1. This is an appeal filed by the assessee and is directed against the order of CIT(A) dated 28/07/2000 for Asst. Year 1994-95.
1. The appellant facts aggrieved by the order of the CIT(A). The impugned order of the ld. CIT(A) is against the documentary evidence filed before him and he failed to understand and appreciate the facts of the case and evidence put on the record.
2. The ld. CIT(A) erred in holding and confirming the asstt. Order that the deduction claimed of Rs. 10 lacs in respect of amount provided for to the unmarried daughter by the HUF for her maintenance & marriage out of the sale price of the residential house, in the computation of capital gain, was in the nature of application of income out of capital gain and it was not a case of diversion of income out of overriding title. Hence, the said deduction was not admissible. In doing so, the ld. CIT(A) appears to be confused between natural obligation of a father towards the education, maintenance & marriage of his daughter and the legal obligation of an HUF to provide for marriage etc. of an unmarried daughter at the time of the particitioning of the HUF property and the charge attaching to such property when it has sold subsequently.
The appellant pleads that the subject property was encumbered and could be sold only on the release after Rs. 10 lacs were paid to the unmarried daughter. The said payment was to be allowed as deduction from the gross sale price of the property in the computation of capital gain, as it was diversion of income out of overriding title.
3. The ld. CIT(A) erred in confirming the addition of Rs. 40,000/- on ad hoc basis for supposedly inadequate withdrawals for household expenses. The correct fact adduced before him were not considered by the ld. CIT(A) in this regard. The Income Tax Appellate Tribunal may now delete the addition of Rs. 40,000/-.
4. The appellant claims appropriate relief on the above grounds of appeal.
3. Apropos ground Nos. l & 2, the assessee is an individual. During the year under consideration the assessee had sold a property comprising of land with existing old structure, situated at Shahibag, Camp Road, Ahmedabad for a total consideration of Rs. 37,64,985/-. Out of the said sale consideration a sum of Rs. 10 lacs was deducted on account of sum paid to his daughter Kum. Nikita Parikh and the long term capital gain was offered on the balance amount of consideration. The assessee was required to submit explanation for deductibility of said sum of Rs. 10 lacs. It was explained that the said sum was a charge created by the Court decree in Civil Suit No. 1421 of 1993 dtd. 31.3.93 for education, maintenance and marriage expenses of the daughter of the assessee and the buyer of the property had directly paid the said sum of Rs. 10 lacs to the daughter of the assessee. It was explained vide letter dated 10.12.1996 that the said property was received by assessee on total partition of the HUF of Krishnadas G. Parikh by way of consent decree dated 31.3.93 passed by City Civil Court. It was explained that the HUF of assessee consisted of 4 members viz. Shri K. G. Parikh, his wife Smt. Upmaben, Son Nakul K. Parikh and unmarried daughter Miss Nikita K.Parikh. Said Miss Nikita K. Parikh had filed a suit in the court of City Civil Judge on 22^nd March, 1993 bearing No. 1421/1993 on apprehension that her full right in HUF property may not be fully protected in the funds of partition of the family properties and thus the above mentioned consent decree was passed by City Civil Court. In the consent decree Miss Nikita Parkh was awarded following properties out of HUF properties: a) A sum of Rs. 10 lacs was set apart for education, maintenance and marriage expenses.
b) A share in the Jewellery, gold ornaments, silver utensils as per Annexure 'A' to Court Decree.
It was pointed out that consent decree was registered in Office of Sub-Registrar of properties at Sl. No. 14589 on 30.6.93 and the property which has been sold was received by assessee in pursuance of consent decree subject to realization of Rs. 10 lacs going to the share of Miss Nikita K. Parikh. A copy of consent decree was also filed and reference was made to paragraph 6 of the sale deed in which recital of the title of the seller was described. Thus it was contended that there was encumbrance on the property i.e. payment of Rs. 10 lacs to daughter Miss Nikita K. Parikh and the said amount was directly paid to the daughter of the assessee vide cheque No. 348605 dated 18.8.1993 on Punjab National Bank i.e. on the date of execution of sale deed.
Reference was also made to paragraph 14 of pages 11 and 12 of sale deed. It was explained that the same is allowable while computing capital gain either as an element of cost or as deduction from gross sale consideration and for this purpose reliance was placed on the decision of Hog. Gujarat High Court in the case of CIT v. Daksha Ramanlal 197 ITR 123 (Guj). The Assessing Officer found that daughter of assessee Kum. Nikita K. Parikh was staying with her father. She was major at the time of payment. She did not disclose that amount for taxation in her own return and it was shown as capital receipt in her hand. Assessing Officer further found that assessee by adopting this method had created a device so as to give it a colour of "charge" on the property to show it as diversion of income by overriding title.
There was a partition of HUF and already a family arrangement had been made on 4^th September, 1990 in which an amount of Rs. 5 lac was provided in favour of Kum. Nikita Parikh towards her education, maintenance and marriage and later by consent decree dated 31^st March, 1993 amount of Rs. 10 lac was provided. There was no real dispute between the members of family for going to the Court and reading of the Court order shows that it was mutually agreed upon and settled decree and thus "so called charge" was created by mutual agreement and apart from above share in jewellery and other valuables was also allocated to the daughter.
