Inclusion of Painting, Grills, Gates, and Masonry/Tiles Costs in Indexed Cost of Improvement After Property Purchase

In the case of Mohamed Ibrahim v. ITO (International Taxation), a non-resident assessee had sold two properties and utilized the capital gains to purchase a new property. The Assessing Officer disallowed the payment made by the assessee for painting the building, installing grills and gates, and undertaking masonry and tiles works due to lack of supporting evidence. However, it was argued that such expenses were common after the purchase of a property and should be considered as part of the indexed cost of improvement.

The tribunal ruled in favor of the assessee, stating that it was a common practice to carry out painting, installation of grills and gates, and masonry and tiles works after the purchase of a property. Therefore, the Assessing Officer should have included these expenses along with the cost of improvement and recalculated the indexed cost of improvement accordingly.

The indexed cost of improvement is a concept used in determining the capital gains tax liability. It takes into account the cost of improvement made to a property by adjusting it for inflation over the years. By including the expenses incurred for painting, grills and gates, and masonry and tiles works in the indexed cost of improvement, the assessee’s tax liability would be more accurately calculated, reflecting the actual investment made in improving the property.

This decision highlights the importance of considering common practices and industry norms while determining the cost of improvement for taxation purposes. It also emphasizes the need for proper supporting evidence to substantiate such expenses. By including these expenses in the indexed cost of improvement, the tribunal ensured a fair assessment of the assessee’s tax liability and provided clarity on the treatment of these expenses in similar cases.

Overall, the decision in this case serves as a precedent for including expenses related to painting, grills and gates, and masonry and tiles works in the indexed cost of improvement, thereby providing relief to non-resident taxpayers and ensuring a more accurate calculation of their capital gains tax liability.

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