Law:

Section:

Section 48(i ) of the income-tax act, 1961-Capital gains-Computation of-Whether expenditure incurred in litigation claiming enhancement of compensation awarded under the land acquisition act was wholly and exclusively incurred in connection with transfer of capital asset and allowable under section 48(i)-Held, yes Facts Certain expenditure was incurred by the assessee for the purpose of prosecuting in a civil court his claim for enhancement of the compensation under the Land Acquisition Act. The Commissioner disallowed such expenditure in computing capital gains tax liability on the ground that it was not incurred in connection with the transfer of capital asset. On reference, the revenue pleaded that the impugned expenditure was incurred subsequent to transfer and was, thus, allowable. Held 1. The words "in connection with such transfer", used under section 48(i ), mean intrinstcally related to the transfer. Only such expenditure, as is wholly and exclusively related in an intrinsic manner to the transfer, is a deductible expenditure. 2. The process of transfer by compulsory acquisition is completed only upon the final determination of the compensation by the competent authority. The litigation emanating from a reference under section 20 of the Land Acqusition Act was a proceeding intimately and intrinsically connected with the acquisition. 3. For the purpose of section 48, it is immaterial that the expenditure was incurred subsequent to the award so long as it was incurred wholly and exclusively in connection with the compulsory acquisition. 4. The action of the Commissioner in disallowing the impugned expenditure was quashed and the revenue was directed to determine the nature of the amount and pass appropriate order. Case review Raja Harish Chandra Raj Singh v. Deputy Land Acquisition Officer AIR 1961 SC 1500 followed. Cases referred to Johnson v. Johnson [1952] 1 All ER 250 (CA), Nanaimo Community Hotel Ltd., In re [1944] 4 DLR 638 and Raja Harish Chandra Raj Singh v. Deputy Land Acquisition Officer AIR 1961 SC 1500. JUDGMENT Kochu Thommen, J. - The Commissioner of Income-tax (the 1st respondent) by the impugned order (Ex. P-3) held that the petitioner was…

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