COMMISSIONER OF INCOME TAX Vs. RANGA SETTY R

JUDGEMENT

(1.) THIS is a reference under s. 256(1) of the IT Act, 1961. The questions referred are :

(2.) THE reference arises out of an order of assessment made on the assessee, an individual, for the asst. yr. 1976-77. THE accounting year ended on 31st March, 1976. THE land belonging to the assessee was acquired by the Government. He received the entire compensation inclusive of the customary share which a tenant is ordinarily entitled to out of such compensation. THE assessee had incurred legal expenses of Rs. 5,500 and had paid compensation of Rs. 15,000 to the tenant for surrendering his rights. THE ITO brought to tax the capital gains on the compensation received by the assessee. THE assessee claimed two deductions: (i) Rs. 5,500 being the legal expenses; and (ii) Rs. 15,000 paid to the tenant. THE ITO did not allow those claims. THE AAC confirmed the finding of the ITO and dismissed the appeal.

(3.) THERE is no difficulty in accepting the claim of the assessee in regard to the legal expenses. The assessee undisputedly incurred legal expenses amounting to Rs. 5,500 for obtaining compensation for compulsory acquisition of his land. It can, therefore, be properly considered as an expenditure incurred wholly and exclusively in connection with such transfer under s. 48(i). No assessee could be denied the legal expenses incurred for obtaining the compensation for compulsory acquisition of the property. Our view finds support from the decision of the Kerala High Court in V.A. Vasumathi vs. CIT and Anr. (1980) 16 CTR (Ker) 381 : (1980) 123 ITR 94 (Ker) : TC21R.351. THERE it was observed that all expenditure wholly and exclusively incurred in connection with litigation for obtaining compensation upon compulsory acquisition of land should be considered as an expenditure within the meaning of s. 48 of the IT Act, 1961 and it is immaterial whether the expenditure was incurred subsequent to the award or prior to the award. We respectfully share this view.