Balasubrahmanyan, J.:— In these two groups of tax cases, three points arise for consideration under the I.T Act, 1961. One group, viz., T.C Nos. 300 to 302 of 1977, relates to A. Venkataraman. The questions of Jaw referred to us by the Tribunal in this group are as follows:
“1. Whether, On the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that invoking of section 52(2) was not justified in this case for assessment years 1969-70 and 1970-71?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the payments made to the two former tenants, M/s. Dunlop India Ltd., and M/s. Harrison and Company, should be allowed as deductions in the computation of capital gains as an expenditure incurred wholly and exclusively in connection with the transfer of the capital asset within the meaning of section 48(i) of the Income-tax Act, 1961?
3. Whether, on the facts, and in the circumstances of the case, the Tribunal was right in holding that the assessee's share in the marriage expenses of his sister cannot be allowed as a deduction in the computation of capital gains of the properties sold?”
2. The other group of cases comprised in T.C Nos. 423 to 425 of 1977, relate to Ramana Balaji.
3. The Tribunal has referred to us the following three questions of law in these cases;
“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that invoking of section 52(2) was not justified in this case for assessment years 1969-70 and 1970-71?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the payments made to the two former tenants, M/s. Dunlop India Ltd., and M/s. Harrison & Company should be allowed as deductions in the computation of capital gains as an expenditure incurred wholly and exclusively in connection with the transfer of the capital asset within the meaning of section 48(i) of the Income-tax Act, 1961?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee's share in the marriage expenses of his sister cannot be allowed as a deduction in the computation of capital gains of the properties sold?”
4. They arise out of the sale of lands, which two divided brothers in a Mitakshara family obtained on partition. The first question in both these groups of cases turns on the fact that the consideration of sale shown in the document of sale was lower than what, according to the 1TO, was the fair market value of the lands as on the date of sale. On this factual basis, the ITO invoked the provisions of s. 52(2) of the Act, and substituted for the actual amount realised, on the sale of the properties, the fair market value of the properties. He then worked out the capital gains assessable to tax, on the difference between the cost of the properties and their market value at the time of sale.
5. The Tribunal, on appeal, held that s. 52(2) does not enable the ITO to disregard the reality of the consideration for the transfer of a capital asset merely on the score that it is less than what the ITO regards as the fair market value of the property on the date of sale. According to the Tribunal, s. 52(2) can be invoked only in cases where there is a clear understatement of the sale price in the document, that is to say, where the assessee receives, in reality, more than what the document, of conveyance shows. This position is now settled beyond doubt by a decision of the Supreme Court in K.P Varghese v. ITO, [1981] 131 ITR 597. We, therefore, answer the first question of law in both these groups of references in favour of the assessees, and against the department.
6. The second question of law in both the groups of reference relates to a claim for deduction made by the assessees under s. 48 of the Act. The claim was disallowed by the ITO, but his decision was reversed on appeal by the Tribunal. The claim arose in the following circumstances, having a bearing on the sales of the assessees' properties. The facts are not in dispute. When the assessees entered into an agreement for the sale of the properties in question, there were tenants in occupation of those properties. The purchasers, who had entered into the agreement of purchase insisted that the assessees should render to them vacant possession of the properties. In other words, this was one of the conditions of the conveyance. The assessees had, therefore, to arrange to vacate the tenants in occupation of the properties, so as to render vacant possession to the purchasers in terms of the agreement of sale. It appears from the statement of case, that there were two tenants, M/s. Dunlop India Ltd. and M/s, Harrison and Company. They had to be given Rs. 9,500 in all as consideration for their agreeing to vacate the properties. This amount was paid and the tenants vacated the properties, and in turn vacant possession was rendered by the assessee to the purchasers. In the assessment to capital gains on the sale of the properties in question, the assessee claimed that the payments made by them to the tenants in order to secure vacant possession was expenditure incurred wholly and exclusively in connection with the transfer of the properties, within the meaning of s. 48(i) of the Act. The Tribunal upheld this claim in appeal.
7. The department's contention is that this item of expenditure cannot come in for reckoning under s. 48(i). We do not accept this contention as well founded. The finding of the Tribunal is that the purchasers of the property from the assessees insisted on vacant possession being rendered as part of the condition of purchase of the properties. It, therefore, behoved the assessees to arrange with the tenants, who were then in possession of the properties, to render vacant possession. But the tenants were unwilling to vacate unless they were paid the sum of Rs. 9,500. These facts clearly show that the expenditure was incurred wholly and exclusively in connection with the agreement of sale, which preceded the transfer and in fulfilment of a condition of sale. We have no doubt whatever that the Tribunal was quite right in bringing the expenditure under s. 48(i) of the Act. Our answer to the second question in both the groups of references is, therefore, against the department.
8. There remains the third question of law in the two groups. This question has been referred to us at the instance of the assessees. It appears from the stated case that at the time of the partition of the properties between the assessees, there was an understanding between the parties, which was also incorporated in the partition deed, that a sum of Rs. 25,000 should be set apart for the marriage expenses of the sister of the assessees. The claim of the assessees before the ITO was that in computing the capital gains on the sale of the properties, which they had obtained under the partition, this sum of Rs. 25,000 which they were liable to set apart for the marriage of their sister, must be deducted. The ITO disallowed this claim. The Tribunal agreed with the ITO on the main ground that there was nothing in the partition deed under which the provision of Rs. 25,000 towards the marriage expenses of the assessees' sister was to be a charge on any of the items of properties, allotted to the assessees.
9. On a reference to the partition deed, what the Tribunal says is correct. But we would not like to uphold the decision of the Tribunal on this ground alone. ‘There is a more pertinent ground for the disallowances. The claim of the assessees to deduct the provision for the marriage expenses of the sister, as an admissible item of expenditure, has been put forward on the terms of the partition deed, and not under any specific statutory provision relating to the taxation of capital gains. Section 48 carries the marginal note “Mode of computation and deductions”. As it happens, this section contains the only provision for allowance of deductions in the computation of capital gains. Clause (1) of this section provides for deduction of expenditure incurred wholly and exclusively in connection with the transfer of the capital asset. Clause (ii) requires that the cost of acquisition of the capital asset as well as the cost of any improvement to the capital asset, must be deducted in order to arrive at the capital gains. Apart from these two clauses in s. 48, there is no other provision in the Act which permits deductions of any kind in the computation of capital gains. It may be that there was an obligation for making a provision for the marriage of the assessees’ sister and the liability was created under the very terms of the partition deed, under which they were allotted the items of properties, which were subsequently sold, which sale led to realisation of capital gains. Even so, the mere liability or obligation cannot be regarded as an item of expenditure. Let alone an expenditure incurred wholly and exclusively in connection with the sale of the properties. The obligation was connected with the partition arrangements, and not with anything else. Our answer to the third question in the two groups of references is accordingly against the assessees and in favour of the department.
10. The references are answered accordingly. In the circumstances of the case, there will be no order as to costs.