4. The Assessing Officer further observed that reliance by the assessee on the decision in the case of CIT v. Daksha Ramanlal (supra) is misplaced as the same relates to capital gain in respect of gifts of property which was mortgaged and redemption of mortgage amount was held deductible from subsequent sale of property. The Assessing Officer observed that said case related to mortgaged property and thus was not applicable to the present case. The Assessing Officer observed that considering the entirety of facts, it was a case of "application of income" and not a case of diversion of income by overriding title. He referred to the decision of Hon. Supreme Court in the case of 41 ITR 624 (SC) to contend that when assessee merely applies income even though under a legal obligation it remains as income. He also referred to other decisions of Hon. Supreme Court in the case of CIT v.Shitaldas Dhirajdas 41 ITR 367 (SC) wherein considering the "diversion by overriding title" it was held that the true test is to consider whether amount never reached the assessee as his income. Maintenance paid to wife and children under consent decree was not considered to be charge on the property and thus amount paid was not considered diversion at source but considered application of money to discharge an obligation. He disallowed the claim of assessee as per his observations in paragraph 7 as under: 7. Considering this all in totality, it clearly is a case of "application of income" when the property was sold; out of the capital gains arising and not a case of "diversion of income by overriding title ". In this respect, the Hon. Supreme Court in the case of reported in 41 ITR 624 (1961) has stated that when assessee merely applies income even though under a legal obligation, it remains his income. In another case of the Hon. Supreme Court reported in 41 ITR 367 (1961), it is held that where by obligation, the income is diverted before it reaches assessee, it is deductible but when income is required to be applied to discharge an obligation, after such income reaches the assessee, it is not deductible. Here, it is obligation of the father to maintain his unmarried daughter. This is also explained by the assessee himself when asked vide notice Under Section 142(1) dated 16.1.97 as to why entire amount of Rs. 10 lacs for Kum. Nikita Parikh is deducted from the capital gains in respect of assessee's case only and not from the other members of the HUF 's case. In reply filed on 20.1.97, the assessee stated that the entire amount of Rs. 10 lacs had been deducted from assessee's share only because as father of Kum. Nikita and Karta of HUF he is responsible for the maintenance and marriage of Kum. Nikita. Therefore, it is merely to discharge such an obligation that income out of capital gains, after it has become payable to the assessee, had been set apart for the daughter. Since unmarried daughter was not entitled to share in the property on partition which was sold for this capital gains; the capital gains accrued to the assessee, his wife and his son only. Only after this capital gain had actually arisen, this "application of income" had taken place. Filing of suit by Kum. Nikita Parikh against 3 others with whom she was staying and dependent upon as an unmarried daughter, i.e. her father, mother and brother is merely an eye-wash with a view to create an impression that income has been diverted before it reached the assessee. Relying on the same case reported in 41 ITR 367 (Supreme Court), the Kamataka High Court goes on to state that, ...."there may be obligations and obligations to apply the income derived by the assessee. The assessee might have been obliged to meet expenditure of his sister's marriage out of the income from the property given to him... such an expenditure incurred for the marriage of assessee's sister cannot be regarded as an overriding charge ". 162 ITR 457 (Krn) (1986). Similar, sentiments have been reflected in the Hon. Supreme Court's judgment reported in 88 ITR 1(1973). Considering the above, the assessee's claim for deduction of Rs. 10 lacs is rejected and the long term capital gains will be charged on the amount entirely received on sale of the properly at Rs. 37,64,985/-. Therefore, income chargeable under the head "capital gains " will work out to Rs. 28,58,295/-.
Aggrieved, assessee filed an appeal before CIT(A) who has upheld the disallowance with the following observations: 3. I have considered the rival submissions. At the outset, as rightly pointed out by the Assessing Officer the facts of the case of CIT v. Dahsha Ramanlal 197 ITR 123 & 124 are distinguishable from the facts of the appellant's case. Since her birth, the daughter has been looked after by her father i.e. the appellant, which fact has also been accepted by the appellant. Therefore, an arbitrator award or the compromise, reached mutually between the parties and got endorsed by the City Civil Court does not change the character of the obligation which the father of an unmarried daughter has to discharge. Also it is not the case where Rs. 10 lacs has been paid to the daughter and then the sale price of the property has been decided. The sale price of the property has been decided as a whole and therefore, as rightly observed by the Assessing Officer a sum money set aside to meet the natural obligation of a father towards his unmarried daughter becomes "application of income" and not "diversion of income by over-riding title". The obligation to look after the unmarried daughter till she is married off has always been there and does not change the character by attaching to it voluntarily created artificial charge. Therefore, I am in agreement with the decision taken by the Assessing Officer. This ground therefore fails.
5. Ld. AR after narrating the facts referred to the award dated 4.9.90 given in respect of partition of Shri Krishna G. Parikh (HUF), a copy of which has been placed at pages 5 to 17 of the paper book wherein following provisions were made to protect the interest of minor daughter Miss Nikita K. Parikh: (ii) Jewellery valuing Rs. 2.66 lacs plus gold ornaments valuing Rs. 3.10 lacs and silver utensils valuing Rs. 1.85 lacs, aggregating to Rs. 7.61 lacs (rupes seven lacs sixty one thousand) are directed to be set aside as provision for education, maintenance and marriage of minor daughter Nikita. There shall be a charge of Rs. 5 lacs (rupees five lacs) over the said property in favour of minor Nikita.
