Case Law Details
CIT Vs Shakuntala Kantilal (Bombay High Court)
The issue under consideration is Whether compensation paid to earlier buyer to cancel the agreement is deductible expenditure u/s 48 for calculation of Capital Gains?
High Court states that, the section 48 broadly contemplates three amounts for the purpose of computing income chargeable under the head “Capital gains”. The first is the full value of the consideration for which the capital asset has been transferred. The second is the expenditure incurred wholly and exclusively in connection with such transfer and the third and the last is the cost of acquisition of the capital asset including the cost of any improvement thereto. It cannot be disputed that, unless the assessee had settled the dispute with Radia and Sons (Pvt.) Ltd., the sale transaction with Messr. Cosmos Co-operative Housing Society Ltd., under the agreement dated March 30, 1967, would not, rather would not, have materialised. If this transaction had not materialised, there would perhaps have been no question of capital gains. The sale would then have taken place at the rate of Rs. 29 per sq. yard as against Rs. 51 per sq. yard. One way of looking at the problem could be to say that the full value of the consideration in this case was not the apparent consideration, i.e., Rs. 2,58,672, but Rs. 2,23,168 (i.e., 2,58,672 minus Rs. 35,504). The Legislature, while using the expression “full value of consideration”, in our view, has contemplated both additions to as well as deductions from the apparent value. What it means is the real and effective consideration, that apart, so far as clause (i) of section 48 is concerned, we find that the expression “for the transfer”. The expression used is “the expenditure incurred wholly and exclusively in connection with such transfer”. The expression “in connection with such transfer” is, in our view, certainly wider than the expression “for the transfer”. Here again. HC are of the view that any amount the payment of which is absolutely necessary to effect the transfer will be an expenditure covered by this clause. In other words, if, without removing any encumbrance including the encumbrance of the type involved in this case, sale or transfer could not be effected, the amount paid AGEB for removing that encumbrance will fall under clause (i). Accordingly, HC agree with the Tribunal that the sale consideration requires to be reduced by the amount of compensation. Therefore, Appeal filed by the assessee accepted.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. In this departmental reference relating to the assessee’s assessment for the assessment year 1968-69, the Income-tax Appellate Tribunal has referred to this court two questions of law under section 256(1)of the Income-tax Act, 1961. The questions read thus :
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