“cost of improvement”
The decision most relied on for cost of improvement is CIT v. Kasturi Estates (P.) Ltd. (62 ITR 578), cited in 25 judgments on BharatTax.
Leading authorities on cost of improvement
Expenditure incurred to improve property before sale, such as dividing land into plots and laying roads, does not constitute an adventure in the nature of trade if the primary purpose is to obtain a better price for the property.
Expenditure incurred by an assessee to discharge a mortgage created by a previous owner is an allowable deduction in computing capital gains, as it represents the cost of acquisition or perfecting an imperfect title. The assessee's payment to clear the encumbrance is not deductible for capital gains computation.
Compensation paid to hutment dwellers for vacating land is an allowable expenditure in computing capital gains, as it relates to the transfer of the asset. Such payments are considered a cost of acquisition or improvement under Section 48 read with Section 55 of the Income-tax Act, 1961.
Expenditure incurred to pay tenants to vacate premises, which are the subject of a sale transaction, is allowable as a deduction in computing capital gains. This is because the expenditure is directly connected to and necessary for effecting the transfer of the property.
The Assessing Officer cannot improve his assessment by adopting a new theory during reassessment proceedings.
Payment made to secure an order of eviction and evict an unauthorized occupant can be treated as a cost of improvement.