If, however, the property known as "Mathuresh Bhavan" is sold before the marriage of Nikita, a sum of Rs. 5 lacs (rupees five lacs) shall be set aside from the sale proceeds of the said property, for the education, maintenance and marriage of Nikita and the jewellery, gold ornaments and silver utensils mentioned above shall be apportioned and allocated equally to Krishnadas, Upma, Nakul and Nikita.
It is clarified that the charge of Rs. 5 lacs in favour of Nikita towards her education, maintenance and marriage will continue till she is paid Rs. 5 lacs out of the sale proceeds of the property known as "Mathuresh Bhavan" or till the entire expenses towards her maintenance, education and marriage are met. If the full amount of Rs. 5 lacs is not spent or utilized for the education, maintenance and marriage of Nikita, the balance amount shall be divided among Krishnadas, Upma and Nakul in equal proportion.
It is further clarified that in addition to the provision of Rs. 5 lacs for education, maintenance and marriage of Nikita, she would get 1/4th share of the jewellery, gold ornaments and silver utensils valued at Rs. 7.61 kacs as afiresaud.
He contended that upon attaining majority said Nikita K. Parikh apprehending that her interest in the property of HUF has not been properly awarded by the above mentioned award, had filed a suit in Civil Court on 22^nd March, 1993 a copy of such plaint was referred which has been filed at pages 18 to 24 of the paper book. He further invited our attention to the consent decree passed by the Civil Court, a copy of which has been filed at pages 31 to 41 of the paper book.
6. He further invited our attention towards copy of the order passed by Assessing Officer dated 10^th November, 1994 under the provisions of Section 171 of the Act recording therein the complete partition of Krishna G. Parikh HUF based on the decree passed by the Civil Court which is dated 31^st May, 1993. He also referred to the amendment made in the decree in 1997 as there were some typographical errors, the copy of which has been filed at pages 94 to 104 of the paper book. He contended that a charge was created by the decree on the property which was sold and the same was deductible from the sale price for the purpose of computation of capital gain as per the decision of the Tribunal in the case of JCIT v. Shri Prakash Haribhakti, (an unreported decision), dated 20^th January, 2006 in ITA No. 2417/Ahd/1999 "A" Bench wherein a payment of Rs. 10 lacs given by the assessee for vacating the premises which was subject to sale was held deductible from the sale price for the purpose of computation of capital gains. In the said case vide clause 3 of the agreement it was stated that the occupant of the premises namely Lakhanpal National Ltd. had agreed to give vacant possession of the premises to enable the assessee, vendor to sell the said premises on the condition that the vendor shall divert in favour of the licencee a sum of Rs. 10 lacs by an over-riding title from the consideration received by the vendor-assessee on sale of the said premises as their contribution to the licensee's cost of acquiring alternative premises. According to clause 4 of the said agreement the assessee vendor had agreed with the licensee that in order to get the vacant possession which is a condition precedent and essential to enable the assessee to sell the premises they will divert the sum of Rs. 10 lacs out of the consideration for sale of the said premises by an over-riding title in favour of the licencee. As per clause 5 of the agreement, as per the assessee-vendor, the said sum of Rs. 10 lacs was agreed to be paid to the licencee on the condition that out of final payment of the consideration for sale of said premises, the assessee will direct the purchaser to divert the said sum of Rs. 10 lacs by an over-riding title to the executor who will step in the shoes of the licencee on payment of Rs. 10 lacs and/or pay the said sum directly to the executor. Under these facts, this Tribunal has arrived at a conclusion that such payment made to evict the tenant/licencee/un-authorised occupant was equal to the payment made either as cost of improvement or as an expenditure while computing capital gain arising out of the sale of the property. Referring to this decision he contended that amount of Rs. 10 lacs paid to the daughter of assessee was allowable as deduction while computing capital gain arising to assessee.
7. Thus he contended that claim of the assessee should be allowed. He contended that the decision of Hon. Madras High Court in the case of CIT v. A. Venkataraman and Ors. 137 ITR 846 (Mad) is not applicable wherein it has been held that amount agreed to set apart from marriage expenses of sister under partition deed by which assessee acquired the property is not deductible from the capital gains arising on the sale of such property. He contended that in the said case there was no existence of Court decree, and therefore the said case is not applicable.
8. On the other hand, ld. DR referring to the chronology of the facts contended that there was an award of partition with regard to properties of HUF of assessee. He contended that said award is dated 4.9.90. He contended that in the said award provision was made for education, maintenance and marriage of said Miss Nikita K. Parikh. He contended that it was the case of Miss. Nikita K. Parikh that sufficient provision has not been made for her education, maintenance and marriage and thus the amount of Rs. 5 lacs was enhanced to Rs. 10 lacs by way of consent term which finally took place as consent decree by the order of the Court. He contended that there were various properties owned by the HUF out of which assessee became owner of many properties falling to his shares. He contended that as the said property was under sale agreement, with an ulterior motive it was mentioned that Rs. 10 lacs will be paid out of the sale proceeds of the said property. He contended that by passing the consent decree the assessee had become absolute and individual owner of the property.
