During the course of appellate proceedings, the representative of the assessee submitted that the expenditure towards proportionate compensation of Rs. 79,36,350/- is allowable u/s. 48(1) of the Act, as upon succession of the impugned property, the assessee had paid the compensation as per the document submitted. The representative averred that where the assessee’s ancestors create any lien, mortgage or any actionable claim, and the assessee who inherits the property makes payment for the purpose of clearing of such actionable claims for perfecting the title, such payments should be regarded as cost of acquisition u/s. 48. He averred that this is applicable for a property under sale which is ancestral in nature and devolved on the assessee upon inheritance. Reliance in this regard was placed on the decision in the case of V S M R Jagadish Chandra Vs. CIT (227 ITR 240).
Considered the rival submissions and perused the material facts on record. In the case of Smt. Farida Alladin Vs. ACIT (supra), the coordinate bench held as under:
8. We have considered the rival contentions and also perused the relevant material on record. It is observed that the property sold by the assessee during the year under consideration was an ancestral property and the assessee’s ancestors had created an encumbrance over the said property by giving the same property on lease of 99 years to M/s. Voltas Limited. In order to get the lease hold rights released from M/s. Voltas Limited and obtain the possession of the property, the amount in question was paid by the assessee as compensation and the same was claimed as deduction being the cost of acquisition for the purpose of computing capital gain. The A.O. however disallowed the said deduction claimed by the assessee and the Ld. CIT(A) confirmed the said disallowance made by the A. O. by relying on the decision of Hon’ble Bombay High Court in the case of CIT vs. R.M. Merchant Hussein and Fancy Corporation Limited (supra).
9. In support of assessee’s claim on this issue, the Ld. Counsel for the assessee has relied on two decisions of the Hon’ble Supreme Court in the case of VSMR Jagadishchandran (Decd) by L.Rs vs. CIT (supra) and R.M. Arunachalam vs. CIT (supra). In the case of VSMR Jagdishchandran (Decd) by L.Rs. vs. CIT (supra), it was held by the Hon’ble Supreme Court that where mortgage was created by previous owner during his life time and the same was subsisting on the date of his death, the successor obtained only the mortgagor’s interest in the property and by discharging the mortgage debt, he acquired the mortgagee’s interest in the property and therefore, the amount paid to clear off the mortgage was the cost of acquisition of the mortgagee’s interest in the property which was deductible as cost of acquisition under section 48. A similar view has been reiterated by the Hon’ble Supreme Court in the case of R.N. Arunachalam vs. CIT (supra) decided simultaneously.
10. At the time of hearing before us, learned D.R. has made an attempt to distinguish the aforesaid decisions of the Hon’ble Supreme Court cited by the Ld. Counsel for the assessee by contending that the same are rendered in the context of mortgage of property whereas the case of the assessee involves payment made for release of lease hold rights. We are unable to accept this contention of the learned D.R. In our opinion, the proposition propounded by the Hon’ble Supreme Court in the case of VSMR Jagadishchandran (Decd) by L.Rs. vs. CIT (supra) as well as R.N. Arunachalam vs. CIT (supra) would be applicable in the case of any encumbrance created by the predecessor which has been removed by the successor to the property by making payment of compensation.
11. In his impugned order, the Ld. CIT(A) has relied on the decision of Hon’ble Bombay High Court in the case of CIT vs. R.M. Merchant Hussein and Fancy Corporation Ltd., 275 ITR 231 while confirming the disallowance made by the A.O. on this issue. A perusal of the judgment of the Hon’ble Bombay High Court in the said case however shows that the same is distinguishable on facts inasmuch as the property in the said case was acquired by the assessee free from encumbrances and since expenditure was incurred by the assessee to remove the encumbrance which was created by himself, the Hon’ble Bombay High Court held that the same was not deductible under section 48 of the Act. In our opinion, the reliance of the Ld. CIT(A) on the decision of Hon’ble Bombay High Court in the case of R.M. Merchant Hussein and Fancy Corporation Ltd., (supra) to confirm the disallowance made by the A.O. on this issue thus is clearly misplaced. We therefore respectfully follow the decisions of the Hon’ble Supreme Court in the case of VSMR Jagadishchandran (Decd) by L.Rs. vs. CIT (supra) as well as in the case of R.N. Arunachalam vs. CIT (supra) and direct the A.O. to allow the deduction claimed by the assessee under section 48 on account of payment made to M/s. Voltas Limited for release of lease hold rights created by her ancestors/predecessors. Ground No. 1 of assessee’s appeal is accordingly allowed.”
As the issue raised before us is materially similar to the said case, respectfully following the decision of the coordinate bench on this issue, we allow the ground raised by the assessee.
FULL TEXT OF THE ITAT JUDGMENT
