That the ld. CIT (A) erred in law in not appreciating the judgement of the Hon`ble Supreme Court rendered in the case of CIT v/s B.C. Srinivasa Shetty (128 ITR 294) in right perspective.
Not prerssed
Ground No. 4 : Residual Ground
Not Pressed.
Your honour is sincerely requested to consider the submissions favourably and allow the appeal.”
6. As it is evident that the ld. AR of the assessee not pressed ground no. 2 & 4. Thus, the ground no. 1 & 3 both were related to the income offered under the head capital gain. The ld. AR for both these grounds in addition to the written argument submitted as above, further submitted that the father of the assessee in 1974-75 was in possession of the land without any title. Even though the father of the assessee or the assessee is not legal owner of the property assessee and his other legal heirs offered the capital gain which is not disputed by the revenue.
6.1 As regards the ground no. 1 the ld. AR of the assessee stated that the revenue has also not disputed that the assessee is holding the construction on the property, assessee placed on record the proof of payment of the expenses incurred for a sum of Rs. 6,20,000/- (assessee’s paper book (APB) page 62), this receipt is in accordance with agreement executed on stamp paper with a terms and conditions of construction (APB-60&61), the source of payment for this expenditure is also supported by the bank account withdrawal (APB-63) and was having the electric connection on the disputed property (APB page 26). The ld. AR of the assessee based on these evidences further submitted that the name of the contractor is also appearing in the bank statement which categorically proves the identity of the person to whom the construction expenses were paid. As regards the name of Shri Ashok Gupta appearing in bank statement, he has submitted that it is the practice of the bank to write the name of person who goes to collect the cash. Merely the other person’s name is written and not of the contractor the payment which is supported by the receipt cannot be considered that the payment is not made to the contractor. Thus, the only basis for not granting the relief by the lower authorities on the reasons that the contractor not found on the address by the inspector and thus the deduction was not considered. The ld. AR of the assessee based on these evidences submitted that there is no adverse comment on the evidences so placed on record and based on these set of evidence the ld. AR of the assessee supported his arguments for the ground no. 1 raised.
6.2 As regards the ground no. 3 the ld. AR of the assessee submitted that the revenue not disputed the capital gain offered even though the assessee has not legal title on the property and has only illegal possession on the property. The same was sold at distressed sales price worth 1.20 crores and the share of the assessee was only 40 % on the same. The value of the property was recognized by the registering authority as if it is tile free. The registering authority has valued the property 5,76,54,492/- and the same was revised to Rs. 1,94,19,827/- vide order dated 15-062009 the additional collector. This valuation is for the clear title property, whereas the father of the assessee and the assessee has not clear legal tittle and thus objected to the valuation so done even at the revised price. Alternatively, the ld. AR of the assessee submitted that as there was legal case against the assessee. With the help of the buyer, they have reached to a compromise agreement and has paid Rs. 70,00,000/-. The ld. AR of the assessee submitted that let the revenue enhance the actual sale consideration by that amount as the payment made to settle the dispute is supported by the evidence and the payment made to buy the peace in that litigation be considered as cost of improvement and said cost be considered as cost of title on the said disputed property and necessary deduction as cost of assets sold on which the capital gain charged is also required to be given.
7. The ld. DR is heard who has relied on the findings of the lower authorities and repeated the same. He has pressed that the payment of Rs. 70,00,000/- not made by the assessee and in that case how the claim of that payment be adjusted while working out the capital gain and for that matter he relied on the detailed finding of the ld. CIT(A) where in a detailed finding is given stating the reasons as to why the claim of the assessee cannot be considered while working out the capital gains. The relevant finding of the ld. CIT(A) on both the issue is reproduced here in below:
Ld. CIT(A) finding on claim of Rs. 6,20,000/-
“5.3 I have carefully perused the order of the AO, the submissions of the AR and the paper book filed, and do not concur with the submissions of the AR on the following grounds:
1. On perusal of the Ikrarnama and the so called bill/receipt it is seen that the signatures on the Ikrarnama and bill are indeed different.
2. On perusal of the bank pass book of the appellant in the Bank of Rajasthan Ltd. and the bill/receipt allegedly given by Shri Lalit Saini (the contractor) there appear to be discrepancies in the submissions. For example, as the payment of Rs.2,00,000/- was shown to have been received on 20/04/2009 by Lalit Saini whereas as per the details of the bank a/c of the appellant it is seen that Rs.2,00,000/- were paid by cheque to Shri Ashok Gupta on 20/04/2009.
