Smt. Rugmani Varma vs Commissioner of Income Tax

Thanikkachalam J.

At the instance of the assessee, the Tribunal referred the following question, for the assessment year 1975-76, u/s 256(1) of the Income Tax

Act, 1961 (hereinafter referred to as ""the Act""), for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the payment of Rs. 30,000 made to the

applicant''s sisters in accordance with the terms of the will dated January 16, 1956, should not be deducted in computing the capital gains arising

from the sale of the property at 27/8, East Bashyakarlu Road, R.S. Puram, Coimbatore?

The assessee during the assessment year under consideration sold her property at No. 27/8, East Bashyakarlu Road, R.S. Puram, Coimbatore,

for Rs. 1,76,000 and admitted a capital gain of Rs. 9,750. The property was acquired through a will from her late father, K.P. Thampan. Hence,

the cost of the previous owner was taken into consideration and the value as on January 1, 1954, at the option of the assessee was adopted at Rs.

70,000. There is no dispute with regard to the valuation. The assessee''s further claim of cost of improvement at Rs. 27,000 was also allowed by

the Tribunal. The dispute is with regard to the claim of Rs. 30,000 paid by the assessee to her sisters on June 16, 1960, in terms of her late

father''s will, which stipulated that a sum of Rs. 15,000 to each of her two sisters, Ammini and Radha, or their representatives in interest was to be

paid by the assessee and that the amount ""shall be a charge on the said property"", while settling the property in question on the assessee. The

Income Tax Officer disallowed the claim on the ground that there is no provision for allowance of this claim as it was not within the definitions of

cost of acquisition"" of ""cost of any improvement"", defined u/s 55 of the Act.

On appeal, the Appellate Assistant Commissioner held that it can be treated as cost of acquisition and allowed the appeal on this point.

Aggrieved, the Department filed a second appeal before the Tribunal. The Tribunal found that the payment had already been made to the sisters

on June 16, 1960. It was not a charge at the time of sale. The Tribunal further found that section 49 of the Act requires that in the case of

properties acquired under a will or a gift, the cost of acquisition has to be taken as the cost to the previous owner of the property. This amount of

Rs. 30,000 could not therefore be treated as such cost. According to the Tribunal, it could not be also treated as ""cost of improvement"", since the

improvement"" contemplated was an expenditure on the asset itself. Since the full value of the property had to be adopted as the sale price and that

there was no dispute about it, the Tribunal found that there was no way of allowing Rs. 30,000 claimed by the assessee.

Before us learned counsel appearing for the assessee submitted that the full value of consideration for the purpose of section 48 of the Act is not

the amount as mentioned in the document, but the said amount as reduced by the amount covered by the charge created in favour of the

assessee''s sisters. According to learned counsel, there is a diversion by overriding title at source and hence the amount covered by the charge

created in favour of the sisters of the assessee did not reach the assessee as her income, but stood diverted even earlier. Learned counsel further

submitted that the ownership is a bundle of rights and the owner of the property cannot convey a better title than what he has. In the present case,

the property was bequeathed to the assessee minus the charge created over the property in favour of the sisters of the assessee. Therefore, an

obligation was created on the assessee to discharge the charge created in favour of her two sisters over the property. Learned counsel further

pointed out that if Rs. 30,000 was not paid as per the direction in the will, then her sisters would have initiated proceedings and attached the

property over which a charge was created and the property would have been brought to sale in which case the assessee would lose the entire

property. Further, learned counsel submitted that property includes both tangible and intangible. When the title is defective, incomplete or

imperfect, the cost of making the title complete and perfect can be treated as the ""cost of acquisition"". Therefore, the sum of Rs. 30,000 paid to

complete the title in favour of the assessee would amount to ""cost of acquisition"" in the hands of the father of the assessee. Learned counsel

drawing our attention to a passage occurring in the Law and Practice of Income Tax by Kanga and Palkhivala, eighth edition, volume 1, at page

781, submitted that the decision of the Madras High Court in S. Valliammai and Another Vs. Commissioner of Income Tax, Madras, and the

decision of the Kerala High Court in Ambat Echukutty Menon Vs. Commissioner of Income Tax, Kerala, are not dealing with the point as arising

in the present case. So also learned counsel submitted that the decision of the Madras High Court in Commissioner of Income Tax Vs. V. Indira,

was rendered on different facts altogether. Therefore, it was submitted that the abovesaid three decisions would not render any help to the

Department to contend that the expenditure incurred for perfecting, improving or completing the title would not go to improve the cost of

acquisition. Therefore, according to learned counsel, even if the cost of acquisition is to be ascertained as per the provisions of section 55(2)(iii) of

the Act, the expenditure incurred for completing, improving and perfecting the title would go to increase the cost of acquisition, along with the

original cost of acquisition in the hands of the previous owner. However, learned counsel appearing for the assessee in order to support his

abovesaid contention, relied upon a decision of Madras High Court in Commissioner of Income Tax Vs. C.V. Soundararajan and Another, , and

another decision of the Gujarat High Court in Commissioner of Income Tax Vs. Daksha Ramanlal, .

