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Judgment
C.P. Sen, J.—At the instance of the assessee the following question of law has been referred by the Income Tax Appellate Tribunal for opinion of this court:
" Whether, on the facts and in the circumstances of the case, the cost of improvement to the property incurred by M/s Mohanlal Har-govinddas should be allowed as deduction u/s 49 of the Income Tax Act, 1961, while computing the capital gain in the hands of the asses-see ?
The assessee, Smt. Ujjambai, was the owner of an immovable property at Jabalpur which was self-occupied. One-third of this property was sold for a sum of rupees three lakhs during the accounting period relevant to the assessment year 1973-74. After making various deductions including the selling expenses and the cost of the property, the assessee offered a sum of Rs. 44,620 as capital gain from this property. On the other hand, the ITO worked out the amount of capital gain at a sum of Rs. 1,21,220. The difference arose on account of the fact that the assessee estimated the cost of improvement to the property during the periods 1959 to 1964 at a sum of Rs. 5,00,650, whereas the ITO worked out the cost of improvement at a sum of Rs. 3,85,200. The difference arose for the following reasons. Smt. Ujjambai was a partner in the firm, M/s Mohanlal Hargovinddas, Jabalpur. The expenses on the extension or renovation of the property were debited in the books of the firm. They were not debited to the personal account of Smt. Ujjambai. In the assessments of the firm from 1962-63 to 1965-66, the ITO disallowed the expenses on the ground that they related to repairs and extensions of the building of the partners and not connected with the business of the firm. In computing the cost of improvement, the assessee had added all such expenses debited during the previous years relevant, to the assessment years 1962-63 to 1965-66. On the other hand, the ITO has taken account of only Smt, Ujjambai''s share of such expenses as per her share in the partnership firm, i.e., 50%. The assessee preferred an appeal before the Commissioner (Appeals) who upheld the order of the ITO by holding that, according to Section 55(1)(b) of the I.T. Act, 1961, "cost of improvement" means capital expenses incurred by the assessee in making any additions or alterations to the capital asset of the assessee i.e., only those capital expenses, have to be taken into account which have been incurred by the assessee. However, the capita! gain was reduced to Rs. 1,15,106 from Rs. 1,21,220. The assessee then preferred a second appeal before the Income Tax Tribunal which also upheld the order of the ITO by holding that during all these years there have been additions and alterations and the expenditure incurred was borne by the landlord as well as by the tenant, i.e., the firm, Mohanlal Har-govinddas. Only the expenditure incurred by the assessee has been rightly allowed while computing the capital gain and in their opinion the expenditure incurred by the tenant has rightly been disallowed. u/s 55(1)(b) of the Act, which is applicable in this case, "cost of improvement" means capital expenses incurred in making any additions or alterations to the capital asset of the assessee incurred by the owner of the said property. In this case, expenses incurred for the improvement of the building were partly debited to the personal account of the assessee and partly debited to the account of the tenant. It is not the case of the assessee that the tenant subsequently realised the expenses incurred for the improvement of the property from the assessee. Had this been the case, then the entire expenses incurred by the tenant could have been claimed for computation of capital gain. During the course of the argument, the learned counsel for the assessee tried to take shelter u/s 49 of the Act but this section has no relevance to the facts of the case and, as such, the submission of the counsel was rejected. It appears, thereafter, an application for rectification was filed before the Tribunal contending that M/s. Mohanlal Hargovinddas was never a tenant in the building in question. The Tribunal allowed the application by observing that the property at Jabalpur owned by the assessee was self-occupied and not tenanted but this would not make any difference regarding the computation of capital gains.
Shri H. S. Shrivastava, learned counsel for the assessee, contended that a partnership firm has no legal existence apart from the partners constituting it and, therefore, a firm''s property or the firm''s assets means property or assets in which all the partners have a joint and common interest, by relying on a decision of this court in Addl. Commissioner of Income Tax Vs. Agarwal Timber and Bans Co., . He also contended, on the basis of the Supreme Court decision in K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, , that the I.T. Act, 1961, and the G.T. Act, 1958, are parts of an integral scheme of taxation and the same amount which is chargeable as gift could not be intended to be charged also as capital gains gtnd so it should have been held that the expenses incurred for making additions and improvements in the building borne by the other partner, Jadobai, be treated as a gift to the assessee in view of the definition of " gift " in Section 2(12) of the G.T. Act. He further contended that though this question is not referred by the Tribunal, it is open to this court to resettle or reframe the question formulated by the Tribunal before answering it so as to bring out the real issue between the parties. Shri B. K. Rawat, learned counsel for the Department, supported the order of the Tribunal by saying that only those expenses which are incurred by the assessee have been rightly allowed in computing the capital gains u/s 55(1)(b) of the Act.
We are unable to accept the contentions raised by the learned counsel for the assessee. There can be no quarrel with the propositions laid down in Addl. Commissioner of Income Tax Vs. Agarwal Timber and Bans Co., and K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, , but these rulings are of no help to the assessee. It is well settled that the High Court can answer only those questions which are actually referred to it ; it cannot raise and answer new questions which have not been so referred. If the Tribunal has refused to refer u/s 256(1) a question of law which arises out of its order, then, the proper course is to require the Tribunal u/s 256(2) to refer the same. The assessee sought the following question for reference to this court before the Tribunal:
" Whether, on the facts and in the circumstances of the case, if the amounts debited to the profit and loss account of M/s. Mohanlal Har-govinddas on account of additions and improvements are treated as gifts, then whether section 49(1)(ii) will be applicable in the case or not ? "
This question not having been referred, it is not open to the assessee to agitate this question in this reference. The learned counsel for the assessee also referred to a decision of the Delhi High Court in The Commissioner of Income Tax, Delhi Vs. Mithlesh Kumari, , that the interest paid by the assessee on money borrowed for purchase of a land constituted part of actual cost of assessee for the purpose of determining the capital gain derived from the sale of the land, but this ruling has no relevance to the facts of the present case. We agree with the Tribunal that only those expenses which have been actually incurred by the assessee in making additions and improvements in the property ought to be taken into consideration while computing capital gains u/s 55(1)(b) of the Act, The expenses incurred by the firm which came to the share of the assessee has been allowed while those which came to the share of the other partners have been rightly disallowed. Since it was a self-acquired property of the assessee, Section 49 of the I.T. Act has no application as the property was not acquired in any of the modes mentioned in that section.
Accordingly, the question referred is answered in the negative, in favour of the Department and against the assessee. Under the circumstances, the parties to bear their own costs.