IDICULLA K V Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following questions have been referred at the instance of the assessee :

(2.) THE dispute between the parties centres on the assessment of an amount of Rs. 32,700 as the capital gains arising out of the transfer of a land with building, having an extent of 47.5 cents, to the assessee's wife. THE assessment year concerned is 1980-81 corresponding to the accounting period ending March 31, 1980. This property belonged to the assessee's father, one K.I. Varkey, who had purchased it on June 16, 1964. He was an authorised dealer in rationed articles. THE assessee's wife had received sthreedhanam which was invested in her father-in-law Varkey's business, in which she had a credit balance of Rs. 73,570 as on December 31, 1978. Varkey executed a will on August 23, 1979, bequeathing this property to his son, the assessee, directing that the amount due to the assessee's wife should be paid out of this property. After Varkey's death on September 30, 1979, the assessee transferred the property to his wife by two documents dated October 15 and 22, 1979, for a consideration of Rs. 83,700. In the return filed by him for the assessment year 1980-81, the assessee declared a capital gain of Rs. 5,544 claiming, inter alia, that he had effected improvements to the property to the extent of Rs. 49,047. THE Income-tax Officer adopted the amount of Rs. 83,700 as the full value of the consideration, from which he deducted Rs. 21,000 as the cost of acquisition, being the amount for which Varkey purchased the property on June 16, 1964, as also an amount of Rs. 20,000 as cost of improvements as against Rs. 49,047 claimed. He thus brought to tax an amount of Rs. 42,700 as capital gains. This was confirmed in appeal by the Appellate Assistant Commissioner and also by the Tribunal, subject to an enhancement by the Tribunal, of the cost of improvements from Rs. 20,000 to Rs. 30,000. At the assessee's instance, the aforesaid questions have been referred for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act").

(3.) IN our view, the case on hand falls under the latter clause where the obligation is self-imposed, apart from its being only an application of the consideration received by the assessee. There is no case that the assessee's wife had sought any charge on the property for the amount due to her. At best, what the deceased Varkey did was only to ensure that the assessee's wife got her money, with an expression that it may be a charge on the property. It was only an obligation to pay a debt created by himself (in this case, Varkey), and an application of the consideration for discharge of the debt. The payment of the debt was not made by virtue of any overriding obligation to make payment of it, but was just the discharge of an obligation created by Varkey himself in favour of his daughter-in-law. This is a case of an application of the sale price after it reaches the assessee, and not a diversion at source before it reaches the assessee. The full value of the consideration has therefore to be taken as Rs. 83,700, and not that amount less the amount due to the assessee's wife.