3. Two payments have been made on 18/6/2009 vide cheque of Rs.50,000/-each to Lalit but it is not known whether it was the same Mr. Lalit Saini or somebody else in view of the fact that he was not traceable at the given address.
4. For the balance amount of Rs.3,20,000/- the bills correlate to the cash withdrawals made from the a/c of the appellant. On perusal of the bank statement it is seen that there are regular cash deposits in the bank a/c of the appellant as well which have not been explained. Moreover, no capital a/c, details of investments during the year and household expenditure were submitted so it cannot be established as to what end these cash withdrawals were utilized for, particularly in the context of the fact that the signature on this receipt is completely different from that on the Ikrarnama.
5. It is also pertinent to note that summons were issued to Shri Lalit Saini once by post and the second time by the Inspector of the ward and both the times Mr. Lalit Saini was not found to exist at the given address. When given an opportunity to produce Shri Lalit Saini the appellant expressed his inability to do so. Therefore, he was unable to discharge the onus of verifying the transaction in view of the evidence placed on record by the AO.
In view of the above discussion and the facts of the case, the decision of the AO to disallow the claim of Rs.6,20,000/- for computing the exemption u/s 54 is sustained.”
Finding of the ld. CIT(A) for corrected claim of cost of acquisition/cost of improvement
“7.3 I have carefully perused the order of the AO, the remand report and the submissions of the AR and do not concur with the submissions of the AR because first of all the submissions of the AR are not factually correct and contrary to the evidence filed by him. The AR of the appellant submitted that an out of Court Compromise Settlement between M/s Jai Mahal Hotels Pvt. Ltd. and M/s Sukh Shanti Estates Pvt. Ltd. was effected whereby the latter paid Rs. 70,00,000/- to the former which implied that the appellant was not having a title in the land. Thus the appellant had sold only the possession of the land as he did not have any title in this land. On perusal of the details on record it is seen that this argument is factually wrong because the appellant and his brother and mother had acquired the title of the land by way of lease deed as per the records of the JDA vide its order dated 28/06/2008. That is why they too were signatories of the Settlement -Document.
On the face of it, the entire argument is absurd because first of all unauthorized possession of somebody else’s property was taken thereafter fraudulently the lease deed was transferred to the names of himself and his brother and mother in the revenue records. The property was sold for profit through a Registered Sale Deed and now complete exemption on profits accruing from capital gains on this transfer is being claimed by stating that he did not have a title in this land. In the sale deed itself it has clearly been mentioned as follows:
Therefore, as per the sale deed the assessee had a title to this land which was transferred to M/s Sukh Shanti Estates Pvt. Ltd. In the Compromise/Settlement Document also nowhere has any finding been given regarding the title of the said land or whether the appellant and his relatives were authorized to transfer the impugned land or not. It has merely been mentioned that Rs.70,00,000/-was being transferred from M/s Sukh Shanti Estates Pvt. Ltd. to Jai Mahal Hotels Pvt. Ltd. and as per the Compromise Settlement the subject matter of the suit namely the right, title and interest over the land measuring 1019.67 sq. meter as mentioned in the suit has been wholly settled. Thus the Hon’ble Court has not given a specific finding as to title or the interest in land etc.
Both the submissions of the AR that the sale of land was a distress sale and that the valuation of the possession of the land and building be taken at Rs.2,38,853/- as declared by him cannot be accepted. Because though unauthorized possession may have been taken by his father, on the date of transfer he had clear title of ownership as per the lease deed of the JDA dated 28/06/2008. On the basis of which he transferred the property on 07/07/2008 by way of a registered sale deed wherein he clearly affirmed that he was in clear possession along with his mother and his brother of the impugned land. In fact the payment made of Rs.70,00,000/- by M/s Sukh Shanti Estates Pvt. Ltd. was on behalf of the appellant as per the Sale Deed since it was his liability that was borne by them. No benefit would occur to him as it was paid on his behalf. The subsequent dispute and the settlement would therefore in no way effect the calculation of the capital gains and the taxation thereof in his hands. Therefore, this ground of appeal is rejected.”
