COMMISSIONER OF INCOME TAX Vs. SHAKUNTALA KANTILAL

JUDGEMENT

(1.) IN this Departmental reference relating to the assessee's assessment for the asst. year 1968 69, the Tribunal has referred to this Court two questions of law under S. 256(1) of the IT Act,1961. The questions read thus :

(2.) THE assessee had purchased a plot of land admeasuring 5,072 sq. yards at Borivli in the year 1948 for Rs. 15,774. On 2nd Aug., 1963, the assessee entered into an agreement for sale of the said property with Radia and Sons (Pvt.) Ltd. at the rate of Rs. 29 per sq. yard. For reasons not necessary to be referred to, disputes and differences cropped up between the parties. Radia and Sons (Pvt.) Ltd. filed a suit against the assessee in our High Court being Suit No. 337 of 1965 for specific performance, inter alia, praying for (i) that the agreement for sale dt. 2nd Aug., 1963 be declared valid and subsisting between the parties; and (ii) in the alternative, Radia and Sons (Pvt.) Ltd. be given compensation of Rs. 75,720. Eventually, there was a settlement between the parties. It was agreed that the assessee shall pay to Radia and Sons (Pvt.) Ltd. compensation of Rs. 35,504 at the rate of Rs. 7 per sq. yard upon which Radia and Sons would withdraw the above suit.

(3.) THE assessee claimed that this amount of Rs. 35,504 should be allowed as deduction for the purpose of computing her income under the head "Capital gains" either as expenditure incurred in connection with the transfer or as cost of improvement or under S. 48 itself. The Departmental authorities rejected the claim. On further appeal, the Tribunal accepted the assessee's contention that the transfer of the property to M/s. Cosmos Co operative Housing Society Ltd. could not have taken place unless the compensation of Rs. 35,504 was paid to M/s. Radia and Sons (Pvt.) Ltd. It was held that the expenditure was thus incurred wholly and exclusively in connection with the transfer as contemplated under S. 48(i) of the Act. The Tribunal also held that the expenditure in question could be said to have been incurred with a view to remove the obstruction and obtain a clear title to the property before sale and, in that view of the matter, such expenditure would also form part of the cost of acquisition of the capital asset or the cost of improvement thereto as contemplated under S. 48(ii) of the Act. For this and other reasons stated in the order, the Tribunal allowed the assessee's claim.