Andhra HC (Pre-Telangana)
Commissioner Of Income-Tax vs T. Srinivasa Rao, T. Pushpamma, T. ... on 11 February, 1987
Equivalent citations: [1987]166ITR593(AP)
Author: K. Ramaswamy
Bench: K. Ramaswamy
JUDGMENT M.N. Rao, J.
1. This judgment will dispose of all the five references since they raise a common question of law. At the instance of the Revenue in all the five cases, the following question of law was referred by the Income-tax Appellate Tribunal under section 256(1) of the income-tax Act, 1961, for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the assessee was entitled to the deduction of the amount claimed to have been to the protected tenants at Rs. 60,000 each ?"
These cases related to the assessment years 1970-71 and 1971-72. We may take the facts of R. C. No. 190 of 1979 as illustrative of the group of cases.
Under the provisions of the Requisitioning and Acquisition of Immovable Property Act, 1952, certain lands belonging to the assessee were acquired by the government in respect of which certain amounts were paid by way of compensation. The lands were under the occupation of protected tenants. The assessee, in each of the five cases, paid a consideration of Rs. 60,000 to each of the protected tenants in order to "perfect his title". This amount of Rs. 60,000 was claimed by each of the assessees as admissible deduction under section 48 (ii) of the Income-tax Act for the purposes of computation of capital gains under section 45. The income-tax Officer disallowed the claim on the ground that the expenditure incurred was not in connection with the acquisition of the lands. On appeal, the Appellate Assistant Commissioner agreed with the view taken by the Income-tax Officer. On further appeal to the Income-tax Appellate Tribunal, the assessee succeeded. The Tribunal was of the view that :
"any expenditure incurred in order to make the title perfect would constitute an expenditure incurred for the purposes of acquiring the property and, therefore, it would necessarily have to be treated as forming part of cost of acquisition."
At the instance of the Revenue all the five cases were referred to this court.
Sri Suryanarayana Murthy, learned standing counsel for the Revenue, contends that the view taken by the Tribunal is erroneous. He submits that the assessee have not perfected their title by paying the amounts to the protected tenants. They only improved their title in order receive the entire compensation. In other words, they paid the amounts as considerations for acquiring exclusive rights to receive compensation under the Requisitioning and Acquisition of Immovable Property Act. There was not impediment for the Government to acquire the lands or to take possession of the lands. The tenants, being protected tenants, which right though heritable in respect of the lands in question, would have been entitled to 60% of the compensation under the provisions of the Act. The expenditure incurred by the assesses, according to learned counsel, could not be treated as one incurred in connection with the transfer of the land or cost of improvement or acquisition of the capital asset.
Sri N. V. B. Shankar Rao, learned counsel for the assessees, on the other hand, contends that the views taken by the Tribunal is correct. Unless vacant possession was handed over, the compensation would not have been paid to the assesses. Therefore, the assessees were compelled to part with the amounts so as to make available vacant land to the Government. The expenditure incurred in connection with this must be treated as allowable deduction under section 48, as the expenditure was incurred in connection with the cost of acquisition of the capital asset by the assesses.
It is not in dispute that the lands were acquired under the provisions of the Requisitioning and Acquisition of Immovable Property Act, 1952. It is also not in dispute that the assessee paid the amounts in question to the protected tenants. It is also admitted that the tenants gave declarations before the Collector relinquishing their rights in respect of the lands acquired. It is, therefore, necessary to consider whether the expenditure in question incurred by the assessee is a climbable deduction under the provisions of section 48 read with section 55 of the Income-tax Act.
Section 2 (47) of the Income-tax Act defines "transfer" as follows :
"'transfer' in relation to a capital asset, includes the sale, exchanges or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law."
Under section 45, any profits or gains arising from the transfer of a capital asset are chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. The modus of computation and deductions are dealt with under section 48 which reads thus :
"The income chargeable under the had 'Capital gains' shall be computed the deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :-
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto."
The expressions "cost of any improvement" and "cost of acquisition" are defined in sections 55 (1) (b) and 55 (2), respectively, as follows :
Section 55 (1) (b) : "'cost of any improvement', in relation to a capital asset, -
(i) where the capital asset became the property of the previous owner or the assessee before the 1st day of January, 1964, and the fair market value of the asset on that day is taken as the cost of acquisition at the option of the assessee, means all expenditure of a capital asset on or after the said date by the previous owner or the assessee, and
(ii) in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head 'Interest on securities', 'Income from house property', 'Profits and gains of business or profession', or 'Income from other sources', and the expression 'improvement' shall be construed accordingly."
Section 55(2) :
"For the purposes of section 48 and 49, 'cost of acquisition', in relation to a capital asset, -
(i) where the capital asset became the property of the assessee before the 1st day of January, 1964, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of January, 1964, at the option of the assessee;
(ii) Where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of the January, 1964, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of January, 1964, at the option of the assessee;
(iii) Where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head 'Capital gains' in respect of that asset under section 46, means the fair market value of the asset on the date of distribution."
