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.
During the relevant assessment year, the
assessee had shown income from long term capital gain arising from sale of
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:
tax bills submitted by assessee showed that assessee was the sole occupant of
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.
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.
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.
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
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.