MATHURDAS MANGALDAS PARKEKH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this case at the instance of the assessee the following three questions have been referred to us for our opinion by the Tribunal :

(2.) AT the commencement of the hearing of this reference, Mr. K. C. Patel, the learned counsel for the assessee, stated that the assessee was not pressing questions Nos. 1 and 3 and the only question No. 2. The facts leading to this reference are as follows : We are concerned with the assessment years 1967 -68 and 1968 -69, the previous years being the calendar years 1966 and 1967, respectively. The assessee owned a plot of land bearing survey No. 118 of Kocharab and final Plot No. 314 of the Ahmedabad Town Planning Scheme No. 20 admeasuring 5 acres 27 gunthas, i.e., 27,467 sq. yds. Out of the said land the Municipal Corporation of Ahmedabad acquired 5,507 sq. yds. of land on July 28, 1966, and the assessee received Rs. 38,549 by way of compensation. By an agreement for sale dated April 5, 1966, the assessee agreed to sell 21,960 sq. yds. of land out of the said land to one Venus Land Development Corporation, a partnership firm. Thereafter, in pursuance of the said agreement, by a sale deed dated November 8, 1966, the assessee sold 8,574 sq. yds. of land for Rs. 2,91,516 to Natraj Co -operative Housing Society Ltd., and partners of M/s. Venus Land Development Corporation joined as confirming parties to the sale deed. In pursuance of the aforesaid agreement for sale, the assessee further sold 9,920 sq. yds. of land to Anilkumar Kashibhai Patel and others for Rs. 3,37,484 on January 24, 1967. The ITO sought to tax capital gains arising out of the acquisition of the land by the Ahmedabad Municipal Corporation and sale in favour of Anilkumar Kashibhai Patel and others was concerned, the ITO sought to tax capital gains arising out of the said sale in the assessment year 1968 -69. The assessee, however, contended that he was not liable to pay tax on the capital gains inasmuch as the aforesaid land sold by him was agricultural land. As regards the computation of capital gains the assessee contended land. As regards the computation of capital gains the assessee contended that the value of the land as on January 1, 1954, was Rs. 15 per sq. yd. instead of Rs. 10 per sq. yd. as held by the ITO. He further claimed that the betterment levy paid by him to the Ahmedabad Municipal Corporation be added to the value of the land as on January 1, 1954, or the cost of the land for the purpose of computation of capital gains. This contention was based on the provisions of s. 48(ii) of the I.T. Act, 1961.

(3.) QUESTION No. 2 which now survives for our consideration relates to the betterment charges of Rs. 60,390 paid by the assessee to the Ahmedabad Municipal Corporation under the provisions of the relevant Town Planning Act and the question is whether the amount should be considered to be the cost of improvement within the meaning of s. 48(ii) of the I.T. Act, 1961. Section 48(ii) of the Act provides that the income chargeable under the head 'capital gains' shall be computed by deduction from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely, the cost of acquisition of the capital asset and the cost of any improvement thereto. Under s. 55(1)(b) of the Act, special meaning of 'cost of improvement' for the purpose of ss. 48, 49 and 50 has been laid down by the Legislature and it has been provided that the 'cost of any improvement' in relation to a capital asset in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in sub -s. (1) of s. 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head 'Interest on securities', 'Income from house property', 'Profits and gains of business or profession' or 'Income from other sources' and the expression 'improvement' shall be construed accordingly.