COMMISSIONER OF INCOME-TAX v. SAS HOTEL (P) LTD.
HIGH
COURT OF MADRAS
R. Sivaraman, for the Applicant :
P. P. S. Janardhana Raja, for the Respondent
ORDER
JAYASIMHA BABU, J :
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The Revenue contends that the urban land tax and corporation tax paid
by the owner of the urban land cannot properly be regarded as part of
the cost of the acquisition of the land for the purpose of determining
the capital gains arising to the owner at the time of transfer of the
land. Sec. 48 of the
Act which deals with the mode of computation rules that the capital gains
shall be computed excluding the expenditure incurred wholly and exclusively
in connection with such transfer, as also the cost of acquisition of the
capital asset and the cost of any improvement thereto. Urban land tax
and corporation tax does not fall under any of the heads. The payment
of tax is one of the items of costs holding the land.
2. Payment of such tax, the land by the owner (sic-by the land owner)
does not form part of the cost of acquisition, nor is it part of the expenditure
incurred by the owner in connection with the transfer payment of tax also
does not amount to improvement of the land. The Tribunal, therefore, as
rightly contended by the counsel for the Revenue, was in error in holding
that the urban land tax and corporation tax paid by the assessee-on the
44 grounds and 1,578 sq. ft. of land which was sold by it-from the date
on which land was purchased by the assessee till the time of the sale
to several persons, should be deducted under section
48 of the Act.
3. The
Supreme Court in the case of R. M. Arunachalam vs. CIT (1997) 141 CTR (SC) 348 : (1997)
227 ITR 222 (SC) : TC S22.2360, while considering the cost of acquisition of a capital
asset on sale of which capital gains liable to tax arises, has held that estate duty paid
by the assessee to inherit the property is not a charge creating an interest in the
property and it does not form part of the cost of the acquisition.
4. The question referred to us for the asst. yr. 1976-77, at the instance of the Revenue,
namely :
"Whether on the facts and in the circumstances of the case and having regard to the
provisions of Part E of Chapter IV of the IT Act, 1961, the Tribunal was right in holding
that urban land tax and other taxes paid by the assessee would form part of cost of
acquisition of the property and should be deducted while computing the short-term capital
gains in the assessee's case" is, therefore, answered in favour of the Revenue
and against the assessee. The Revenue shall be entitled to costs in the sum of Rs. 1,500.