Under section 3 of the Requisitioning and Acquisition of Immovable Property Act, if the competent authority is of the opinion that any property is needed for a public purpose, being a purpose of Union, he may requisition that property. Under section 4 of the Act, where any property has been requisitioned, the competent authority may give notice in writing to the owner as well as to any other person in possession of the property to surrender or deliver possession to the competent authority. Under section 7, if the Central Government is of the opinion that it is necessary to requisition the property, it may acquire the property. Section 2 (c) defines "landlord" as any person who, for the time being, is receiving or is entitled to receive the rent of the any premises, if the premises were let to a tenant. The expression "persons interested" is defined in clause (d) of section 2 as including all persons claiming or entitled to claim an interest in the compensation payable on account of the requisitioning or acquisition of any property under the Act. Under section 40 of the Andhra Pradesh (Telengana Area) Tenancy and Agricultural Lands Act, 1950, all rights of protected tenants are heritable. Section 40 (4) lays down that the interest of a protected tenant in the lands held by him as a protected tenant shall form sixty per cent. of the market value of all the interest in the land and that of the landholder and persons claiming under the landholder shall be limited to the remaining forty per cent.
By the date of the acquisition, the protected tenants, by virtue of section 40 (4) of the A. P. (T. A.) Tenancy and Agricultural Lands Act, were entitled to sixty per cent. interest in the lands. There was no obligation under the provisions of the Requisitioning and Acquisition of Immovable Property Act on the assesses to hand over vacant possession. The competent authority was empowered under the provision of section 4 of the Requisitioning and Acquisition Act to take possession. The protected tenants, but for the relinquishment of their rights, would have been entitled to notice in the compensation proceedings. Had the protected tenants not relinquished their rights in respect of the land in question, they would have been entitled to sixty per cent. of the compensation. The expenditure incurred by the assessee, in our view, appears to be wholly outside the ambit of section 48. The expenditure cannot be treated as something incurred wholly and exclusively in connection with the transfer. There was no legal obligation on the assessee purporting to be for the assesses to hand over vacant possession. There was neither any statutory requirements nor a contractual obligation for the assessees to hand over vacant possession to the competent authority. Any expenditure incurred by the assessees purporting to be for the purpose of handing over the vacant possession, in our view, in the particular circumstances of the case, would not fall within the ambit of section 48 (i) as expenditure incurred wholly and exclusively in connection with the transfer of land. The expenditure also cannot be treated as falling within the ambit of section 48 (ii) as cost of acquisition of the capital asset and cost of improvement made to the land. The Madras high Court considered the scope of the section 48 in CIT v. V. Indira . In that case, a sum of Rs. 6,943 which was paid for claimed as allowable deduction. As the amount was paid by the assessee, the Madras High Court ruled that it did not qualify for deduction as cost of acquisition of the capital asset. Any amount paid by way of settlement of claim to the person who disputed the title of the assessee cannot be said to be expenditure by way of any improvement to the asset.
As already noticed, the expression "cost of acquisition" has been defined in section 55 (2). The expenditure in question is not covered by any of the clauses under section 55 (2). The meaning assigned to the expression "cost of acquisition" under section 55(2) is exhaustive and the language employed is peremptory. It is not open to us introduce any other facts of meaning to the expression "cost of acquisition". It would be totally unrealistic to say that the expenditure incurred by the assessee answers the description of "cost of acquisition" under section 55 (2). The expenditure in question is totally outside the ambit of section 55 (1) (b).
The Tribunal, in our opinion committed an error in thinking that the expenditure incurred by the assessee for perfecting their title would constitute expenditure incurred for the purpose of acquiring the property. What the assesses did was only purchasing the rights of the tenants to enable them to acquire exclusive rights to receive the compensation amounts. As already stated by us hereinbefore, if the protected tenants had not relinquished their rights, they would have received a major share of the compensation amounts, viz., to the extent of 60%. The Tribunal relied upon the decision of the Calcutta High Court in CIT v. Bengal Assam Investors Ltd. . In that case, an expenditure of Rs. 1,07,210 was incurred by the assessee for defending his title to the shares purchased in order to enable him to have voting rights. Without the shares being registered in his name, he would not have been entitled to voting rights and the shares would have been of no value. In the circumstances, the Calcutta High Court held that the expenditure incurred was an allowable deduction.
Sri Shankar Rao, learned counsel for the assessee, cited the following rulings in support of his contention that the expression "in connection with the transfer" accruing in section 48 (i) of the Income-tax Act is wide enough to take within its ambit an expenditure of the present nature. In CIT v. A. Venkataraman [1982] 137 ITR 846 (Mad), the transaction involved was between private persons. Under an agreement, the assessee was obliged to hand over vacant possession to the purchaser. He incurred certain expenditure in order to persuade the tenants to vacate the premises. The condition precedent for the transaction was that the assessee should hand over vacant possession. The Madras High Court held that in the particular circumstances, the amount was deductible under section 48 (i).
In CIT v. Shakuntala Rajeshwar also, the situation was the same. In this case, a sum of Rs. 1,00,000 was paid to the tenant by the assessee to persuade him to vacate in order to facilitate development of the plot. That amount was held to be a permissible deduction by the Tribunal. The Delhi High Court confirmed the view taken by the Tribunal. In CIT v. Dr. P. Rajendran , an expenditure incurred in connection with civil litigation pertaining to the property sold fell for consideration. The expenditure was held to be deductible in computation of capital gains. In CIT v. R. Ramanathan Chettiar , the expenditure incurred by the assessee for conversion of the land into plots and for getting the approval of layout was held to be a permissible deduction. None of these cases lays down the proposition that an expenditure of the present nature is a climbable deduction under section 48.
For the foregoing reason, we answer the question in favour of the Revenue and against the assessee in all the five cases. No costs.
Sri Shankar Rao, learned counsel for the assessees, made an oral request for leave to appeal to the Supreme Court. In our view, this is not a fit case for granting leave. Leave is accordingly refused.