IN THE INCOME-TAX APPELLATE TRIBUNAL 'A' BENCH, CHENNAI. Before Dr. O.K. Narayanan, Vice-President & Shri S.S. Godara, Judicial Member I.T.A. No.177/Mds/2012 Assessment Year: 2007-08 Shri K. Ramachandran, The Income Tax Officer, No. 182, (Old No. 90), Habibullah Vs. Salary Ward II(3), Road, T. Nagar, Chennai 600 017. Chennai. [PAN:AAJPR4774K] (Appellant) (Respondent) Appellant by : Shri V.D. Gopal, Advocate Respondent by : Shri Shaji P. Jacob, Addl. CIT Date of Hearing : 15.04.2013 Date of pronouncement : 29.04.2013 ORDER
PER S.S. Godara, Judicial Member This assessee's appeal is directed against the order of the Commissioner of Income Tax (Appeals) IV, Chennai dated 16.11.2011 in ITA No. 326/09-10/A.IV for assessment year 2007-08, in proceedings under section 143(3) of the Income Tax Act 1961 [in short the "Act"].
2. The only grievance sought to be agitated by the assessee is that the CIT(A) has erred in confirming disallowance in computation of capital gains made by the Assessing Officer of `.12,77,102/-. In support, he places on record a paper book containing the following particulars:
"1. COPY OF THE WILL AND TESTAMENT DT 31.07.1972 2 I.T.A. No.1 No.177/M/ 77/M/12 /M/12
2. COPY OF THE PLAINT
3. COPY OF THE LAWYER MRVENKATESAN - NOTICE DT 09.10.1990 3 (a). COPY OF MADRAS HIGH COURT DECREE
4. COPY OF THE LAWYER MRS A RAJAN - NOTICE DT 05.11.1990
5. COPY OF THE PLAINT C S NO. 759 OF 1992
6. COPY OF THE LAWYER NOTICE FROM MR B KUMAR DT 19.01.1992
7. COPY OF THE MADRAS HIGH COURT SUMMON C S NO. 759 OF 1992
8. COPY OF THE LAWYER NOTICE FROM MR B KUMAR DT 24.07.1992
9. COPY OF THE MADRAS HIGH COURT NOTICE C S NO. 759 OF 1992
10. COPY OF WRITTEN STATEMENT OF 7TH DEFENDANT - MS. N K LALITHA
11. COPY OF WRITTEN STATEMENT OF 9TH & 11 TH DEFENDANTS -
MR G RAMAN AND MS. REVATHY
12. COPY OF LAWYER NOTICE FROM MR. J NANDAGOPAL DT 03.03.2003
13. COPY OF THE AFFIDAVIT OF MR. K P RAVINDRAN ON BEHALF OF THE PETITIONER
14. COPY OF THE AFFIDAVIT OF MR. K P RAVINDRAN ON BEHALF OF THE PETITIONER
15. COPY OF THE ITR -1271TR 713 OF SMT. VALLIAMMAI AND ANOTHER vs C.I.T MADRAS
16. COPY OF THE ITR - 227 ITR 222(SC) OF R M ARUNACHALAM vs C.I.T
17. COPY OF THE APPLICATION FOR GRANT OF LETTER OF ADMINISTRATION OF THE WILL
18. COPY OF CHEQUE LEAVES AS PROOF OF PAYMENT TO THE DEFENDANTS"
In light thereof, acceptance of the appeal has been prayed for.
3. Per contra, the Revenue strongly argues that the CIT(A) has rightly held that the assessee is not entitled for relief of deduction in computing capital gains. By citing the case law of CIT vs. V. Indira (1979) 119 ITR 837 (Mad.), he prays for confirmation of CIT(A)'s order.
4. We have heard the parties at length and perused the findings of the Assessing Officer and CIT(A). The paper book as well as case law cited 3 I.T.A. No.1 No.177/M/ 77/M/12 /M/12 have also been gone through.
5. Admitted facts of the case are that the assessee is an 'individual', having incomes from pension, house property, capital gains and other sources. On 31.07.2007, he had 'returned' income of `.2,59,520/-.
6. In previous year relevant to the impugned assessment year, the assessee had sold a property and building appurtenant thereto for `.85.00 lakhs wherein respective valuation for land read as `.78,97,500/- and building's value `.6,02,500/-. In computing capital gains arising therefrom, he chose to claim deduction of `.12,77,102/- [inclusive of an amount of `.11,98,352/- and also settlement charges] paid to his sisters. Per assessee, the aforesaid amounts represented cost of acquisition of the asset transferred.
7. In the assessment order dated 21.12.2009, the Assessing Officer did not accept assessee's explanation aforesaid and held while disallowing/ adding the claim that the amount paid to the sisters was neither cost of acquisition of the asset nor its improvement. He was of the view that whilst executing 'Will' in question way back in the year 1972, the assessee's mother had duly bequeathed her estate in favour of the assessee and other beneficiaries without any lien or charge there upon, therefore, the amount claimed could not qualify as deduction whilst computing capital gains under 4 I.T.A. No.1 No.177/M/ 77/M/12 /M/12 section 48 of the "Act".
