Law:

Section:

JUDGMENT Balakrishna Eradi, J.—The Income-tax Appellate Tribunal, Cochin Bench, has referred to this court under section 256(1) of the Income-tax Act, 1961, hereinafter called the Act, the following questions of law: "(i)Whether, on the facts and circumstances of the case, the sum of Rs. 58,643 spent by the assessee did not represent the cost of acquisition of the capital asset within the meaning of section 48 read with section 55(2) of the Income-tax Act, 1961 ? (ii)Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the sum of Rs. 58,643 spent by the assessee did not represent the cost of improvement within the meaning of section 48 read with section 55(1)(b) of the Income-tax Act, 1961 ? (iii)Whether, on the facts and circumstances of the case, the Tribunal was right in finding that the assessee cannot get a deduction under section 48(ii) of the Income-tax Act, 1961, of anything more than Rs. 58,643 ?" The relevant facts which have given rise to the aforesaid questions fall within a short compass. One Shri A. Padmanabha Menon purchased an item of immovable property for Rs. 48,500 on December 10, 1953. He had to incur an additional expenditure of Rs. 1,420 by way of stamp duty and registration expenses in respect of that transaction of sale. Padmanabha Menon died in 1957. Before his death, he had hypothecated the property and it was only subject to the said mortgage that the property devolved on his heirs. The assessee has inherited a 1/5th share in the property. The assessee along with his other co-heirs discharged the mortgage created by the deceased, Padmanabha Menon, by payment of Rs. 58,643 to the mortgagee. Subsequently, the property was acquired by the State Government under the Land Acquisition Act on January 8, 1971, and a total compensation of Rs. 3,39,473 was paid to the assessee and the other four co-owners. In respect of the 1/5th share of the property belonging to the assessee, he declared a capital gain of Rs. 16,925. The mode of computation of income chargeable under the head capital gains adopted by the assessee was to deduct from the compensation received from the Government, the expen-ses incurred in…

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