Per Shri K.B. Menon, Judicial Member - This appeal by the assessee relates to the assessment year 1980-81, for which the previous year ended on 31-3-1980.

2. The assessee is engaged in the business of distribution and sale of ration food-grains. The dispute in the present case relates to the capital gains arising out of the transfer by the assessee to his wife of 47.5 cents of land with a building in Thiruvalla village. The land and the building previously belonged to Shri K.I. Varkey, the father of the assessee, who was also engaged in the same line of business as the assessee. The streedhan amount received at the time of the marriage of the assessee was invested in the business of his father. In the books of account maintained by the father, Shri Varkey, there was a credit balance with regard to the dowry amount in favour of Smt. Sosa Idiculla, the wife of the assessee. The credit balance, which included the interest on the amount, came to Rs. 73,570 as on 31-12-1978. On 23-8-1979, the father, Shri Varkey, executed a registered will by which he bequeathed 45 cents of land along with the building to the assessee. At the same time, he created a charge over the property for the amounts due to the wife of the assessee. Shri Varkey died on 30-9-1979 and thereupon the property devolved on the assessee. The assessee assigned the property to his wife under two documents dated 15-10-1979 and 22-10-1979. The total consideration under the two sale deeds came to Rs. 83,700. Out of this, Rs. 78,156 was adjusted towards the amount due to the wife as per the credit balance till date in the accounts of the father. Only the balance amount of Rs. 5,544 was actually received by the assessee under the sale deeds. The assessee claimed that this is the sale consideration as far as he is concerned and that the capital gains, if any, arising out of the trans- action, should be worked out with reference to this amount. The contention was negatived by the ITO, who held that the sale consideration as far as the assessee was concerned was Rs. 83,700. The assessee had also claimed that a sum of Rs. 49,047 had been spent on improvement of the property and that this amount should also be reduced from the sale consideration. As against this, the ITO allowed Rs. 20,000 as cost of improve-ment.

3. The AAC confirmed the finding of the ITO that the consideration received by the assessee under the sale deeds was Rs. 83,700. He also declined to enhance the cost of improvement as determined by the ITO. Aggrieved by the same, the assessee has come up in appeal.

4. The grounds taken in the appeal are lengthy and argumentative. They can be summarised as follows : The value of the consideration received or accruing as a result of the transfer for the purpose of section 48 of the Income-tax Act, 1961 (‘the Act’), was only Rs. 5,544 as far as the assessee was concerned. The balance amount of Rs. 78,156 was set of against the amounts due to the wife of the assessee, which was a first charge on the property. The property was inherited by the assessee with the charge. No sale of the property could have been effected without clearing the charge. This amount, therefore, never accrued to the assessee and was not received by him. The observations of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 support the stand taken by the assessee. If the consideration received by the assessee is treated as the full amount of Rs. 83,700, it would render it impossible for the assessee to obtain the benefit of exemption under section 54E of the Act as the assessee will have to deposit Rs. 83,700, while he had received only Rs. 5,544. The decision of the Kerala High Court in the case of Ambat Echukutty Menon v. CIT [1978] 111 ITR 880, which was relied upon by the ITO, is not attracted in the present case as it is not the case of the assessee that the amount of Rs. 78,156, which was due to the vendee, constituted cost of improvement. In any case, the assessee’s