Payment towards Conversion of Leasehold Land to Freehold allowable as Cost of Improvement: ITAT [Read Order]

The Allahabad bench of the Income Tax Appellate Tribunal (ITAT) has recently held that the amount paid by a co-owner of the property towards his share for conversion of aforesaid leasehold land to freehold shall be allowable as cost of improvement while computing capital gains under the Income Tax Act, 1961.

The assessee, an individual, sold his property and filed his income tax returns for the relevant year. The said return was subject to assessment by the Assessing Officer under 143(3) of the Income Tax Act, 1961 wherein it was held that the cost of improvement with respect to the amount paid by the assessee towards his share towards the conversion of aforesaid property from leasehold to freehold shall not be allowable under section 48 of the Act. Later, the Commissioner of Income Tax (Appeals) upheld the above order.

Before the Tribunal, the assessee contended that the Tribunal had allowed a similar issue in favor of the assessee, who is the co-owner of the subject property.

Referring to the above Tribunal order, Accountant Member Ramit Kochar allowed the contentions of the assessee and held that“our observations in the aforesaid appellate order in ITA no. 68/Alld/2018 dated 28.01.2021 passed in the case of brother of the assessee namely Mr. Sanjay Majumdar who is also one of the co-owners of the aforesaid property, shall be applicable in the case of the assessee also, as the facts are identical and the same property was sold by the brother of the assessee namely Mr. Sanjay Majumdar (share in the property 25%), wherein the assessee was also one of the co-owner of the aforesaid property with 25% share. Thus, ld. CIT(A) erred in holding in the case of the assessee that cost of the improvement by way of the amount paid for the conversion of property from leasehold to freehold in the instant case shall not be available to the assessee in ay: 2012-13, which is contrary to our decision in ITA No. 68/Alld/2018in the case of brother of the assessee namely Mr. Sanjay Majumdar.”

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