Case Note & Summary
The case involves an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) allowing deductions claimed by the assessee, Shri Kamlakar Moghe. The assessee's mother, Kamlabai Moghe, executed a Will on 17.12.1978 and died on 18.05.1988. By the Will, she divided her residential bungalow in Nagpur: the ground floor, garage, garden, and outhouse were given to the assessee, while the first floor was given to his brother, P.M. Moghe. P.M. Moghe died on 20.03.1996, bequeathing his share to his sisters (the assessee's sisters) excluding the undivided share of land. The assessee purchased the first floor construction for Rs.90,000, which did not include the value of the undivided share of land. Clause 7 of the Will provided that if the assessee or his brother had no surviving son, the property would go to the daughters of Kamlabai Moghe. Since the assessee had only a daughter and his brother's son died in 1985, the assessee's three sisters had an overriding title. To clear this title, the assessee paid Rs.15 lakh each to his three sisters and Rs.5 lakh each to his three nieces (daughters of P.M. Moghe), totaling Rs.60 lakhs. A family settlement was executed. After selling the property, the assessee claimed deductions: Rs.45 lakhs under Section 48(1) as cost of acquisition for payments to sisters, and Rs.22 lakhs under Section 54EC for investment in REC bonds. The Assessing Officer disallowed these deductions, but the ITAT allowed them. The Revenue appealed, raising two questions of law. The High Court, after hearing both sides, found no substantial question of law. It held that the payment of Rs.45 lakhs to the sisters was to remove an encumbrance and perfect title, thus deductible as cost of acquisition under Section 48(1). Regarding the Section 54EC deduction, the court noted that the investment in REC bonds was made within six months from the date of transfer, satisfying the condition. The appeal was dismissed.
Headnote
A) Income Tax - Capital Gains - Cost of Acquisition - Section 48(1) of Income Tax Act, 1961 - The assessee paid Rs.45 lakhs to his three sisters and Rs.15 lakhs to his three nieces to clear overriding title created by a Will. The ITAT allowed deduction of Rs.45 lakhs under Section 48(1) as cost of acquisition. The High Court held that the payment was to remove encumbrance and perfect title, thus deductible as cost of acquisition. (Paras 2-5) B) Income Tax - Capital Gains - Deduction under Section 54EC - Investment in REC Bonds - Section 54EC of Income Tax Act, 1961 - The assessee invested Rs.22 lakhs in REC bonds within six months from the date of transfer of property. The ITAT allowed deduction. The High Court upheld the deduction as the investment was within the prescribed period. (Paras 2, 6)
Issue of Consideration
Whether the ITAT was justified in allowing deduction of Rs.45 lacs under Section 48(1) of the Income Tax Act, 1961 and deduction of Rs.22 lacs under Section 54EC for investment in REC bonds.
Final Decision
Appeal dismissed. No substantial question of law arises. ITAT order upheld.
Law Points
- Deduction under Section 48(1) of Income Tax Act
- 1961 for cost of acquisition includes payments to clear overriding title
- Deduction under Section 54EC for investment in REC bonds is allowable if made within six months from date of transfer
