In Maniza Jumabhoi v. ACIT, the ITAT, Hyderabad held that the payments in the nature of Compensation made by assessee for release of lease hold rights created by ancestors is allowable as expenditure while determining capital gains under section 48 of the Income Tax Act.
In the instant case, the AO found that the market value of the property sold by the assessee was more than the actual consideration received by her as per the records and the assessee has not offered the capital gain in her returns. Consequently, the AO completed assessment in terms with section 50C of the Income Tax Act.
Assessee claimed that the property sold by her was an ancestral property which her ancestors had leased to M/s Voltas Limited on 8.1.1963. Since the assessee wanted to dispose of the property, she had paid compensation to them for taking possession and sale rights over the impugned property. She, therefore, claimed the amount paid as compensation as expenditure incidental to the transfer of property. However, the Officer rejected the claim on ground that the expenses incurred for getting the lease rights cancelled were not allowable expenditure, as the encumbrance has been created by the assessee or her ancestors. He further pointed out that the assessee had not produced any evidence in support of the claim.
Allowing the claim of the assessee, the bench relied on the decision of the co-ordinate bench in Farida Alladin Vs. ACIT, wherein the tribunal allowed a similar claim in respect of payment made to M/s. Voltas Limited for release of lease hold rights created by her ancestors/predecessors.
Read the full text of the Order below.
