COMMISSIONER OF INCOME TAX Vs. NARENDRA N CHAUHAN

JUDGEMENT

(1.) In this reference at the instance of the revenue, the following question is referred for our opinion in respect of assessment year 1975-76 :-

(2.) Mr Narandas J Chauhan purchased certain agricultural lands for Rs. 9,000.00 on 3.7.1954. He threw the said property in his HUF on 27.1.1958. Thereafter the HUF of Mr Narandas J Chauhan, father of the assessee started construction on a piece of the said land and spent Rs.42,354.00. The assessee pressed for a partial partition which was effected on 15.10.1971. At that time, the total property of the HUF of Mr Narandas J Chauhan was valued at Rs.2,20,000.00. One-fifth share of the assessee came to Rs.44,000.00. Sub-plot No. 2 admeasuring 1347 sq.yards including the incompletely constructed bungalow fell to the lot of the assessee, but since the assessee's share in the HUF property at the time of partition had come to only Rs.44,000.00, the assessee was required to pay Rs.23,000.00 more to the HUF of Mr Narandas J Chauhan for getting sub-plot No. 2 alongwith incompletely constructed bungalow which was valued at Rs.67,000.00. The assessee accordingly got sub-plot No. 2 alongwith the incomplete bungalow. The assessee sold the said property for Rs.1,42,000.00 on 4.10.1974. The assessee worked out the capital gain at Rs.73,591.00 as per the following calculations :- @@@ Less : Cost prices 1,42,000 Land value 1,855 Amount spent by HUF 42,354 ------ 44,209 Add : Amount payable to HUF as per release deed 23,000 Add : Amount paid to contractor 1,200 ------ 68,409 -------- 73,591 ======== The Income-tax Officer allowed the claim of Rs.1,200.00 paid to contractor, but rejected the claim for Rs.1,855.00 being the proportionate cost of the land. The Income-tax officer also rejected the claim of deduction of Rs.23,000.00 which the assessee had paid as the additional cost over and above the assessee's share in the HUF property at the time of partial partition. In appeal, the Appellate Assistant Commissioner allowed deduction of Rs.1,855.00 in the computation of capital gains, but rejected the assessee's claim for deduction of Rs.23,000.00 on the ground that payment of Rs.23,000.00 by the assessee to the HUF of Mr Narandas J Chauhan was not a permissible deduction in view of the provisions of Section 49(1) of the Act, more particularly as the assessee had not made any improvement to the property which the assessee obtained at the time of partial partition. The assessee carried the matter in appeal before the Tribunal and contended that the assessee had paid Rs.23,000.00 to the HUF of Mr Narandas J Chauhan in respect of the additional interest in the property so as to become full owner of the property because at the time of partial partition the value of the property was put at Rs.67,000.00 and since the assessee's share in the property of the larger HUF came to Rs.44,000.00, the assessee would not have got full ownership right in the property in question without paying the additional amount of Rs. 23,000/-. The Tribunal accepted the assessee's contentions and allowed the appeal holding that since the assessee had paid Rs.23,000.00 for getting the additional interest in the property over and above the interest which the assessee got at the time of partial partition, that was the cost of acquisition to the assessee for the additional interest in the property. Hence, this reference at the instance of the revenue.

(3.) We have heard Mr Akil Kureshi, learned counsel for the revenue and Mr BD Karia, learned counsel for the respondent-assessee.