The main legal point established in the judgment is the application of the principle of diversion of income by overriding title in determining tax liability under the Income Tax Act, 1961.

Usha, J.

Cochin Bench of Income tax Appellate Tribunal has referred for the opinion of this Court under S.256 (1) of the Income Tax Act, 1961 the following questions of law arising out of the order of the Tribunal dt. 31.8.1984 in I. T. A. No. 920 (Cochin) 1983:

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for the purpose of working out the capital gains under S.48 of the I. T. Act, 1961, the consideration received by the assessee and other co-owners by the sale of the property measuring 4 acres 83 cents should be taken as Rs. 6,20,000/- aid that there was no diversion by over-riding title in respect of Rs. 4,44,374/-which was paid by the purchaser to the Income tax Department in satisfaction of the income tax liabilities of the father of the assessee, from whom the property was inherited by the assessee and the other co owners?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the above said amount of Rs. 4,44,374/- paid to the Income tax Department cannot be treated as the cost of acquisition of (he capital assets?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to exemption under S.54E of the Act, 1961, in respect of the deposits made by the assessee?

4. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the CIT(A) was justified in not entertaining an additional ground taken by the assessee for the first time before the CIT(A) that the property sold was agricultural land and that the sale of the property did not, therefore, attract tax on capital gains? The reference relates to Income tax assessment for the year 1977-78 for which the previous year ended on 31.3.1977. Father of the assessee, late Kesavan, was the owner of 4 acres and 86 3/4 cents of land situated outside the Quilon Municipality limits. On his death the property devolved on the assessee, her brother and her sister and (hey came into joint possession under partition deed dt.14.2.1964. The properly was under attachment of the Income Tax Department for arrears of income lax due from late Kesavan even during his life time. While the attachment was thus in force, on 17.3.1977 the assessee, her brother and her sister along with her mother sold the property to the Kerala State Warehousing Corporation for consideration of Rs. 6,20,000/-. As per the terms of the document an amount of Rs. 1,99,681.04 had to be paid by the vendee to the department for and on behalf of the vendors. A further sum of Rs. 2,44,693.40 was reserved with the purchaser for payment to 1ncome Tax Department towards interest if any when it is finally held to be due by the Central Board of Direct Taxes. In case no amount was found due the amount thus reserved has to be paid to the vendors within one month after the decision of the Central Board. The balance amount of Rs. 1,75,625.56 was to be paid to the vendors on or before 30.10.1977 with interest @ 12% per annum. 2. The fair market value of the property as on 1.1.1954 as opted for by the asssessee was determined by the 1ncome Tax Officer at Rs. 1,50,000/- for the purpose of working out capital gains under S.55(2). Before the Income Tax Officer the assessee contended that only the amount of Rs. 1,75,626/- should be treated as having been received as consideration for the sale of the land as the balance amount was paid to Income Tax Department pursuant to the attachment of the properties by the department. This contention was not accepted by the Income Tax Officer. Consideration received for the sale of the property was fixed at Rs. 6,20,000/-. This finding was affirmed by the C. I. T. (Appeals) as also the Tribunal.

3. The contention raised by the assessee claiming exemption under S.54 E on the basis of the deposits of sale constitution made by (he assessee in May 1978 and in February 1979 was also rejec