Education, maintenance and marriage of daughter is legal obligation of a father and otherwise also the assessee was under an obligation to provide education, maintenance and marriage expenses to daughter. He contended that word "charge" was not appearing either in the award or consent decree but it was later on inserted in the consent decree by way of an amendment in 1997. He contended that Court decree is not binding while deciding cases under Income-tax Act. For this contention he relied on the following decisions: (1) Sushil Kumar & Co. Joint Commissioner of Income-tax 81 TTJ (Cal) (SB) 864. This decision was relied upon to contend that consent decree is solely based on terms and conditions as mutually agreed between the plaintiff and defendant and according to the decision of Hon. Supreme Court in the case of Lakahmi Shankar v. State AIR 1979 SC 457, decisions based on concession of parties did not constitute binding precedence and the parties to suit have only utilized the process of the Court to obtain a decree on mutual terms and conditions. Therefore, the term 'mesne profit' used in the consent decree and which had become part of consent decree does not become binding for the revenue authorities or the appellate authorities and it will be open to the taxing authorities to consider the real nature of the grant in suit on the facts and in the circumstances of the case.
(2) Anant Chunilal Kate v. ITO 73 ITD 71 (Pune) - in which it was held that merely because the assessee agreed before High Court to return the amount of sale proceeds it cannot be said that the right of the assessee in respect of amount of sale proceeds was an inchoate right and the income did not accrue to the assessee.
(3) Purushottam Chawrasia v. Gift Tax Officer (Nag) 61 ITD 89 (Nag) -in which consent order compromise decree was held to be a got up act and was found to be an attempt to avoid the stamp duty payable at the market value.CIT v. M.P. Poncha 211 ITR 1005 (Bom) - to contend that true test to find out that where there is diversion of income by over-riding charge, is whether the amount sought to be deducted, in truth never reached the assessee as his income and also to convey that there is difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Whereby the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence in law does not follow.
(5) ITO v. M.M. Aga 50 ITD 604 (Mum) -wherein reliance on behalf of assessee was placed on the decree passed by the Division Bench of the High Court in which the sale of public auction of the property for Rs. 61.25 lacs was confirmed and it was held that Rs. 39 lakhs received by assessee to be paid by him to Shri R.M. Aga cannot be considered part of total sale proceeds and the contention of assessee that Rs. 39 lacs paid to Shri R.M. Aga cannot be considered to be sale consideration was rejected.
(6) R.M. Arunachalam etc. v. CIT 227 ITR 222 (SC) -to contend that Section 100 of Transfer of Property Act wherein the word "charge" has been defined is different from mortgage and this case law relating to payment made on redemption of mortgage cannot be considered to be case law applicable to the case of assessee for supporting the contention that such payment was deductible while computing capital gain to the assessee.
(7) CIT v. Attilin Rao 252 ITR 880 (SC) -to contend that capital gain on public auction of mortgaged property had to be computed on the full price realized in auction and not on the net amount paid over to assessee-owner by the mortgagee (State) after deducting its dues.
(8) K. V. Idiculla v. CIT 214 ITR 386 (Ker) - to contend that though the property transferred by assessee was subject to a charge in favour of his wife created by his father for discharge of a debt, the charge did not create diversion by overriding title and full consideration has to be taken into account for computing capital gains. It was held that payment made to wife was neither cost of acquisition nor cost of improvement.
For similar proposition reliance was also placed on the decision of Kerala High Court in the case of Salay Mohamad Ibrahim Sait v. ITO and Ors. 210 ITR 700 (Ker).
(9) CIT v. Udayan Chinubhai and Ors. etc. 222 ITR 456 (SC). In the said case assessee, on partition of HUF allowed assets as also liability to pay debts and interest to unsecured creditors of the erstwhile HUF of payment of interest by assessee was held not diversion of income at source by overriding title nor can deduction be allowed on the basis of real income theory, the debts not being a charge upon the HUF properties before partition and the payment of interest is only applicable of income from the assets.
(10) CIT v. Mathubhai C. Patel 238 ITR 403 (SC). In this case Hon.
Supreme Court has followed its earlier decision in the case of CIT v. Udayan Chinubhai and Ors. etc. and similar proposition was laid down.
(11) Ashok Soi v. DCIT 74 ITD 235 (Del). Wherein it was held that when the HUF property was allowed in equal share to assessee, his wife and two minor sons under the preliminary decree of the Court in the terms of settlement following a partition suit and no share was allowed to assessee's father who had no legal antecedent title, claim or interest in the property, the assessee was liable to pay tax on capital gain on 1/4th share of sale proceeds of the property without reducing any share conceded by him in favour of his father.
9. Thus it was pleaded that assessee's claim is not allowable and has rightly been disallowed by the Assessing Officer and the CIT(A).
10. Replying to the arguments of ld. DR it was pleaded that complete partition recorded under Section 171 is binding in nature and it is not open to the revenue to raise a plea that consent decree is not binding.
He contended that after satisfying himself, the Assessing Officer has passed complete partition order. He distinguished the case law relied upon by ld. DR in the case of R.M. Arunachalam etc. v. CIT (supra) on the ground that Hon. Supreme Court in the said case did not consider the issue regarding diversion of income at source. He contended that other cases also are distinguishable on facts. He contended that amount was directly paid by the purchaser of the property to the daughter of the assessee. Thus it was pleaded that relief as sought for should be granted to the assessee.
