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12. [2016] 161 ITD 211 (Ahmedabad Trib. - SMC) Nanubhai Keshavlal Chokshi HUF vs. ITO A.Y.: 2008-09 Date of Order: 1st August, 2016

C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi
Chartered Accountants

Section 48 – If an assessee makes payment to his brother, who was living with him for years, for vacating his house, the same would be considered as an expenditure incurred for improvement of asset or title and would be allowed as deduction while computing long term capital gain arising on sale of said house.

FACTS

During the relevant assessment year, the assessee had shown income from long term capital gain arising from sale of house property.

While computing the said capital gains, the assessee had claimed deduction of certain amount paid by him, to his brother, for vacating the house.

The AO as well as CIT(A) declined the deduction on account of the following reasons:

-  Municipal tax bills submitted by assessee showed that assessee was the sole occupant of the property.

-   Valuation of the property was done before sale of the said property and the valuation report of the property, dated 22-06-2007, stated that assessee was the sole occupant of the property.

-   Assessee’s brother had stated in his statement recorded u/s. 133(1) that he was living with the assessee, not in capacity as a tenant and was not paying any rent, but was staying in the house as per assessee’s wish and he was not having right over the property in any capacity.

-   As per the will of assessee’s father dated 12-06-1957, the different properties were distributed between the assessee and his brother such that both of them should get an equal amount of properties valuing Rs. 35,000/- each. That shows that the assessee had exclusive right over the property on which the assessee claims that his brother was occupying as tenant.

HELD

Section 48 of the Income-tax Act contemplates mode of computation of capital gains. It provides that income chargeable under the head "Capital Gains" shall be computed by deducting from the full value of the consideration the following amounts, viz. (i) the expenditure incurred wholly and exclusively in connection with such transfer, and (ii) cost of acquisition of the asset and the cost of any improvement thereto.

According to the assessee, his brother was residing in the house owned by him and while selling the house in order to get vacant possession, payment of certain sum was made by the assessee’s HUF to assessee’s brother. As far as payment part is concerned, there is no dispute. The payment was made through account payee cheque. Assessee’s brother has confirmed receipt of money and has also filed affidavit to this effect.

The question is whether the payment made by the assessee to his brother is to be considered as expenditure incurred for improvement of asset or the title.

On an analysis of the record, I find that the revenue has approached to the controversy in strictly mechanical way. Whereas in the present appeal, situation was required to be appreciated, keeping in mind social circumstances and the relationship of the brothers. What was their settlement while residing together? What was the feeling of the elder brother towards their younger brother, when they displaced them from a property where they were residing for more than 24 years?

Had the controversy been appreciated in a mechanical manner, and if the brother, who was residing in the house refused to vacate the house, then, what would be the situation before the assessee. The assessee might have had to file a suit for possession that might be decided against his brother and his brother’s ejection from the premises, but that would have consumed time in our judicial process of at least more than ten to fifteen years. The prospective buyers may not have been available in such circumstances. Though the assessee’s brother had not been paying any rent, but he was paying the electricity bills.

Hence, the payment made by the assessee is held as made for improvement of title of the property and is allowed as deduction while computing the long term capital gain.