Law: Income Tax Act, 1961

Section: 48(i),256(1)

SECTION 48(i) OF THE INCOME-TAX ACT, 1961 - CAPITAL GAINS - COMPUTATION OF - WHETHER LEGAL EXPENSES INCURRED BY ASSESSEE FOR OBTAINING COMPENSATION FOR COMPULSORY ACQUISITION OF HIS LAND, ARE ALLOWABLE AS DEDUCTION IN COMPUTATION OF CAPITAL GAINS UNDER SECTION 48(i ) - HELD, YES - WHETHER PAYMENT MADE TO TENANT FOR SURRENDERING HIS SHARE OF COMPENSATION TO ENABLE LANDLORD TO RECEIVE FULL AMOUNT OF COMPENSATION FOR COMPULSORY ACQUISITION OF HIS LAND, CAN BE TREATED AS EXPENDITURE INCURRED IN CONNECTION WITH COMPULSORY ACQUISITION - HELD, NO Facts Certain land belonging to the assessee was acquired by the Government. As there was a tenant on the land, who was also entitled to receive a share out of the compensation, the landlord paid Rs. 15,000 to the tenant for surrendering his right and thus received the entire compensation inclusive of the tenant's share. The assessee had also incurred legal expenses of Rs. 5,500 for obtaining the compensation. His claim for deduction of the said two amounts from the capital gains arising from the compulsory acquisition was rejected by the ITO. The Tribunal, however, accepted the assessee's claim holding that both the expenses were connected with the transfer. On reference: Held So far as the claim in respect of the legal expenses was concerned, it was to be allowed because the assessee undisputedly incurred those legal expenses for obtaining compensation for compulsory acquisition of his land. It could, therefore, be properly considered as an expenditure incurred wholly and exclusively in connection with such transfer under section 48(i ). No assessee can be denied the legal expenses incurred for obtaining the compensation for compulsory acquisition and it is immaterial whether the expenditure is incurred subsequent to or prior to the award. As regards the claim for deduction of the amount paid by the assessee to his tenant for surrendering the tatter's tight to enable the assessee to receive the entire compensation including the portion belonging to the tenant, such a payment cannot be considered as an expenditure in connection with such transfer. The transfer contemplated under section 48(i) is only one transfer which, in…

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