11. We have carefully considered the rival submissions in the light of material placed before us. The relevant portion of consent decree in Civil Suit No. 1421 of 1993 is as under: This suit coming on 31^st day of March 1993 before H.H. Judge Shri A. H. Bhatt, Aux. C. Court in the presence of advocates of the parties. It is hereby ordered and decreed that- The award dated 4.9.90 of the Arbitrator Shri A. R. Parikh and the decree dated 27.2.91 passed by this Hon. Court in CMA No. 627 of 1990 be set aside. There shall be a petition of K.G. Parikh HUF on and from today in the following manner.
A sum of Rs. 10,00,000/- (rupees ten lacs only) be and hereby set apart for education, maintenance and marriage expenses of the plff.
The plff Is also entitled to get jewellery, gold, ornaments and silver utensils as per attached in annexure 'A '. Plff has no further right title or interest in any of the properties of K.G. Parikh HUF. The property being a plot of land together with the building situated thereon bearing survey No. 142 (freehold) and 137 B (lease hold) of final plot No. 13/1 and 13/4 in T.P. schedule No. 8 at Shahibaug Ahmedabad, admeasuring 3753 sq.yds and 3989 sq. yards respectively known as "Mathuresh Bhuvan" be and is hereby distributed between the defts. No. 1, 2 & 3 in the following manner and as map particularly shown in the accompanying map which is marked as annexure B.Deft Sq. mtr F.P. Plot ColourNo.No. 13/1 (free hold) No. F.P. No. 13/4 shown in the (lease hold) map1 1251 & 1555 Ia & 4a Yellow2 1251 & 1100 Ic & 4C Blue3 1251 & 1330 Ib & 4b Red The share of the property allotted to the deft. No. 1 as provided for the realization of the sum of Rs. 10 lacs (rupees ten lacs).
It is also seen that erstwhile HUF of assessee was having considerable movable and immovable properties and assessee did not get only the property which is made subject to payment of Rs. 10 lacs but also has got several other properties being defendant No. 1 -for example, assessee apart from receiving l/3^rd share in Shahibaug property had received property situated at Paldi admeasuring 662 sq. mtr. Bearing F.P. No. 452, property at Ubhrat, District Surat, admeasuring 500 sq.
metre bearing plot No. 141, property -bearing plot of land together with superstructure thereon bearing S. No. 521-A, 522-A, 523-A, 560-A and 564-A admeasuring 12305 sq.yards. Share in property mentioned at Sl. No. (ii).
12. The Shahibaug property was subject to sale agreement which was written on 5^th December, 1992 and was registered on 18^th January, 1993. These both dates are prior to the date of filing of suit by said Miss. Nikita K. Parikh as the date of filing of suit is 22^nd March, 1993. At the relevant time of executing sale agreement, the assessee was absolute owner of 1/3^rd share of Shahibaug property as per aware dated 4/9/90 which was approved by Civil Court on 27.2.1991. Thus at the time of sale agreement assessee was full owner of the property on which capital gain has arisen to the assessee. It was only in the consent terms, the said property was made subject to payment of Rs. 10 lacs. Under the Hindu Law, as it was prevalent at the relevant time, unmarried daughter does not have right to partition but has a right to education, maintenance and marriage out of HUF property. In the award provision of Rs. 5 lacs was made for the purpose of education, maintenance and marriage of said Miss Nikita K. Parikh apart from share from jewellery etc. and there was no mention in the said award regarding charge created only in respect of Shahibaug property falling to the share of assessee. The relevant part of award has already been reproduced in paragraph 5 of this order. Rs. 5 lacs was a charge on all the properties and not specifically in respect of shares of assessee in respect of Shahibaug property. In the consent terms there is no material change other than that the provisions of Rs. 5 lac was enhanced to Rs. 10 lacs and it was specifically mentioned that said sum of Rs. 10 lacs will be a charge on the share received by assessee with regard to Shahibaug property. Consent terms have been managed to get a deduction of Rs. 10 lacs out of sale price of Shahibaug property which was already under sale agreement.
13. Leaving apart this, it is the case of assessee that such claim is allowable and before Assessing Officer as well as CIT(A) reliance is mainly placed on the decision of Hon. Gujarat High Court in the case of CIT v. Daksha Ramanlal (supra). The question before us is that whether the said amount of Rs. 10 lacs can be allowed as deduction while computing the capital gains in the hands of assessee. The answer is negative for the following reasons: 14. Firstly, the claim of assessee for deduction of said sum of Rs. 10 lacs has to be examined under specific statutory provisions relating to the taxation of capital gains. Section 48 carries the marginal note "mode of computation & deduction" and this section contains the only provision for allowance of deduction, in the computation of capital gains. Clause (i) of this section provides of deduction of expenditure incurred wholly and exclusively in connection with the transfer of the capital asset. Clause (ii) requires that the cost of acquisition of the capital asset as well as cost of any improvement to the capital asset, must be deducted in order to arrive at the capital gain. Thus these two clauses deal with the amount to be deducted in order to arrive at capital gains. Apart from these two clauses in Section 48, there is no other provision in the Act which permits deduction of any kind in computation of capital gain. Thus mere liability or obligation to discharge the obligation of education, maintenance and marriage cannot be regarded as an item of expenditure let alone an expenditure and wholly and exclusively and in connection with the sale of property. Our this view is supported by following observations of their Lordships of Hon. Madras High Court in the case of CIT v. A. Venkataraman and Ors.
