V. Ramanujam, J.
1. One Ramanathan Chettiar, who owned considerable movable and immovable properties, died on January 26, 1958, leaving behind him his wife, Srimathy Umayal Achi, and his daughter, Srimathy Valliammai, as his legal heirs. On his death, the properties devolved upon the aforesaid two persons in equal shares. A partition was effected between them under which certain properties were allotted to Umayal Achi and the rest Valliammai. Umayal Achi adopted one Arunachalam in April, 1961. She later died on August 20, 1964, leaving a will bequeathing all he properties to her adopted son, Arunachalam.
2. During the previous year ending with March 31, 1966, Arunachalam sold 9.0111 grounds in the property known as 'Green Field House Site' for Rs. 99,500. During the previous year ending with March 31, 1967, he sold a bunglow and site at Kodambakkam High Road, of the extent of 15 grounds and 1,400 sq.ft. to the American Embassy for Rs. 6,00,000 and a plot of land measuring 7.2040 grounds at Nung ambakkam High Road for Rs. 1,17,750 and a house at Pattukkottai for Rs. 65,000. During the previous year ending with March 31, 1969, he had sold 6 grounds and 260 sq.ft. at Thirumalai Pillai Road, T. Nagar, Madras, for Rs. 79,200. During the previous year ending with March 31, 1970, the assessee sold 4 grounds and 1,020 sq.ft. in Thirumalai Pillai Road for a sum of Rs. 64,162.50 and the house bearing door No. 44, III Main Road, Adayar, for Rs. 81,000. He offered Rs. 7,537, Rs. 1,84,480, Rs. 19,015 and Rs. 32,118 as capital gains for the assessment years 1966-67, 1967-68, 196970 and 1970-71, respectively, as arising from the aforesaid transfers. In doing so, he had taken the cost of acquisition of the capital assets concerned at their market value as on April 28, 1964, the date on which he became entitled to them under the will of his adopt ive mother. He had also claimed that since the estate duty had been paid consequent upon the death of Ramanthan Chettiar and Umayal Achi, the proportionate part thereof as was attributable to the value of the property sold should also be deducted in computing the capital gains. The ITO rejected the contention and computed the capital gains ar Rs. 80,050, Rs. 4,89,876, Rs. 55,758 and Rs. 81,254 for the asessment years 1966-67, 1967-68, 1969-70 and 1970-71, respectively, on the ground that under the Explanation to s. 49(1) of the I.T. Act, 1961, hereinafter referred to as 'the Act'. Ramanathan Chettiar alone should be considered as the' previous owner' and consequently, the assessee would be entitled to adopt, as the cost of acquisition of the properties sold, their values as on January 1, 1954.
3. Aggrieved by the said assessment, Arunachalam preferred appeals to the AAC contending that the proportionate part of the estate duty paid consequent on the death of Ramanathan Chettiar and Umayal Achi as its attributable to the properties sold should be deducted in computing the capital gains on the ground that estate duty was a first charge on the properties. However, the AAC rejected those appeals. Thereupon Arunachalam preferred appeals to the Income-tax Appellate Tribunal reiterating the same contention. The Tribunal, however, held that even if a first charge has been created on the property passing on his death for payment of the estate duty, the said charge cannot be equated to a mortgage which alone involves the transfer of an interest in immovable properties and that consequently it cannot be said that when estate duty is paid there is any acquisition of the interest in the properties, which had been carved out in favour of the Government resulting in an addition to the cost of acquisition of the property concerned. The Tribunal also rejected the alternative contention of the appellant that in any event the proportionate estate duty paid should be considered as cost of improvement on the ground that the definition of the expression 'cost of any improvement 'in s. 55(1)(b) of the Act can refer only to the expenditure incurred in making physical alternations or additions in the capital assets concerned, but the payment of estate duty cannot be considered as such an expenditure. In this view, the Tribunal dismissed all the appeals. At the instance of the assessee, the following question has been referred to this court under s. 256(2) of the Act.
'Whether in computing the capital gains on the sale of properties made by the assessee during the previous years relevant for the assessment years 1966-67, 1967-68, 1969-70 and 1970-71, proportionate estate duty pain on the death Shri Ramanathan Chettiar and Shrimathi Umayal Achi in respect of properties sold should de deducted ?'
