Calcutta HC holds damages paid for clearing title deductible for computing Capital Gains

The assessee entered into an agreement dated 2nd September,
2004 with one, Bhagyalakshmi Commercial Company Pvt. Ltd.
Under the aforesaid agreement the latter agreed to sub-lease the
flat nos. 3b and 3c at premises no.5, Lowdon Street, Kolkata to the
assessee. The assessee on his part entered into an agreement
dated 5th May, 2005 with one, Onkar Management Pvt. Ltd agreeing to transfer the aforesaid two flats at a consideration of
Rs.90 lakhs. The assessee took an advance of a sum of
Rs.10,000/-. The assessee, however, in breach of agreement dated
5th May, 2005 transferred the flats on 4th August, 2006 to Poonam
Agarwal at a sum of Rs.2 crore 20 lakhs. Onkar Management Pvt.
Ltd. sued the assessee for recovery of damages. An award was
passed on 30th September, 2007 directing the assessee to pay a
sum of Rs.72 lakhs. The assessee filed his return for the
assessment year 2007-08 on 29th March, 2008 claiming deduction
of the said sum of Rs.72 lakhs under Section 48(i) as expenditure
incurred in connection with the transfer. The assessing officer and
the CIT(A) both held against the aforesaid claim of the assessee
which was ultimately allowed by the learned Tribunal. It is this
order of learned Tribunal which is under challenge.

Therefore, the question for consideration is whether the sum of Rs.72
lakhs paid by the assessee pursuant to the award passed in favour of Onkar
Management Private Limited can be treated as expenditure incurred with
regard to the transfer under Section 48(i) of the Income Tax Act.

The Hon’ble Calcutta HC allowed the deduction relying upon the judgement in the case of CIT v. Shakuntala Kantilal [1991] 190
ITR 56 (Bom HC) and CIT vs. Bradford Trading Company Private Limited 261 ITR 222 (Madras). The Hon’ble Court distinguished the case in CIT vs Attili N. Rao 252 ITR 880 (SC).

For complete text of this judgement, click here Satyabrata Dey-Calcutta HC

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