COMMISSIONER OF INCOME TAX Vs. P RAJENDRAN

JUDGEMENT

(1.) THIS is a reference made to this Court by the Tribunal, Cochin Bench (hereinafter called "the Tribunal") at the instance of the Revenue under s. 256(1) of the IT Act, 1961 (for short "the Act"). The questions referred are :

(2.) AN immovable property belonging to the assessee was acquired by the State Govt. under the Land Acquisition Act in March, 1967. Under the award of the Land Acquisition Officer, the assessee was paid compensation of Rs. 47,000. But the assessee was not satisfied with the compensation so fixed by the Land Acquisition Officer and hence he got the matter referred to the civil Court under s. 20 of the Land Acquisition Act for enhancement of the compensation. The claim put forward by the assessee before the civil Court was that a sum of Rs. 2,58,233 should have been awarded to him as the market value of the property acquired. When the ITO finalised the assessment of the assessee for the asst. yr. 1967-68 the land acquisition reference case was pending only before the Subordinate Judge's Court, Calicut. The ITO treated the amount of Rs. 2,58,233 (which the assessee had claimed before the civil Court) as the full value of the consideration for the transfer of the capital asset and on this basis he determined the capital gains that had accrued to the assessee at the, figure of Rs. 2,35,233 after allowing a deduction of Rs. 23,000 by way of cost of acquisition and improvement. The assessee appealed to the AAC. The civil Court had not rendered its decision in the land acquisition reference case even by the time the appeal came up for consideration before the AAC. The assessee had contended before the AAC that the claim for enhancement of the compensation made by him before the civil Court should not have been adopted by the ITO as the basis for the computation of the capital gains, because until the civil Court actually rendered its decision it was not possible to predict as to what extent, if any, the civil Court's decision regarding the claim would be upheld. This contention did not find favour with the AAC. The AAC, however, effected a substantial reduction in regard to the market value of a building situated in the property acquired and estimated the full value of the consideration of the property at Rs. 1,19,773. He allowed only a sum of Rs. 13,000 as deduction for cost of acquisition and the further deduction of Rs. 10,000 allowed by the ITO by way of cost of improvement was disallowed by the AAC. In the result, the AAC determined the quantum of capital gains at Rs. 1,06,773.

(3.) IT is contended before us by the counsel for the Revenue that the Tribunal has acted illegally in permitting the assessee to put forward before it for the first time, at the stage of second appeal, the claim for deduction in respect of the expenditure incurred in prosecuting the proceedings in the land acquisition reference case before the civil Court. The counsel contends that the subject-matter of the appeal before the Tribunal was only whether the AAC was right in estimating the full value of the consideration of the property at only Rs.. 1,19,773, by fixing the reduced value for the building situated on the land. We see no force at all in this contention. As pointed out by the Bombay High Court in Pokhraj Hirachand, vs. CIT (1963) 49 ITR 293 (Bom), the subject-matter of the appeal before the Tribunal consists of the grounds of appeal raised by the appellant in his memorandum of appeal, the grounds that the Tribunal may allow him to raise and also the contentions raised by the respondent before the Tribunal in support of the order made by the AAC by challenging the adverse finding against him. The assessee in this case had contended before the AAC that the ITO had acted illegally in adopting as a basis for the computation of capital gains the amount which the assessee had claimed as compensation before the civil Court. This contention had been negatived by the AAC. Before the Tribunal it was perfectly open to the assessee to contend in defence, in the Department's appeal praying for restoration of the estimate of the capital gains as determined by the ITO, that the basis of computation adopted by the AAC as well as by the ITO was erroneous in law. The Tribunal has, in effect, upheld that contention when it set aside the assessment on the sole ground that the proper basis to be adopted for computation of the capital gains was the final figure of compensation and solatium awarded by the High Court in the land acquisition reference proceedings. The question as to the deductibility of the expenses incurred in conducting the land acquisition reference proceedings is a matter which necessarily then arises as incidental to the adoption of the final decree awarded by the civil Court as the basis for computation of capital gains. It was only when the assessee's contention that the amount of compensation awarded by the Court should be adopted as the basis was upheld by the Tribunal, that the question of deductibility of the expenses properly arose. Hence, there was no illegality whatever involved in the assessee having been permitted by the Tribunal to put forward the contentions relating to the deductibility of the said item of expenditure.