8. We have heard the rival contentions, perused the material available on record and duly considered facts of the case in the light of applicable legal position and decisions relied upon. The bench noted that as the appeal of the assessee was earlier decided on technical ground and based on the Miscellaneous application of the revenue the same was recalled to be decided on merits. On merits assessee has two grievance one is deduction of cost of improvement for a sum of Rs. 6,20,000 paid to contractor and benefit of improvement of cost of Rs. 70,00,000/- against the money paid to cure the defect in the tile and to settle the case filed in the civil courts. The bench noted that the property sold by the assessee is sold for which the father of the assessee is holding the possession since 1974-75 and the same is sold at a consideration 1,20,00,000/-. Subsequently, the valuation for stamp duty purpose first computed at Rs. 5,76,54,492/- and finally vide order dated 1506-2009 decided at Rs. 1,94,19,827/-. The revenue is replacing the stamp valuation against the actual consideration received by the assessee. As against this replacement assessee is asking for deduction of cost of improvement paid for a sum of Rs. 70,00,000/-to clear the defect in the title. As regards the disallowance of Rs. 6,20,000/- the only reason that the ld. DR reiterating that the AO while verifying the claim sent the inspector on the address not found the person and therefore, the claim was not considered. Against this claim the ld. AR of the assessee submitted proof of payment of the expenses incurred for a sum of Rs. 6,20,000/-(assessee’s paper book (APB) page 62) which is the receipt. This receipt is for the payment to be made which is in accordance with agreement executed on stamp paper with a terms and conditions of construction (APB-60&61). The source of payment for this expenditure is also supported by the bank account withdrawal (APB-63), the name of the contractor is also appearing in the bank statement at page 63 in the paper book. We have gone through the contentions of the assessee and revenue based on the evidences placed before us. We believe that once the name of the payee is appearing in the bank statement the identity of the payee is established at the time of payment. Merely, at the time of assessment the inspector did not find the payee on the address cannot be reason to disbelieve the claim of expenditure which are based on the independent evidence and the veracity of the same is not doubted by the revenue but there are certain observations of ld. CIT(A). On this issue we have also perused the finding of the ld. CIT(A) recorded at para 5.3 of his order wherein his objection while rejecting the claim was that the signature was not matching, in one of the payments instead of the name of Shri Lalit Saini name of Shri Ashok Gupta is written. On two payment date ld. CIT(A) stated that this payment is made to which Lalit Saini is not clear and the subsequent payment receipt the source of merely cash withdrawal the payment was not considered as genuine. While rejecting the claim he has also stated that the primary onus is not discharged as Mr. Lalit Saini not found on the address and was not produced / found at the address when the summons was issued and inspector visited the address. We have perused the evidences and rival contentions and based on the set of evidence we are of the considered view that the claim of the assessee is supported by the agreement, receipt and name appearing in the bank statement of the contractor. The ld. CIT(A) merely stated his comments and there is no controverted finding on the documents in the remand report and the contentions raised by the ld. CIT(A) were not verified by the ld. AO nor the finding is appearing in the order of the ld. CIT(A) that the ld. AO has commented on these documents. The assessee was not given an opportunity to refuted these allegations so made. Before us also except the findings of the ld. CIT(A) there is no comment on the documents and its veracity of these documents and merely based on surmised and conjecture the claim which is supported by documents and the source of the payment made is not disbelieved the claim of the assessee cannot be disbelieved on the reason that as on the date of inspector visit during the pendency of the assessment at the given address the person not found. The reasons canvassed cannot be a base to disbelieve the claim which is supported by the various evidence placed on record. In the light of these observations, we are of the view that the claim of the assessee for an amount of Rs. 6,20,000/-cannot be disbelieved and thus, we hold that the revenue has erred in not allowing the claim of the assessee and therefore, we direct the ld. AO to allow the claim of the assessee to the extent of the share of the assessee in this payment. In the light of these observations, we allow the Ground no. 1 raised by the assessee.
8.2 As per the written submission the ld. AR of the assessee has not pressed the ground no. 2 & 4 and therefore, the same is dismissed.