On the other hand, learned standing counsel for the Department, submitted that the scheme of sections 48, 49 and 55 of the Act would

contemplate imposing tax on capital gains. According to learned standing counsel, we must go by what is provided therein and we cannot import

any idea, which is foreign to the abovesaid provision. Section 48 lays down the mode of computation of capital gains and the deduction to be

made therein, viz., the expenditure incurred wholly and exclusively in connection with the transfer, the cost of acquisition of the capital asset and the

cost of any improvement thereto. No other deductions are provided. According to learned standing counsel, section 55 of the Act defines what is

cost of improvement"" and what is ""cost of acquisition"". ""Cost of improvement"" means expenditure of a capital nature incurred for making any

addition or alteration to the capital asset by the an assessee, after it became his property, and in the case of assets which became the property of

the assessee by any of the modes specified in sub-section (1) of section 49 by the previous owner; sub-section (2) defines what is meant by ""cost

of acquisition"" for the purposes of sections 48 and 49. Section 49 deals with cost with reference to certain modes of acquisition. One of the modes

of acquisition, which is relevant for the purpose of this case is where the the capital asset became the property of the assessee under a will, the

section provides that in such a case, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the

property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the

case may be. Therefore, according to learned standing counsel, there is not question of adding the cost of acquisition incurred by the assessee

along with the cost of acquisition in the hands of the original owner. In order to support his contentions, learned standing counsel relied upon the

decisions reported in Commissioner of Income Tax Vs. V. Indira, ; S. Valliammai and Another Vs. Commissioner of Income Tax, Madras, ;

Ambat Echukutty Menon Vs. Commissioner of Income Tax, Kerala, ; Salay Mohamad Ibrahim Sait Vs. Income Tax Officer and Another, and

K.V. Idiculla Vs. Commissioner of Income Tax, .

We have heard learned counsel appearing for the assessee as well as learned standing counsel for the Department. The point for consideration

is, whether a sum of 30,000 paid by the assessee to two of her sisters, as per the directions contained in the will dated January 16, 1956, executed

by her father, would go to increase the cost of acquisition in the hands of the previous owner, viz., her father. Section 45 provides that any profits

or gains arising from the transfer of a capital asset effected in the previous year shall, subject to certain exemptions and deductions, be chargeable

to Income Tax as capital gains and shall be deemed to be the income of the previous year in which the transfer took place. Section 48 lays down

the mode of computation of the capital gains and the deductions to be made. According to section 48, the income chargeable under the head

Capital gains"" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer, the amounts

mentioned which include the cost of acquisition of the capital asset and the cost of any improvement thereto. Section 55 defines what is ""cost of

improvement"" and what is ""cost of acquisition"". ""Cost of improvements"" means expenditure of a capital nature incurred in making any additions or

alterations to the capital asset by an assessee after it became his property and in the case of assets which became the property of the assessee by

any of the modes mentioned in sub-section (1) of section 49 by the previous owner. Sub-section (2) defines what is ""cost of acquisition"" for the

purpose of sections 48 and 49. Section 49 deals with cost with reference to certain modes of acquisition. One of the modes of acquisition, which is

relevant is, where the capital asset became the property of the assessee under the gift or will. In such cases of acquisition, the cost of the asset shall

be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets

incurred or borne by the previous owner or the assessee, as the case may be. It is in view of the provisions contained in section 55(2)(ii), we have

to consider in the present case whether the sum of Rs. 30,000 paid by the assessee to two of her sisters as per the direction contained in the will

executed by her father would go to increase the cost of acquisition as ascertained in the hands of the previous owner.