(supra). It will be relevant to reproduce the following observations from the said decision: There remains the third question of law in the two groups. This question has been referred to us at the instance of the assessees.
It appears from the stated case that at the time of the partition of the properties between the assessees, there was an understanding between the parties, which was also incorporated in the partition deed, that a sum of Rs. 25,000 should be set apart for the marriage expenses of the sister of the assessees. The claim of the assessees before the ITO was that in computing the capital gains on the sale of the properties, which they had obtained under the partition, this sum of Rs. 25,000 which they were liable to set apart for the marriage of their sister, must be deducted. The ITO disallowed this claim. The Tribunal agreed with the ITO on the main ground that there was nothing in the partition deed under which the provision of Rs. 25,000 towards the marriage expenses of the assessees' sister was to be a charge on any of the items of properties, allotted to the assessees.
On a reference to the partition deed, what the Tribunal says is correct. But we would not like to uphold the decision of the Tribunal on this ground alone. There is a more pertinent ground for the disallowances. The claim of the assessees to deduct the provision for the marriage expenses of the sister, as an admissible item of expenditure, has been put forward on the terms of the partition deed, and not under any specific statutory provision relating to the taxation of capital gains. Section 48 carries the marginal note " Mode of computation and deductions ". As it happens, this section contains the only provision for allowance of deductions in the computation of capital gains. Clause (1) of this section provides for deduction of expenditure incurred wholly and exclusively in connection with the transfer of the capital asset.
Clause (ii) requires that the cost of acquisition of the capital asset as well as the cost of any improvement to the capital asset, must be deducted in order to arrive at the capital gains. Apart from these two clauses in Section 48, there is no other provision in the Act which permits deductions of any kind in the computation of capital gains. It may be that there was an obligation for making a provision for the marriage of the assessees' sister and the liability was created under the very terms of the partition deed, under which they were allotted the items of properties, which were subsequently sold, which sale led to realisation of capital gains.
Even so, the mere liability or obligation cannot be regarded as an item of expenditure, let alone an expenditure incurred wholly and exclusively in connection with the sale of the properties. The obligation was connected with the partition arrangements, and not with anything else. Our answer to the third question in the two groups of references is accordingly against the assessees and in favour of the department.
It will be difficult to accept the submissions of ld. AR that above decision is distinguishable on facts. In our opinion, the said decision is fully applicable irrespective of fact that in the case of assessee the liability was admitted through a consent decree obtained from Civil Court as the same will not change the basic nature of the payment which is received by the daughter of assessee on account of her education, maintenance and marriage. This is also so because even assessee could not establish direct nexus between the sale of property and the payment of Rs. 10 lacs towards education, maintenance and marriage expenses of the daughter. Thus it cannot be said that this was the expenditure incurred by the assessee incurred wholly and exclusively in connection with the transfer of the capital asset or it was a cost of acquisition of the capital asset or it was a cost of any improvement to the property sold. At the time when sale agreement was executed there was no provision in the award regarding a charge created specifically on Shahibaug property falling to the share of assessee and it was later development that by consent term a so called charge was created. Thus it cannot be said that the payment of Rs. 10 lacs was an expenditure wholly and exclusively incurred in connection with transfer of property sold and the said payment cannot also be considered as a cost of acquisition or cost of improvement. Thus the claim of assessee is not in accordance with law.
15. Secondly, it is difficult to accept the case of assessee that out of sale consideration which has been received by assessee, the amount of Rs. 10 lacs is to be allowed. Even as per the case of assessee, the share falling to assessee of Shahibaug property was charged by a sum of Rs. 10 lacs. The assessee has not sold his entire share in Shahibaug property. The details of Shahibaug property have already been reproduced in the above part of this order. Shahibaug property comprises of two plots i.e. Plot No. 13/1 and plot No. 13/4. Plot No.13/1 is freehold property whereas plot No. 13/4 is leasehold property.
Plot No. 13/1 is 3753 sq. yds and 13/4 is 3989 sq. yds. The plot which has been sold by assessee is plot No. 13/4. Thus share of assessee in plot No. 13/1 is intact. There is no mention even in the consent term that Rs. 10 lacs is a charge only on plot No. 13/4. Thus the claim of assessee is not even supported by consent decree as substantial part consisting of 1251 sq. yds is still pending with the assessee which is also subject to charge. Thus it cannot be accepted that the property sold by assessee only was subject to charge of Rs. 10 lacs, therefore, the amount of Rs. 10 lacs should be deducted out of computation of capital gains in the hands of assessee.
16. The decision in the case of CIT v. Daksha Ramanlal (supra) which has been heavily relied upon by assessee is distinguishable on facts.
In the said case one Surottam Hathising gifted a plot of 292 sq.yds. to the assessee which was sold for a sum of Rs. 59,956/-. Out of sale price a sum of Rs. 25,000/- was claimed to be paid to motgagee as the land which was gifted to assessee was subject to a mortgage. The claim was rejected by Assessing Officer on the ground that it was not a liability which increased the cost of land. The rejection of claim was also upheld by AAC. On appeal the Tribunal held that the assessee did not sell capital asset that she had received by way of gift, what she had sold was something more than that viz. the interest which the donor had transferred to the mortgagee. As she was required to redeem the mortgage and for that purpose, she had to pay Rs. 25,000/- to the mortgagee, being the mortgage amount, the said cost of acquisition was also required to be taken into account while computing the capital gain and thus it was held that assessee was entitled to claim deduction of said amount of Rs. 25,000/- under Clause (ii) of Section 48 of the Act.
