Issues: 1. Whether the sale of the property by the assessee, which was acquired through a bequest under a Will, attracts short-term capital gains tax? 2. Whether the payments made by the assessee to others asserting rights over the property qualify for deduction as the cost of improvement to the property?

Legal Provisions: 1. Section 45 of the Income Tax Act, 1961 - Deals with the computation of capital gains. 2. Section 47(iii) of the Income Tax Act, 1961 - Excludes transfer by way of Will from the purview of “transfer” for the purpose of capital gains provisions. 3. Section 49 of the Income Tax Act, 1961 - Provides for the cost of acquisition of the property inherited under a Will to be taken as the cost of acquisition for the successor if the property is transferred. 4. Section 55(1)(b)(2)(ii) of the Income Tax Act, 1961 - Defines “cost of improvement” as any capital expenditure incurred by the assessee in making any additions or alterations to the capital asset.

Legal Judgements: 1. CIT v. V. Indira (119 ITR 837) - Held that the expression “cost of any improvement thereto” in Section 55(1)(b)(2)(ii) implies that it has to be a cost on the asset itself and not a cost for improving the owner’s title to the asset. 2. R.M. Arunachalam v. CIT (227 ITR 222) - Held that if the mortgage debt was created by the previous owner and the assessee, after inheriting the property, discharged the mortgage debt, the amount paid by the assessee for clearing off the mortgage could be claimed as part of the cost of acquisition under Section 48 and Section 49 read with Section 55(2) of the Act.