8.3 The ground no. 3 raised by the assessee is not allowing the benefit of a sum of Rs. 70,00,000/- paid for acquiring title in the land sold resulting into charging of capital gain at very high figure i.e. the substitution of stamp duty valuation at Rs. 1,94,19,827/-. Before us the ld. AR of the assessee in its fairness agreed though the assessee has no legal title on the property sold the property at distress value and the same was at Rs. 1,20,00,000/- where in the share of the assessee is 40%. The stamp duty authority in the first instance valued that property at Rs. 5,76,54,492/- and thereafter, the same was reduced to Rs. 1,94,19,827/- vide order dated 15-062009. As per provision of section 50C while computing the amount of capital gain chargeable to tax the ld. AO has applied that revised stamp assessed value as actual consideration received thus value of consideration has been substituted from Rs. 1,20,00,000/- to Rs. 1,94,19,827/-. We find force in the arguments of the ld. AR of the assessee when the revenue is substituting the sales consideration the assessee has not objected but submitted before the ld. CIT(A) based on the additional evidences that the effect of expenditure in curing the title of the property be allowed. The ld. CIT(A) has on this issue called for the remand report of the assessing officer and the assessing officer objected the claim on the following grounds:
“1) A plain reading of the compromise letter would clarify that in the said compromise the assessee or his family members neither received any amount from the buyer or paid any amount to M/s Jai Mahal Hotels Pvt. Ltd. Simply because some amount changed hands in consequence to this compromise between the buyer and the above hotel, the assessee cannot claim a notional increase in his cost of acquisition.
2) The payment of Rs. 70,00,000/- by the buyer appears to be for the purpose of purchasing a clear title to the property in question. This title was never the property of the assessee in the first place as has been accepted by the assessee himself. Therefore the payment of Rs. 70,00,000/- received by M/s Jai Mahal Hotels Pvt. Ltd. was in my case for something that belonged to it and not the assessee. The assessee has no right to claim any escalation in his cost of acquisition consequent to this agreement.”
From the above it is clear that the ld. AO is not disputing the payment that the same is made by the buyer to settle the dispute and is related to same property. He has not disputed the settlement made by the parties in dispute and has also not disbelieve the proof of the payment made. The ld. CIT(A) in his order taken a view that the title of the property was not disputed based on the sales deed made by the assessee and his family, the ld. CIT(A) also taken a view that since there is inability of the seller of the property the same has been paid by the buyer and therefore, the benefit of the same cannot be given to the assessee and these dispute are subsequent to the sale and therefore it will not affect the computation of capital gain. Thus, based on these facts placed before us so far lower authority has not disputed that there was a settlement of dispute which was before the competent court and the dispute was related to this property where in the assessee was also one of the parties to the disputes. So, once the revenue is substituting the sale price with the stamp duty valuation the contention of the assessee in the appellate proceeding based on the additional evidence placed an alternative argument that if the amount is reconsideration based on the stamp valuation the relevant receipt of the disputed amount falls due and the same is required to considered as paid to settle the same property disputed and the deduction under section 48 is claimed by the assessee to the extent of his share @ 40%. To understand the claim of the assessee in the light of the provision of section 48, the relevant provision is reiterated here in below;
Mode of computation.
48. The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :—
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the asset and the cost of any improvement thereto;
38[(iii) in case of value of any money or capital asset received by a specified person from a specified entity referred to in subsection (4) of section 45, the amount chargeable to income-tax as income of such specified entity under that sub-section which is attributable to the capital asset being transferred by the specified entity, calculated in the prescribed manner39:]
Thus, section allow the expenditure incurred wholly and exclusively in connection with such transfer for which capital gain is charged is allowable. The claim of the assessee for these additional payment is if it considered as additional flow by way of consideration as the same is paid to clear the title of the property the same is also required to be deducted to the extent the same is paid wholly and exclusively for the purpose of the transfer in question. It is not disputed the payment is made which is wholly and exclusively related to the said property and the we find force in the argument of the ld. AR of the assessee let the additional payment be considered as additional receipt of the assessee and the same be considered as cost of improvement incurred wholly and exclusively for the purpose of such transfer, as the dispute is related to the transfer of the property made by the assessee. The expression “in connection with such transfer” is wider than the expression “for transfer”. Any amount, the payment of which is absolutely necessary to affect the transfer will be an expenditure covered under section 48(1)(i)[ Gopee Nath Paul & Sons Vs. DCIT 278 ITR 240(Cal)] the finding of the high court in this regard is reiterated here in below;
4. It appears from the materials on record that there was a suit between the Allahabad Bank and Gobindo Sheet Metal. In the said suit the Allahabad Bank claimed certain amount to the extent of Rs. 25,00,000 appx. on account of Gobindo Sheet Metal’s liability towards the loan obtained from the Allahabad Bank which was sought to be recovered together with a declaration of hypothecation of certain movable goods including stock-in-trade. At the same time, there was another suit in which an arbitration agreement was sought to be filed on account of dispute including the dispute involved in respect of the dissolution of the two firms, Gopee Nath Paul & Sons and Gobindo Sheet Metal Works & Foundry between the partners of the respective two firms i.e.: the parties who were common. In the latter suit, there was a compromise in which both the firms stood dissolved from the date agreed in the terms of settlement and the Receiver was appointed in terms thereof for the purpose of selling these two firms as going concerns. From the subsequent orders, it appears that those firms could not be sold as going concerns on account of the liability of Gobindo Sheet Metal towards the Allahabad Bank.