A similar question came up for consideration before this court in Commissioner of Income Tax Vs. V. Indira, . According to the facts arising in

that case, the assessee''s father gifted to the assessee, a house property. One A filed a suit claiming title to an area of land on which the above

gifted property was situate. The assessee paid to A a sum of Rs. 6,943 in a compromise and claimed that in computing the capital gains arising on

the sale of the property by the assessee, this sum of Rs. 6,943 paid to A should also be taken into account as representing the cost of improvement

to the property which would be deductible u/s 49(1) read with section 55(1)(b) of the Income Tax Act, 1961. On these facts, on a reference, this

court held that as the asset became the property of the assessee by way of gift, the cost of acquisition has to be in accordance with section 49(1).

As the previous owner has not paid the amount of Rs. 6,943 and the same has been paid by the assessee, it cannot be treated as the cost to the

previous owner cannot be qualified for deduction as cost of acquisition of the property. The amount cannot also be allowed as a deduction as ""cost

of any improvement thereto"". As the amount has been paid only to improve the title of the owner rather than improving the asset as such, there is

no scope for deducting the amount in the computation of the capital gains. It was further held that if the property had been acquired prior to the 1st

day of January, 1954, by the previous owner, then the cost of acquisition of the capital asset or the fair market value as on the first day of January,

1954, would alone represent the cost of acquisition or the deductible amount.

The court also had an occasion to consider a similar question in S. Valliammai and Another Vs. Commissioner of Income Tax, Madras,

According to the facts arising in that case, one R died leaving behind his wife, U, and daughter, V, as his legal heirs and hence all his properties

devolved on them equally. A partition was effected between them under which certain properties were allotted to U and others to V.

Subsequently, U adopted A and left a will bequeathing all her properties to the adopted son, A, and hence on her death all her properties vested in

A. Both V and A sold the properties which they got and in the computation of cost of acquisition for the properties for the purpose of determining

the capital gains arising on the sale, they claimed deduction of the estate duty that had been paid by them attributable to the properties that fell to

their share. On a reference, this court held that non-payment of estate duty did not result in their getting an imperfect or incomplete title in the

property. Only when the title is defective, incomplete or imperfect, the cost of making the title complete and perfect can be treated as the cost of

acquisition. Accordingly, estate duty paid cannot be treated as part of the cost of acquisition as defined in section 55(2) of the Income Tax Act,

1961. The assessee''s title to immovable properties acquired cannot be said to be incomplete or imperfect in any way. They had become the full

owners of the assets even before the payment of the estate duty and on payment of the same, they had not acquired any new rights, tangible or

intangible, in the asset or the assets had not been physically or otherwise improved to any extent. Hence, the estate duty paid cannot be taken to

be an expenditure of a capital nature incurred for perfecting an imperfect or incomplete title to the asset nor can it be treated as an expenditure

incurred for making an addition to the asset as contemplated by section 55(1)(b) of the Income Tax Act.

The Kerala High Court in Ambat Echukutty Menon Vs. Commissioner of Income Tax, Kerala, , while considering the provisions of sections

49(1) and 55(1)(b) of the Act, held as under :

.... as the capital asset had become the property of the assessee by succession or inheritance on the death of P who had acquired the property in

December, 1953, u/s 49(1) of the Income Tax Act, 1961, the cost of acquisition of the asset is to be deemed to the cost for which the previous

owner P, acquired it, as increased by the cost of any improvement of the assets incurred or borne either by the previous owner or the assessee.

The original cost of the property was Rs. 49,920. Having regard to the definition of ''cost of improvement'' contained in section 55(1)(b), in order

to entitle the assessee to claim a deduction in respect of the cost of any improvement, the expenditure should have been incurred in making any

additions or alterations to the capital asset that was originally acquired by the previous owner. Where the previous owner had mortgaged the

property and the assessee and his co-owners cleared off the mortgage so created, it could not be said that they incurred any expenditure by way

of effecting any improvement to the capital asset that was originally purchased by the previous owner.

So also the Andhra Pradesh High Court in Commissioner of Income Tax, Andhra Pradesh, Hyderabad Vs. Bilquis Jahan Begum, , while

considering the provisions of sections 48, 49 and 55 of the Act, held that in computing the capital gains on sale of properties inherited on the death

of an owner, estate duty payable in respect of the properties cannot be deducted from the full value of the consideration received on the transfer of

the properties. This decision was rendered by following the Full Bench decision of this court in S. Valliammai and Another Vs. Commissioner of

Income Tax, Madras, .

Again the Kerala High Court had an occasion to consider a question of similar nature in the decision of Salay Mohamad Ibrahim Sait Vs.

