COMMISSIONER OF INCOME TAX Vs. ADITYA KUMAR JAJODIA

JUDGEMENT

(1.) Two questions have been raised by the Revenue in this appeal: that since the perpetual lease in respect to an immovable property held by the predecessor-in-interest of the assessee was converted into outright ownership after the assessee acquired the property by way of a bequest under a Will and the period between the acquisition of full ownership and the transfer was short, the sale of such property attracted short-term capital gains tax; and, the payments allegedly made by the assessee to others asserting rights over the same immovable property could not have qualified for deduction under Section 55(1)(b)(2)(ii) of the Income Tax Act, 1961 since the payments made thereunder could not be regarded as cost of improvement to the relevant immovable property.

(2.) There is no dispute that the assessee in this case obtained the property under a Will. The Will apparently gave some interest to a trust and, thus, the assessee's acquisition of the perpetual lease was subject to rights of the trust as flowing from the Will. In addition, the testator had entered into an agreement for sale of the property with a third party and had even obtained clearance under Chapter XX of the Act for such purpose and, when the assessee evinced a desire to transfer the property or the interest therein, such third party lodged a claim which had to be settled by the assessee. It is also not in dispute that at the time of the acquisition of the leasehold rights by the assessee's predecessor-in-interest in or about 1968, a perpetual lease was granted by the relevant authority. After the assessee inherited such rights under the Will, the assessee perfected the rights to full ownership upon payment of a sum of about Rs. 55 lakh to the Delhi Development Authority (DDA).

(3.) The Revenue claims that since the acquisition of the full ownership pertaining to the property preceded the transfer thereof by the assessee by a few months, the assessee was liable to pay tax on the short-term capital gain. It is also the Revenue's contention that the payments made to the trust, to DDA for bettering the title of the asset qua the property and to the third party for such third party to give up his rights under the agreement for sale executed by the assessee's predecessor would not qualify for deduction. The Revenue maintains that none of such payments were for the improvement of the property and, as such, could not be regarded as cost of improvement within the meaning of the relevant expression in Section 55(1)(b)(2)(ii) of the Act.