By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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S/s. 2(42A), 49(1) – Payment made towards
relocation of hutment dwellers is for the purpose of removing
encumbrances in title of the owners and constitutes expenditure incurred
in connection with transfer and is allowable as deduction even though
there is no specific mention about it in the development agreement.
Facts:
The
assessee was a co-owner of the land. The leasehold rights in respect of
the plot were sold to M/s. Havana Hotels Resorts Pvt. Ltd. and M/s.
Samyam Erectors Pvt. Ltd. The capital gains arising on this transaction
were offered to tax by the assessee in two years i.e., 2005-06 and
2006-07.
While computing capital gains, the assessee claimed
deduction of Rs. 5,00,000 paid towards relocation expenses. This sum of
Rs. 5,00,000 represented the assessee’s 50% share of Rs. 10,00,000. The
assessee claimed that this payment was in terms of Clause 10 of the
development agreement under which it was an obligation of the assessee
to bear any charges or encumbrances in respect of plot of land
transferred to the developer and in case any charge or encumbrance is
found the owner is liable to ward off the same. The payment was for
removal of settled hutments and therefore the assessee to discharge its
liability to remove encumbrances had incurred this expenditure. It was
also contended that the payment was made to consenting party since it
was in occupation of part of the property in question and therefore the
payment was made in connection with transfer of asset in question.
The
Assessing Officer disallowed this sum of Rs. 5,00,000 while passing an
order pursuant to direction of CIT u/s. 263 of the Act.
Aggrieved, the assessee preferred an appeal to Commissioner of Income-tax (Appeals) who confirmed the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The
Tribunal noted that the genuineness of the payment was not disputed by
the authorities below and even the purpose of the payment was not
questioned by the AO as well as CIT(A). The disallowance was made only
on the ground that the transfer/development agreement does not speak
about such payment. It noted that as per clause 10 of the development
agreement dated 10-09-2004 it was obligatory on the part of the
owners/transferors of the land to ward off any charges and encumbrances
arising in the property.
The Tribunal did not find any merit in
the argument of the revenue that in the absence of any specific mention
in the agreement such payment is not allowable as deduction. The
Tribunal held that when the payment is undisputedly made towards
relocation of the hutment dwellers then it is certainly for the purpose
of removing the encumbrances in the title of the owners in respect of
land in question. Since the payment was made for removal of encumbrances
in respect of the property in question being relocation of the hutment
dwellers therefore, it was held to fall in the category of expenditure
incurred in connection with the transfer of property.
This ground of appeal filed by the assessee was allowed.