Income Tax Officer and Another, . According to the facts arising in that case, the petitioners who were brothers jointly owned land. They

mortgaged it to the Canara Bank. More than rupees sixty lakhs was due to the bank under the mortgage, at a time when the petitioners entered

into an agreement to sell the property to ten persons under different assignment deeds, for a total consideration of Rs. 10,33,966. The bank agreed

to release the mortgage on the property, if an amount of rupees nine lakhs was paid towards the outstanding. The amount was accordingly

deposited by the petitioners on June 21, 1985, through the purchasers, or with funds made available by them, and the bank released their

mortgage right on the property. The deeds of assignment were thereafter executed and the property sold in accordance with the agreement to sell.

The petitioners contended that the consideration for the transfers should be taken as the amount of Rs. 10,33,966 less rupees nine lakhs paid to

the bank in discharge of the mortgage, in which even, there was no capital gain liable to be assessed. It was also contended that the amount paid to

the bank did not reach the petitioners as it has been diverted by overriding title and, therefore, capital gains, if any, should be computed only with

reference to the balance. On these facts, the Kerala High Court held that the consideration by the petitioners was thus Rs. 10,33,966 and not this

amount reduced by Rs. 9 lakhs. There was no diversion of any amount at source or by overriding title as the amount of Rs. 9 lakhs had actually

reached the petitioners and had been applied in discharge of their dues. The amount spent for discharge of the mortgage could not be deducted in

the computation of capital gains. This decision was also rendered after taking into consideration the decision in Ambat Echukutty Menon Vs.

Commissioner of Income Tax, Kerala, and S. Valliammai and Another Vs. Commissioner of Income Tax, Madras, and distinguishing the decision

in Commissioner of Income Tax Vs. Daksha Ramanlal, referred to above.

There is also a decision of this court in Commissioner of Income Tax Vs. C.V. Soundararajan and Another, , which would support the plea

put forward by learned counsel appearing for the assessee. According to the facts in that case in a family partition, the assessees were allotted a

property in which their mother was given a right of residence. In order to obtain a relinquishment of the said right of residence to enable them to sell

the property, the assessees paid to their mother a sum of Rs. 60,000. In computing the capital gains arising on the sale of the property, the claim of

the assessees for deduction of this sum of Rs. 60,000 was allowed by the Income Tax Officer, which was ultimately confirmed by the Tribunal. On

a reference, this court held that admittedly the assessees did not have the benefit of the said sum of Rs. 60,00 when the interest of the mother in the

property in question had been purchased by getting the relinquishment for a consideration of Rs. 60,000 and hence the said amount could not be

taken as consideration paid in respect of the interest of the assessees. Consequently, the Tribunal was right in its view that the sum of Rs. 60,000

paid to the mother was to be excluded in computing the capital gains. This decision was distinguished by the Kerala High Court in the decision

reported in K.V. Idiculla Vs. Commissioner of Income Tax, . According to the facts arising in K.V. Idiculla Vs. Commissioner of Income Tax, ,

the assessee''s father, V, purchased a land with building in June, 1964, for Rs. 21,000. The assessee''s wife had received sthreedhanam which was

invested by her in her father-in-law, V''s business, in which she had a credit balance of Rs. 73,570 as on December 31, 1978. V executed a will

on August 21, 1979, bequeathing the house property to his son, the assessee, directing that the amount due to the assessee''s wife should be paid

out of this property. After V''s death on September 30, 1979, the assessee transferred the property to his wife for a consideration of Rs. 83,700.

In the assessment year 1980-81, the assessee declared a capital gain of Rs. 5,544 claiming, inter alia, that he had effected improvements to the

property to the extent of Rs. 49,047. The Income Tax Officer adopted the amount of Rs. 83,700 as the full value of the consideration from which

he deducted Rs. 21,000 as the cost of acquisition, being the amount for which V purchased the property on June 16, 1964, as also an amount of

Rs. 20,000 as cost of improvement and brought to tax an amount of Rs. 42,700 as capital gains. On a reference, it was contended by the assessee

that the full value of the consideration for the purpose of section 48 was not the amount of Rs. 83,700 recited in the documents as the

consideration, but the said amount as reduced by the amount covered by the charge in favour of the assessee''s wife. The contention was that there

was a diversion by overriding title at source. In the alternative, it was argued that the assessee had inherited the property under the will subject to

the charge, and, therefore, the amount of the liability to the wife should be deducted in the computation of the capital gains. The Kerala High Court

held that the payment of the debt was not made by virtue of any overriding obligation to make payment of it, but was just the discharge of an

obligation created by V himself in favour of the daughter-in-law. This was a case of an application of the sale price after it had reached the

assessee and not a diversion at source before it reached the assessee. The full value of consideration had, therefore, to be taken as Rs. 83,700 and

not that amount less the amount due to the assessee''s wife. Therefore, the amount due to the assessee''s wife was not liable to be taken note of in

computing the capital gains arising on the sale of the property. In this decision, the Kerala High Court pointed out that the decision of the Madras