4.1 After having passed several orders, by an order dated 27-4-1989, the Court directed deposit of Rs. 25,00,000 with the Registrar of this Court to be kept in fixed deposit with the Allahabad Bank free from lien and all attachments until further orders of this Court. This was done in order to effectuate the transfer of the assets of these two firms after securing payment of the liability towards the Allahabad Bank in respect of one of the firms. It appears that there was but one sale comprising of the assets of both the firms and the bid of one Ganesh Prasad at Rs. 3,51,00,000 was accepted as the highest bid and that the payment towards the same was made in driblets from time-to-time.
4.2 From the assessment order, it appears that this whole amount was brought at the hands of the assessee for being assessed for short-term capital gains. There is nothing to show that there was a separate sale of the assets of Gobindo Sheet Metal and those of Gopee Nath Paul. It clearly appears from the orders and the terms of settlement, which was substituted subsequently, as it appears from the supplementary paper book at page 14, that the assets of both the firms were sold through one auction and the whole receipt was assessed at the hands of the assessee. From the order of confirmation of the sale at page 186 of the paper book, it appears that the sale was confirmed subject to prior payment of the monies as directed in the said order. The said order indicates that a sum of Rs. 15,59,425.43 was to be deducted by the Allahabad Bank before releasing the balance amount of the fixed deposit of the said sum of Rs. 25,00,000 set apart for meeting its liability. The sale was confirmed subject to the meeting of the liability of the Allahabad Bank. It appears that until the sale was confirmed the sale could not have been effected and the sale consideration could be received only after meeting the liability of the Allahabad Bank. Section 48(1) : The principle : The expenditure : Whether incurred wholly and exclusively in connection with the transfer :
5. Section 48(1), as it stood in 1992-93, while providing for computation of capital gains permitted in clause (i) deduction of the “expenditure incurred wholly and exclusively in connection with such transfer”. The expression ‘in connection with such transfer’ is wider than the expression ‘for the transfer’. Any amount the payment of which is absolutely necessary to effect the transfer will be an expenditure covered by clause (i) of section 48(1). In other words, if without removing any encumbrance, sale or transfer could not be effected, the amount paid for removing that encumbrance will fall under clause (i).
5.1 From the facts as disclosed above, it appears that the amount was received out of the sale of assets of both the firms under orders of this Court subject to meeting of the liability of the Allahabad Bank since confirmed only upon prior payment. Inasmuch as, unless this liability was met, the transferee could not derive any title. In other words, the sale consideration receivable by the assessee was less the liability of the Allahabad Bank. Thus, meeting this liability of one of the firms, when the entire assets were being sold, was an absolute necessity to effect the transfer. In other words, it was an encumbrance without removing which the sale or transfer could not be effected and the amount spent for removing this encumbrance would definitely attract clause (i) of section 48(1).
5.2 From the Assessment Order (page 37 of the paper book), it appears that earlier the assessee used to conduct its business under the name and style of Gobindo Sheet Metal Works & Foundry. CIT (Appeals) at pages 43-44 of the paper book have found that the short-term capital gain arising out of the sale of the assets pertaining to the erstwhile business of the appellant in the name and style of Gobindo Sheet Metal Works & Foundry and on the sale of the factory and assets of the erstwhile business through public auction, the total consideration received was Rs. 3,66,24,005. From the details of the expenses and liabilities claimed, it was seen that an amount of Rs. 27,85,523 had been shown as payable to the Allahabad Bank. However, the CIT (Appeals) found that there was no pre-condition that the appellant could not sell its assets without settling the dues of the Allahabad Bank and even if it was, it would be a case of application of the income.