8. In appeal, the CIT(A) has also affirmed the findings of the Assessing Officer.
Therefore, the assessee is in appeal before the 'Tribunal'.
9. After going through the pleadings and paper book filed by the assessee, it is revealed that the assessee is son of Shri K.S. Krishnasami Iyengar and Smt. Seliamani Ammal. The said couple had ten issues born from its loins namely Shri K.K. Ranagarajan, Shri K. Ramachandran (assessee), Shri K.S. Ragavan and Shri K. Venkataramani [four sons]; and six daughters namely Smt. Saroja, Smt. Subhadra, Smt. Lalitha, Smt. Pushpa, Miss. Padmavathi and Smt. Rangamani.
10. On 31.07.1972, assessee's mother Smt. Chellamani Ammal executed a "Will" bequeathing her properties [including the one in question] to her four sons and one daughter (Smt. Pushpa) only. On 14/16.08.1972, the Sub- Registrar concerned registered the "Will". On 19.07.1972, the testatrix died. Since the other daughters of the testatrix/assessee's sisters had been left without any share, this ensued litigious atmosphere in the family resulting in legal notice and civil proceedings which were instituted before the Hon'ble Jurisdictional High Court. It further transpires that though four of assessee's sisters had got served a legal notice on 19.10.1990 to the beneficiaries (supra), only two of them instituted civil proceedings challenging the 5 I.T.A. No.1 No.177/M/ 77/M/12 /M/12 genuineness of the "Will". On the other side, the assessee along with other co-beneficiaries applied for letter of administration on the basis of the "Will" in the Hon'ble Jurisdictional High Court. It is to be seen that during the pendency thereof, sacred family fibre thread prevailed over the family members. This resulted in a settlement, wherein the assessee and other beneficiaries settled the issue by compensating the other left out daughters and legal representatives of those who had died in the intervening period.
11. It is evident from the paper book pages 114 to 123 that the beneficiaries [including the assessee] made payments to the left out members and their L/Rs by way of pay orders. The Revenue also does not raise any doubt either about the factum of payment or the genuineness thereof. Since the family members, who had disputed the "Will" had got compensation, the lis seeking letter of administration (supra) came to an end on 17.11.2006 granting the relief sought therein. After this, the assessee chose to sell the property vide sale deed dated 14.12.2006 and raised the claim in question of `.12,77,102/- which has been declined by the Assessing Officer and CIT(A) holding it as neither cost of acquisition nor improvement of the asset. Therefore, the moot question which arises for our consideration is whether the amount paid by the assessee to the sisters or their L/R calls for relief of deduction for the purpose of computing capital gains under section 48 of the "Act" or not.6 I.T.A. No.1
No.177/M/ 77/M/12 /M/12
12. Coming to the case law cited, it is noticed that in the Full Bench of the Hon'ble Jurisdictional High Court in the case of Smt. S. Valliammai and Another (supra), the issue pertained to estate duty vis-à-vis section 48 of the "Act". While deciding the issue, the Hon'ble Full Bench observed that the estate duty sought to be claimed as deduction would form neither the cost of acquisition nor improvement of the asset. The Hon'ble Supreme Court has also upheld the Hon'ble Full Bench decision. A perusal of the judgment of the Full Bench further makes it clear that it had also affirmed the legal position in V. Indira's case (cited by the Revenue), wherein the issue was of inheritance by way of a "Will" in favour of the assessee and a third person challenged her title. The Hon'ble Jurisdictional High Court had held that settlement therein was neither cost of acquisition nor improvement of the asset. In this backdrop of the judicial decisions, we find that the facts of the case in hand are different than those involved in Indira's case. Herein, five of assessee's sisters had been left out in the "Will". This led to litigations amongst the family members forming clouds of imperfection threatening to render the assessee's title itself as defective. So, the beneficiaries (including assessee) paid the amount in lieu of amicable solution. In this background of the facts, we find that the Hon'ble Full Bench decision rather supports the case of the assessee as under:
"..................... It is only when the title acquired by them is defective, incomplete or imperfect, the cost of making their title complete and 7 I.T.A. No.1 No.177/M/ 77/M/12 /M/12 perfect can be treated as the cost of acquisition. It is not, therefore, possible to treat the estate duty paid as part of the cost of acquisition as defined in s. 55(2) of the Act."
Taking cue from the same, we hold that since by making the payment in question, the assessee also completed and perfected his title by entering in settlement. This resulted in letter of administration. In these given circumstances and guided by Hon'ble Full Bench decision duly upheld by the Hon'ble Supreme Court, we conclude that the amount in question represents cost of acquisition of the asset sold by the assessee which is liable to be included in computation of capital gains under section 48 of the "Act".
13. As sequel to our above discussions, appeal stands accepted.
Order pronounced on Monday, the 29th of April, 2013 at Chennai.
Sd/- Sd/- (Dr. O.K. NARAYANAN) (S.S. GODARA) VICE-PRESIDENT JUDICIAL MEMBER Chennai, Dated, the 29.04.2013 Vm/- To: The assessee//A.O./CIT(A)/CIT/D.R.