High Court in Commissioner of Income Tax Vs. C.V. Soundararajan and Another, is distinguishable on facts. The Kerala High Court followed the

decisions reported in Ambat Echukutty Menon Vs. Commissioner of Income Tax, Kerala, and Commissioner of Income Tax Vs. V. Indira,

referred to above.

Our attention was also drawn to the decision of the Gujarat High Court in Commissioner of Income Tax Vs. Daksha Ramanlal, . According to

the facts arising in that case, the assessee had received a piece of land as a gift. She sold the same and disclosed the capital gains on such sale. The

assessee claimed deduction of Rs. 25,000 paid by her to the mortgagee, as the land which was gifted to her was subject to a mortgage. The

assessee claimed that amount for deduction, since according to the assessee, the said sum of Rs. 25,000 would go to increase the cost of the land.

On these facts, the Gujarat High Court held that when the previous owner gifted the mortgaged property to the assessee, what he had transferred

to the assessee was the right, title or interest which he had in that property. When the assessee discharged the mortgage by paying Rs. 25,000 to

the mortgagee, what she did was to purchase that right or interest which the mortgagor did not then possess and which the mortgagee had in the

property. When the assessee sold the property, she did not merely sell the right, title or interest which she had received from the donor but also the

right, title or interest which she had received from the donor but also the right, title or interest, which she had purchased from the mortgagee. For

this reason, the case would not be covered by section 49(1)(ii) of the Income Tax Act, 1961, nor by section 55(2)(ii) for the purpose of

computation of the capital gains. The case would be governed either by section 48 read with section 55(2)(i) or partly by section 48(1)(ii) and

partly by section 49(1), read with section 55(2)(i). In either case, what is required to be considered is the cost of acquisition of the asset to the

assessee. Payment of Rs. 25,000 to the mortgagee by removing that encumbrance was certainly the cost of acquisition of the interest of the

mortgagee and, therefore, it had to be taken into account for the purpose of computing the total cost of acquisition of the property which the

assessee sold and thereby made capital gains. In this decision, the Gujarat High Court dissented from the view taken by the Kerala High Court in

Ambat Echukutty Menon Vs. Commissioner of Income Tax, Kerala, and the view taken by the Madras High Court in Commissioner of Income

Tax Vs. V. Indira, and the view taken by the Full Bench of the Madras High Court in S. Valliammai and Another Vs. Commissioner of Income

Tax, Madras, referred to above. But the Gujarat High Court followed the decision of the Madras High Court in Commissioner of Income Tax Vs.

C.V. Soundararajan and Another, .

Our attention was also drawn to a passage occurring at page 781 in the Law and Practice of Income Tax by Kanga and Palkhivala, eighth

edition, volume 1. While dealing with the additions to the original cost of acquisition, the authors took the following view :

Additions to original cost of acquisition. - The cost of acquisition of an asset is not a figure which is fixed once and for all when the asset is first

acquired. It may increase as a result of further payments made in respect of the asset. For instance, if a man buys a property subject to a mortgage,

and later pays off the mortgage debt, it is clear that the cost of acquisition would be the aggregate of the original purchase price plus the amount

paid on redemption of the mortgage - Commissioner of Income Tax Vs. C.V. Soundararajan and Another, . In Ambat Echukutty Menon Vs.

Commissioner of Income Tax, Kerala, , the assessee inherited a mortgaged property, paid off the mortgage debt and subsequently sold that

property free of the mortgage. The Kerala High Court held that the payment of the mortgage debt should not be taken as part of the cost of

acquisition to the assessee, since u/s 49(1)(iii)(a) the cost to the previous owner was to be treated as the cost of acquisition to the assessee. It is

submitted that the decision is incorrect for the following reasons :

(a) the basic principle is that the word ''property'' or ''asset'' in the juristic sense (and in this Act) includes not merely the physical property or asset

but the right, title or interest in it. Different persons may have different rights in a single physical asset or property. An absolute owner has the

largest bundle or rights, while a lessee''s title and a mortgagee''s title are examples of limited rights. In the case of mortgaged property the bundle or

rights consists of the mortgagor''s title and the mortgagee''s title. What the assessee inherited was only the mortgagor''s title and he enlarged his

bundle of rights by extinguishing the mortgagee''s title. The two separate costs of the two titles constitute in the aggregate the cost of acquisition for

the purpose of computing capital gains.

