Smt. Sita Nanda vs Commissioner of Income Tax

Arijit Pasayat, C.J.—At the instance of the assessee the following question has been referred for opinion of this Court u/s 256(1) of the income tax Act, 1961 (''the Act''), by the Delhi Bench ''A'', New Delhi. Whether, on the facts and in the circumstances of the case, the interest of Rs. 13,630 paid by the assessee on the delayed payments of unearned increase to the Land and Development Officer was a part of the unearned increase and was admissible as such or otherwise as an expenditure u/s 48(i) of the income tax Act, 1961 ?

Dispute relates to the assessment year 1972-73. The factual position as highlighted in the statement of case reads as follows. The previous year for the assessment year in question ended on 31-10-1971. The assessee is an individual, deriving income from property, dividend, interest, etc. During the year under reference the assessee had agreed to sell a property by an agreement to sell dated 14-5-1971. She also agreed to transfer the leasehold rights in the land appurtenant to the building. The entire premises were agreed to be sold for Rs. 11,30,000. The assessee applied to the Land and Development Officer (''the LDO'') for permission to transfer the leasehold rights. In terms of her letter dated 30-7-1970, the LDO by letter dated 17-11-1970 indicated that the permission to sell the leasehold rights could be granted if the assessee was willing to pay to the Government unearned increase amounting to Rs. 4,54,319 within thirty days from the date of issue of the letter. The payment was actually made on 17-5-1971. For the delayed payment, the LDO charged interest amounting to Rs. 13,630. The assessee claimed the said amount as a deduction stating that the expenditure was incurred wholly and exclusively in connection with the transfer of the premises. The ITO disallowed the claim while computing the capital gain arising out of the property. The matter was carried in appeal before the AAC who confirmed disallowance on the ground that payment of interest was for late payment of the unearned increase to the LDO. The assessee carried the matter in further appeal to the Tribunal. The assessee''s stand was that interest being a part of the unearned increase, which the assessee was required to pay to the LDO to get permission to transfer the leasehold rights, was allowable. It was also submitted that the expenditure was incurred in connection with the transfer and as such was admissible u/s 48(i). Stand of the revenue was that payment of interest was simply for delayed payment of the unearned increase and, therefore, could not be treated to be a part of the unearned increase. Accordingly, it was submitted that the expenditure was not incurred in connection with the transfer within the meaning of section 48(i). The Tribunal accepted the revenue''s stand and dismissed the assessee''s appeal. On being moved for reference, the question as set out above, has been referred for opinion of this Court.

There was no appearance on behalf of the assessee when the matter was called. We have heard the learned counsel for the revenue. It was submitted by the learned counsel for the revenue that the Tribunal has recorded a factual finding to the effect that the amount was paid as interest on delayed payment of unearned increase and did not form part of the unearned increase and, therefore, was not encompassed by the provisions of section 48(i). Section 48(i) at the relevant point of time reads as follows :

Mode of computation and deductions.--The income chargeable under the head ''Capital gains'' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :--

(i) expenditure incurred wholly and exclusively in connection with such transfer;

A bare reading of the provision makes it clear that what can be deducted u/s 48(i) is expenses incurred wholly and exclusively in connection with the transfer. The amount which the assessee claimed to be covered was not really a part of the unearned increase. On the contrary, it was the amount paid for making the payment demanded by the LDO belatedly. The interest, as was noted by the Tribunal, had to be paid by the assessee as she made the payment of unearned increase belatedly. The crucial words in the provision are ''in connection with such transfer''. The expression means intrinsically linked with the transfer. Such expenditure has to be wholly and exclusively in connection with the transfer. Even if such expenditure has some nexus with the transfer, it does not qualify for deduction unless it is wholly and exclusively in connection with the transfer. The Tribunal was, therefore, right in its conclusion that the payment of interest was in the shape of damages for late payment of unearned increase. That being so, the interest paid cannot be treated as expenditure incurred wholly and exclusively in connection with the transfer. The answer to the question is in the negative, in favour of the revenue and against the assessee.

The reference stands disposed of.