Payment to Clear Title Valid as Cost of Acquisition Under Section 48 | HC

Case Details: Smt. A. Rita vs. Commissioner of Income Tax - [2025] 173 taxmann.com 921 (Madras)

Judiciary and Counsel Details

• Dr Anita Sumanth & G. Arul Murugan, JJ.
• A.S. Sriraman for the Appellant.
• S. Rajesh, Jr. Standing Counsel & J. Narayanasamy, Sr. Standing Counsel for the Respondent.

Facts of the Case

The assessee purchased a property under a registered deed dated 22-1-1980. However, the vendors’ title to the property was under litigation with their sisters, who successfully claimed title up to the High Court. In execution proceedings, the assessee paid Rs. 33 lakhs to the sisters to perfect her title. Subsequently, the assessee sold the property and in her return for the impugned assessment year, claimed the amount paid to the sisters as part of the cost of acquisition under section 48.

The Assessing Officer (AO) disallowed the claim, stating that the amounts paid as compensation did not constitute expenditures that could be allowed to compute capital gains. On appeal, the CIT(A) accepted the assessee’s claim.

However, the Tribunal reversed the order, and the matter reached the Madras High Court.

High Court Held

The High Court held that the assessee purchased the subject property on 22-1-1980. The property vendors were engaged in litigation with their sisters regarding the title to various properties, including the subject property. The Civil Court rejected their claim, holding that the subject property would vest in the sisters of the vendors.

Hence, the assessee’s title to the subject property under the deed dated 22-1-1980 was clouded.

The civil suit instituted against the vendors, their sisters, and other family members was in 1981, after the deed of purchase was executed on 22-1-1980, by the order of High Court in the second appeal dated 9-4-1996 in S.A. No. 458 of 1985, the sisters have been held to own the scheduled property. The vendors of the assessee thus held no title to the property, and it is only upon payment of Rs. 33 lakhs (approx.) that the assessee has cleared his title and can be said to have acquired the property.

Thus, the amount paid was ‘wholly and exclusively’ incurred in connection with transferring the subject asset. Thus, such amount formed part of cost of acquisition and was deductible under section 48.

List of Cases Reviewed

• ITA No.904/Mds/2012, dated 30-1-2013, reversed.
• Commissioner of Income Tax v. Bradford Trading Co. (P) Ltd. (261 ITR 222 ) (para 12) followed.

List of Cases Referred to

• CIT v. Bradford Trading Co. (P.) Ltd. [2002] 125 Taxman 632/[2003] 261 ITR 222 (Madras) (para 12).