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Help me urgent.capital gain issue

pruthvi (article assistant) (24 Points)

06 March 2015

How can Compromise amount paid as settlement of dispute against title of the property be treated in computation of capital gains? Can it be treated as expenses in connection with transfer or cost of acquisition??

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You are allowed to deduct expenses from sale proceeds from a capital asset, that wholly & directly relate to the sale or transfer of the capital asset. These are the expenses which are necessary for the transfer to take place.

Views in favour: The Madras High Court in the case of CIT Vs. A. VENKATARAMAN AND OTHERS 137ITR 846 held that, as under the agreement, the assesses had to give vacant possession, the payment made to the tenants to obtain vacant possession was an expenditure incurred wholly and exclusively in connection with the agreement of sale which preceded the transfer and in fulfillment of a condition of sale. The amount paid was, therefore, deductible as expenditure under s.48(1). The same view was taken in CIT Vs. Shakuntala Rajeshwar 160 ITR 840 (Delhi).

View against the allowance:
The Karnataka High Court CIT Vs. R.Ranga Setty 159 CTR 797.The facts of the cases were that the landlord had paid Rs. 15000 to the tenant in regard to the surrender of tenancy rights i.e. vacating the property, to enable the landlord to receive the entire compensation in case of compulsory acquisition. The same was held not deductible as there was no obligation in this case to hand over the vacant possession of the land to the Government.