Challenging the decision of Tribunal before Hon. High Court it was the pleading of the revenue that Tribunal committed an error to decide the case in favour of assessee. It was held by Hon. High Court that on a combined reading of Section 48, 49(1) and 55(2) it can be said that if the capital asset, the sale of which resulted in capital gain, became the property of the assessee under a gift, and if the capital asset became the property of previous owner before lst January, 1954 then the cost of such acquisition of such capital asset would be the cost of the capital asset to the previous owner. Word property does not mean merely the physical property but also means right, title or interest in it. In case of mortgage or lease, different persons will have different rights in the same property. If a person is an absolute owner of the property, then it can be said that he has all the rights and interest in that property. If the property is mortgaged or leased then the owner of the property would possess only those rights, which are not transferred to the mortgagee or the lessee, as the case may be. When a person who has mortgaged the property transfers it to another person, what he transfers is only those rights, which he possesses. The transfer would get the property subject to the rights created by the previous owner in favour of others, and if this view is taken, then it follows that when the previous owner gifted the mortgaged property to the assessee what he had transferred to the assessee the right, title or interest which he had in that property. When the assessee discharged the mortgage by paying Rs. 25,000/- to the mortgagee what he did was to purchase that right or interest which the mortgagor did not then posses and which the mortgagee had in the property. When the assessee sold the property he did not merely sell right, title or interest, which he had received from the donor, but also the right, title or interest which he purchased from mortgagee.
16.1 It was further held that Section 55(2) can have application only in those cases where the capital asset becomes the property of assessee by any of the modes in Sub-section (2) of Section 55. Thus it was held that the case will be governed either by Section 48 read with Section 55(2)(i) or partly by Section 48(1)(ii) and partly by Section 49(1) read with Section 55(2)(ii) of the Act. Payment of Rs. 25,000/- to the mortgagee for removing that encumbrance was certainly the cost of acquisition of the interest of the mortgagee and thus was held to be taken into account for the purpose of computing the total cost of acquisition of the property which the assessee sold and thereby made capital gains. Now comparing the facts of that case with the case of assessee it is found that present case is neither of mortgaged property or leased property. The so called charge also cannot be considered to encumbrance on the property as the sold property is only a portion of particular property falling to the share of assessee on the partition of HUF. Thus the so called "charge" in the legal sense cannot be a charge only on the sold property. It also cannot be considered to be cost of acquisition to acquire any right by the assessee as the same was only for discharging the obligation of father towards his daughter of having received ancestral property. Thus the case has no application on the facts of the present case.
17. Similarly, in the unreported decision relied upon by the counsel of the assessee in the case of Jt. CIT Section Shri Prakash Haribhakti, in ITA No. 2417/Ahd/1999 for Asst. Year 1996-97, the facts were relating to payment so made for getting vacant possession of the sold property and the payment was considered to be as cost of improvement or as an expenditure incurred for the purpose of transfer of the property as it can be seen from the following observations from the said decision: 14. Taking into consideration all the above decisions, it is apparent that if the sale made by the assessee was subject to a condition that the earlier occupant whether as a tenant or as a licensee or as an unauthorsed occupant is to be evicted, the expenditure is to be allowed as a deduction either as cost of improvement or as an expenditure while computing the capital gains arising out of the sale of the property and in that way, the CIT(A) was right in allowing the claim of the assessee though as an expenditure which was incurred wholly and exclusively in connection with the transfer of the property Under Section 48(1) of the Act.
It has already been pointed out that the payment made by assessee was neither a cost of improvement nor an expenditure incurred wholly and exclusively for the purpose of transfer of property. Thus this case has also no application.
18. There is one more aspect of the matter. Section 339A as mentioned at page 465 of Book Mullah "Principles of Hindu Law" 15^th Edition reads as under: 339A. Reopening of partition at the instance of a minor.- The law on the subject was very clearly summarised by the Supreme Court in a recent decision (cl) in the form of propositions: (a) Where the partition is effected between the members of the family which includes minor coparceners it is binding on the minors also if it is done in good faith and in bona fide manner, keeping into account the interest of the minors, (b) Where, however, a partition is proved to be unjust and unfair and is detrimental to the interest of the minors the partition can be reopened at any lime. In such a case it is the duly of the Court to protect the interest of the minors. The onus of proof that the partition was just and fair is on the party supporting the partition.