5.3 As discussed above, in this case the sale could not be effected without meeting the liability, as it appears from the different orders passed by this Court in the latter suit wherefrom it is apparent that the former suit was transferred to this Court and was ultimately settled between the parties through Lok Adalat.
5.4 But from the facts as discussed above, we are of the view that the orders passed by this Court directing the sale of the assets of the two firms and its confirmation thereof are staring on the face of the inference drawn by the CIT (Appeals). Thus, we are of the view that the liability met by the assessee towards the dues of the Allahabad Bank was an expenditure incurred wholly and exclusively in connection with the transfer.
The Citations :
6. We are supported in our above view by the decision in the case of CIT v. Shakuntala Kantilal [1991] 190 ITR 561 (Bom.); and we are in agreement with the view taken in the said decision. Reference was also made to the case of CIT v. Abrar Alvi [2001] 247 ITR 3122 (Bom.), wherein, relying on Shakuntala Kantilal’s case (supra), it was held that an expenditure in removing encumbrance would be deductible in computation of capital gains. However, the discharge of mortgage created by the assessee after he acquired the property would not be deductible.
6.1 On the other hand, the decision cited by Mr. Som in D.D. Chittaranjan v. CIT [1992] 193 ITR 2383 (Mad.) is distinguishable on facts, inasmuch as in this case, the amount of the sale proceeds was paid to a third party with whom there was certain dispute between that third party and the wife of the assessee in respect of a different property of which the wife was the absolute owner and as such the amount paid to meet the liability of the wife in respect of another property could not be held to be an expenditure incurred for the purpose of transfer of the assessee’s own property different from the property of his wife. On fact, it was found that there was no connection of this expenditure with the transfer.
6.2 The decision in S.R.V. Press & Publication (P.) Ltd.’s case (supra) cited by Mr. Som is also distinguishable and would have no manner of application in the present case in view of the fact that the amount was spent in that case after the receipt of the consideration by the liquidator to discharge the liability of the assessee in respect of finance received from the Kerala Finance Corporation on the security of the property which was created after acquisition in course of a winding up proceeding. There was nothing from which it could be held that such payment was absolutely necessary. On the other hand, the learned Counsel for the assessee in that case had conceded that section 48 of the Act had no application to the facts of the said case. However, the alternative argument of the assessee was that the corporation had overriding title over the property. The amount paid was clearly relatable to title. Thus, it appears that there was no claim that the payment of that amount was an expenditure incurred wholly and exclusively in connection with the transfer. There is another distinguishing feature so far as the present case is concerned. Here the entire assets of the business of the two firms as ongoing concern were sought to be sold but could not be sold without removing the liability towards the Allahabad Bank. The assets included the whole business of the two firms and if the liability was not met before the sale, in that event, in this present case the sale consideration would have been reduced by the liability payable to the Allahabad Bank. Therefore, the decision cited does not help us in the facts and circumstances of the case to take a different view.
6.3 The decision in R.M. Arunachalam’s case (supra) dealt with the question of cost of acquisition, which is not a case here. It was not related to the perfection of title. Therefore, this decision does not help us in the context in which we are supposed to decide the present case. Conclusion :
7. The criteria is the perfection of title in order to affect the sale. In this present case, without removing the liability of the Allahabad Bank, the title of the purchaser could not be perfected. Having regard to the facts and circumstances of this case and the position in law as discussed above, the meeting of the liability of the Allahabad Bank relating to the assets of Gobindo Sheet Metal was an expenditure incurred wholly and exclusively in connection with the transfer.
Order :
8. For all these reasons, the appeal succeeds. The order of the learned Tribunal is hereby set aside.
Considering the wider scope of section 48 while computing the capital gain the payment made in relation the property if at the first instance be considered as additional consideration and at the same the payment of the said amount to settle the property dispute be considered as the payment which is absolutely necessary to affect the transfer made by the assessee and shall be considered as expenditure to which is covered by the provision of section 48 and the judicial decision as cited above. In terms of these observations the ground no. 3 raised by the assessee is allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on 08/02/2023.
Author Bio
So what is the taxability of Rs 70,00,000 in hands of Jai mahal Palace. Please guide