(b) Section 49(1) opens with the words ''where the capital asset became the property of the assessee''. The ''capital asset'' or the ''property'',

which the assessee inherited was only the mortgagor''s interest and not the mortgagee''s interest. u/s 49(1)(iii)(a) the cost to the previous owner

was the cost of acquisition of the mortgagor''s interest only. The mortgagee''s interest fell wholly outside section 49 and the assessee''s cost of

acquiring it had to be separately computed.

(c) Section 49 is meant for the benefit of the assessee, since it enables him to take the cost to the previous owner as the cost to himself, though he

got the property free upon inheritance. A section which is intended for the benefit of the assessee should not be so misconstrued as to put him in a

worse position than the man ho buys or mortgaged property and thereafter redeems the mortgage before selling it free of any encumbrance.

(d) Alternatively (though the alternative is really unnecessary), the cost of acquisition is to be increased u/s 49(1) by cost of any improvement of the

asset incurred or borne by the assessee. Here, again, the word ''asset'' includes right, title or interest in the asset. Redeeming a mortgage improves

the mortgagor''s right, title and interest, and the cost of such redemption is, in any event, the cost of improvement for the purposes of section 49.

Non-application of the above principles also vitiates the Madras High Court''s decisions that the cost incurred by a donee to free the gifted

property of an adverse claim - Commissioner of Income Tax Vs. V. Indira, or the payment, by the heir, of estate duty which is a charge upon the

inherited immovable property - S. Valliammai and Another Vs. Commissioner of Income Tax, Madras, , does not form part of the cost of

acquisition to the donee or the heir.

Thus, we have stated the facts arising in this case in detail, and the case law on the question of adding ""cost of acquisition"" required by the

assessee with regard to Rs. 30,000 paid by her to her two sisters, as per the direction contained in the will executed by her father. Thus, we have

got to the ascertain the ""cost of acquisition"" incurred by the assessee in the present case in accordance with the provisions contained in section

49(1) read with section 55(2)(ii) of the Act, inasmuch as the assessee became the owner of the property in question under a will executed by her

father. According to the provisions contained in section 55 for the purpose of sections 48 and 49, ""cost of acquisition"" in relation to a capital asset :

(i) where the capital asset became the property of the assessee before the first day of January, 1954, means the cost of acquisition of the asset to

the assessee or the fair market value of the asset as on the first day of January, 1954, at the option of the assessee; (ii) where the capital asset

became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and capital asset became the property of the

previous owner before the first day of January, 1954, means the cost of the capital asset to the previous owner or the fair market value of the asset

as on the first day of January, 1954, at the option of the assessee. In the present case, the assessee exercised her option to adopt the fair market

value prevailing as on January 1, 1954. Thereafter, as per the abovesaid provisions, the assessee can add along with the cost of acquisition in the

hands of the previous owner only the cost of improvement made by the assessee with regard to the property in question. There is no provision for

adding the cost of acquisition incurred by the assessee along with the original cost of acquisition determined in the hands of the original owner. In

the present case, the assessee claimed that the sum of Rs. 30,000 paid to her two sisters is the cost of acquisition incurred by her in completing the

title over the property, and, therefore, it should be added along with the cost of acquisition determined in the hands of her father. The request made

by the assessee cannot be complied with in view of the provisions contained in section 55(2) of the Act. When we consider the cost of acquisition

u/s 55(2) of the Act, where an option is exercised by the assessee to determine the cost of acquisition according to the market value prevailing as

on January 1, 1954, thereafter, it is not possible for the assessee to ask for treating Rs. 30,000 paid by the assessee to her sisters as part of the

cost of acquisition as defined in section 55(2) of the Act. So also payment of Rs. 30,000 cannot be considered as having physically or otherwise

improved the asset to any extent. In view of the definite provisions contained in section 55(2) of the Act, we are unable to accede to the request

made by the assessee in this regard. Further, this view is also supported by the Full Bench decision of this court rendered in S. Valliammai and

Another Vs. Commissioner of Income Tax, Madras, , which we cannot ignore. In view of the abovesaid findings, we answer the question referred

to us in the affirmative and against the assessee. No costs.