RUGMANI VARMA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Tribunal referred the following question, for the assessment year 1975-76, under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this court :

(2.) THE assessee during the assessment year under consideration sold her property at No. 27/8, East Bashyakarlu Road, R.S. Puram, Coimbatore, for Rs. 1,76,000 and admitted a capital gain of Rs. 9,750. THE property was acquired through a will from her late father, K.P. Thampan. Hence, the cost of the previous owner was taken into consideration and the value as on January 1, 1954, at the option of the assessee was adopted at Rs. 70,000. THEre is no dispute with regard to the valuation. THE assessee's further claim of cost of improvement at Rs. 27,000 was also allowed by the Tribunal. THE dispute is with regard to the claim of Rs. 30,000 paid by the assessee to her sisters on June 16, 1960, in terms of her late father's will, which stipulated that a sum of Rs. 15,000 to each of her two sisters, Ammini and Radha, or their representatives in interest was to be paid by the assessee and that the amount "shall be a charge on the said property", while settling the property in question on the assessee. THE Income-tax Officer disallowed the claim on the ground that there is no provision for allowance of this claim as it was not within the definitions of "cost of acquisition" of "cost of any improvement", defined under section 55 of the Act.

(3.) WE have heard learned counsel appearing for the assessee as well as learned standing counsel for the Department. The point for consideration is, whether a sum of 30,000 paid by the assessee to two of her sisters, as per the directions contained in the will dated January 16, 1956, executed by her father, would go to increase the cost of acquisition in the hands of the previous owner, viz., her father. Section 45 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, subject to certain exemptions and deductions, be chargeable to income-tax as capital gains and shall be deemed to be the income of the previous year in which the transfer took place. Section 48 lays down the mode of computation of the capital gains and the deductions to be made. According to section 48, the income chargeable under the head "Capital gains" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer, the amounts mentioned which include the cost of acquisition of the capital asset and the cost of any improvement thereto. Section 55 defines what is "cost of improvement" and what is "cost of acquisition". "Cost of improvements" means expenditure of a capital nature incurred in making any additions or alterations to the capital asset by an assessee after it became his property and in the case of assets which became the property of the assessee by any of the modes mentioned in sub-section (1) of section 49 by the previous owner. Sub-section (2) defines what is "cost of acquisition" for the purpose of sections 48 and 49. Section 49 deals with cost with reference to certain modes of acquisition. One of the modes of acquisition, which is relevant is, where the capital asset became the property of the assessee under the gift or will. In such cases of acquisition, the cost of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. It is in view of the provisions contained in section 55(2)(ii), we have to consider in the present case whether the sum of Rs. 30,000 paid by the assessee to two of her sisters as per the direction contained in the will executed by her father would go to increase the cost of acquisition as ascertained in the hands of the previous owner.