(c) Where there is a partition of immovable and moveable properties and the two transactions are distinct and separable or have taken place at different times, it is open to the Court to maintain that which is just and fair and reopen only that which is unjust and unfair.Ratnam Chettiar v. Kuppuswami (76) A.S.C.I [Having regard to the facts and circumstances of the case the Supreme Court itself quantified the amount payable to the minor plaintiffs]. Also see Sukhrani v. Hari Shanker HUF of assessee was completely partitioned by award dated 4.9.90 which had become final on passing civil decree in pursuance of said award on 27^th February, 1991. The said decree in CMA No. 627 of 1990, was challenged by said Kum. Nikita K. Parikh by filing civil suit on 22^nd March, 1993. Said Ku. Nikita K. Parikh was minor at the time of partition effected by the above award. Thus it was an attempt to reopen the partition at the instance of minor whose interest was taken into care in the award itself by providing Rs. 5 lacs and share in jewellery. In the award the said amount of Rs. 5 lac was not specifically mentioned to be a charge only on Shahibaug property falling to the share of assessee. According to above provisions of Section 339A completed partition could only be reopened if it is proved to be unjust, unfair and detriment to the interest of minor. It has not been proved at any stage that the said partition done by the award was unjust, unfair or detriment to the interest of minor Nikita as there is no such finding recorded by the court for setting aside its earlier order dated 27^th February, 1991. It was only by the consent term, the amount of Rs. 5 lac was enhanced to Rs. 10 lac. Therefore, also the claim of assessee cannot be supported by subsequent order of Civil Court recording consent term as decree.
19. The obligation of education, maintenance and marriage of unmarried daughter is on the entire property of the HUF of which total partition is being effected. By the act of parties the obligation cannot be fastened only to a part of a particular property falling to the share of coparcener and more particularly when said property which is made a subject to so called "charge" was shared by all the parties to the partition. The mere fact that the word "charge" is recited in the decree would not establish that the said amount of Rs. 10 lacs was a charge against the share in particular property of the assessee as it appears that the said word "charge" is intentionally used for an ulterior purpose and is only a self-serving statement. The said issue has to be examined only in accordance with law. This view is supported by the said decision of Special Bench in the case of Sushil Kumar & Co.
v. Jt. CIT (supra). The relevant observations are reproduced from the said decision for the sake of convenience: 25. When the consent terms and the decree passed by the Court are carefully perused it is not difficult to hold that the decree is not based on any grounds or reasoning, but is solely based on the terms and conditions as mutually agreed upon between the plaintiffs and the defendants. Their lordships of the Supreme Court in the case of Lakahmi Shankar v. State AIR 1979 SC 457 held that the decisions based on concession of the parties do not constitute binding precedence. Since in this case, the parties to the suit have utilized the process of the Court to obtain a decree on the mutual terms and conditions, the term 'mesne profit' used in the consent decree, which has become part of the consent decree, does not become binding for the Revenue authorities or the appellate authorities and it would, in our view, be open to the taxing authorities to consider the real nature of the grant in a suit on the facts and in the circumstances of the case.
20. Order under Section 171 passed by Assessing Officer on 10.2.1994 on which heavy reliance has been placed by ld. AR does not advance the case of assessee as in the said order only factum of total partition of HUF of Shri Krishnadas Govinddas Parikh, has been recorded and that order does not convey that deduction of Rs. 10 lacs will be given to assessee out of sale consideration of Shahibaug property. In any case whether said amount of Rs. 10 lacs is deductible from sale price or not will depend upon relevant provisions of law and it has already been pointed out that the claim of assessee is not supported by the relevant provisions of IT Act, 1961.
21. In view of above discussion, we hold that claim of assessee regarding Rs. 10 lacs has rightly been rejected by Assessing Officer as well as by the CIT(A). We uphold the order of CIT(A). This ground is, therefore, dismissed.
22. Apropos ground No. 3, the Assessing Officer found from the details that household withdrawals shown by the assessee were only Rs. 1,41,741/- and it was observed that out of said amount a sum of Rs. 70,875 /- was representing payment made on account of servants' salary and only a sum of Rs. 70,868/- was incurred on household expenses. It was also noted that during survey on 22^nd January, 1995 the assessee had stated that educational expenses of his daughter Ku. Nikita studying in Baroda and staying in hostel was Rs. 25,000/- per annum.
Considering that expenditure, the Assessing Officer considered sum of Rs. 70,868/- not sufficient withdrawal. The Assessing Officer also noticed that assessee was assisted by 10 servants, i.e. one cook, three servants for household work, one woman cleaner, one gardener, one laundryman, three watchmen. Assessing Officer considered that refreshment expenses etc. of these servants were also incurred by the assessee. It was further found that assessee was maintaining large number of vehicles i.e. one 118 NE Car, 1 Maruti, 2 Maruti Van and 3 scooters. Taking clue from all these circumstances, the Assessing Officer made lumpsum addition of Rs. 40,000/- on this account. Ld.
CIT(A) has confirmed this addition with the following observations: In paragraph 10 of the assessment order, the Assessing Officer has discussed in detail as to why the withdrawals for household expenses at Rs. 1,41,741/- are considered grossly inadequate. In his submission, the appellant has stated that household expenses incurred are adequate and that the Assessing Officer was not justified in considering motor car and telephone expenses also included in the household expenses. In his observations, the Assessing Officer has referred to the large number of vehicles i.e.
one car, one maruti, two maruti vans and three scooters maintained by the appellant and has also referred to the expenditure of telephone expenses incurred by the appellant as stated by the appellant at the time of survey to give an idea of standard of living of the appellant. Therefore, considering totality of facts, appellants contention is not found satisfactory and the Assessing Officer's decision is upheld.23. We have heard both the parties and their contentions have carefully been considered. Keeping in view the standard of living of assessee as seen from the number of servants, we find that Assessing Officer has taken a reasonable view for making addition of Rs. 40,000/- only and addition has rightly been sustained by CIT(A). We decline to interfere.