Opinion Of Eminent Legal Luminaries On Controversial Issues

Capital gains – Computation – S. 55

QUERY: Amount paid to tenants for vacating the house against compensation (Pagidi). Can I treat the entire compensation which was paid to the tenant while calculating capital gains ?
ANSWER: Yes, the Bombay High Court in CIT v. Shakuntala Kantilal [190 ITR 56] has held that the expression "full value of consideration" in our view has contemplated both additions as well as deduction from the apparent value. What it means is the real and effective consideration. That apart so far as clause (i) of section 48 is concerned, we find that the expression used by the Legislature in its wisdom is wider than the expression "for the transfer". The expression used is "the expenditure incurred wholly and exclusively in connection with such transfer". The expression "in connection with such transfer" is, in our view, certainly wider than the expression "for the transfer". Here again, we are of the view that any amount the payment of which is absolutely necessary to effect the transfer will be an expenditure covered by this clause. In other words, if without removing any encumbrance including encumbrance of the type involved in this case, sale or transfer could not be effected the amount paid for removing that encumbrance will fall under clause (i). Accordingly, we agree with the Tribunal that the sale consideration is required to be reduced by the amount of compensation.
Similar view has been reiterated by the Bombay High Court in CIT v. Abrav Alvi [247 ITR 312] and Madras High Court in CIT v. Bradford Trading Co. (P) Ltd. [261 ITR 222]. Even the Bombay High Court in CIT v. Miss Piroja C. Patel [ 242 ITR 582] has held that the compensation paid by assessee to the hutment dwellers for vacating land before its sale is "cost of improvement" deductible u/s. 48(ii).
So, amount paid to tenants for vacating the house can be deducted while calculating capital gains tax under section 48 of the Act.


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