4. Valliammai in her turn had sold 2.5 grounds of land in Valliammal Road, Alagappa Nagar, for Rs. 23,125 on April 11, 1966, 1.5 grounds of land in the same road for Rs. 13,875 on June 5, 1966, three ground of land for Rs. 47,795 on March 16, 1967, and 3.2008 grounds of land in Nungambakkam High Road for Rs. 45,995 on March 18, 1967. In the return field by her for the assessment year 1967-68 she offered Rs. 1,07,479 as capital gains arising from the aforesaid sales liable to be taxed under s. 45 of the Act and sought deduction of the proportionate part of the estate duty levied and paid on estate of Ramanathan Chettiar as was attributable to the value of the properties sold by her. The ITO rejected the contention holding that since she had acquired the properties sold by inheritance on the death of her father to whom they belonged, her father alone should be considered as the previous owner under the Explanation to s. 49(1) of the Act and that she was entitled to substitute the market value of the properties sold as on January 1, 1954, for such cost of acquisition by virtue of s. 55 and on that basis computed the capital gains at Rs. 1,02,420 by his order dated March 29, 1972. Aggrieved by the said assessment, she preferred an appeal to the AAC reiterating the same contention. On the said appeal being dismissed, she took the matter in appeal to the Tribunal wherein she c ontended that a sum of Rs. 6,775 representing the portion of the estate duty levied and paid on the estate of Ramanathan Chettiar attributable to the properties sold by her during the relevant previous year should be deducted from the total consideration received, and that, in any event, the estate duty payable in respect of the properties passing on the death of the deceased being a first charge on the immovable properties so passing, an interest in the properties in favour of Government was carved out and that when the estate duty was paid it resulted in the acquisition of that interest from the Government, in the properties by her and, as such, the estate duty paid should be treated as part of the cost of the acquisition. It was alternatively contended that the estate duty paid should be considered as the cost of improvement of the asset sold and, therefore, the same was to be deducted. The Tribunal rejected the contentions relying on its earlier order dated April 26, 1974, passed in the appeals filed by Arunachalam. Aggrieved against the said order of the Tribunal, Valliammai had sought a reference to this court and the question referred under s. 256(1) of the Act is as follows :
'Whether in computing the capital gains arising on the sale made by the assessee during the previous year relevant to the assessment year 1967-68 of the properties which she had inherited from her father, Shri Ramanathan Chettiar, the proportionate estate duty attributable to them paid on the death of Shri Ramanathan Chettiar should be deducted from the sale price ?'
5. The question arising for consideration in these matters appears to be covered by a decision of a Division Bench of this court consisting of Sethuraman and Balasubrahmanyan JJ., in CIT v. V. Indira  199 ITR 837. However, when these matters came before another Division Bench consisting of V. Ramaswami and Venugopal JJ. (see p. 714 supra), they expressed a doubt as to the correctness of the earlier Bench decision and, therefore, referred the matter to a larger Bench. That is how the matter has come has come before the Full Bench.
6. The question that arises for consideration by the Full Bench in these cases is whether in computing the capital gains arising on the sale as made by the assessees during the relevant previous years, the proportionate estate duty attributable to the properties sold could be deducted from the sale consideration either on the ground that it represents part of the cost of their acquisition or the cost of their improvement subsequent to the acquisition.
7. The relevant statutory provisions which have a bearing on the above question are ss. 45, 48 and 55 of the Act, and s. 74 of the E.D. Act, 1953. As per s. 45 of the Act all profits and gains arising from the transfer of capital assets effected in the previous year shall be chargeable to income-tax under the head 'Capital gains' and shall be deemed to be the income of the previous year in which the transfer took place. Section 48 gives the mode of the previous year in which the transfer took place. Section 48 gives the mode of computation of capital gains and says that the income chargeable under the head 'Capital gains' shall be computed by deducting from the sale consideration the following amounts : (1) the expenditure incurred wholly or exclusively in connection with such transfer; and (2) the cost of acquisition of the capital asset and the cost of any improvement thereto. Section 55(1) defines 'cost of improvement' and s. 55(2) defines 'cost of acquisition' for purposes of ss. 48, 49 and 50. Section 55(1)(b) so far as it is relevant for the present discussion is as follows :
'(b) 'Cost of any improvement' in relation to a capital asset, - (i) where the capital asset became the property of the previous owner or the assessee before the January 1, 1954, and the fair market value of the asset on that day is taken as the cost of acquisition at the option of the assessee, means all expenditure of a capital nature incurred in making any additions or alterations to the capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee,.....'
8. Section 55(2) has defined 'cost of acquisition' in relation to a capital asset as follows :
'(i) where the capital asset became the property of the assessee before the January 1, 1954, means the cost of acquisition of the asset to the assessee or the fair market value of the asset as on the January 1, 1954, at the option of the assessee.....'
9. Sub-section (1) of s. 74 of the E.D. Act says that the estate duty payable in respect of property, movable or immovable, passing on the death of the deceased, shall be a first charge on the immovable property so passing in whomsoever it may vest on his death, and that any private transfer or delivery of such property shall be void against any claim in respect of such estate duty and sub-s. (3) enables the Controller to release the whole or any part of any property from the said charge in such circumstances and on such conditions as he thinks fit. Before the Tribunal the contention of the assessee was that in so far as s. 74(1) of the E.D. Act creates a first charge on the immovable property passing on death, for the due payment of the estate duty, it should be taken that an interest in the immovable property had been carved out in favour of the Government and that the said interest had been acquired by the assessee on payment of the estate duty. The Tribunal, however, rejected that contention on the ground that there is a clear-cut distinction between a charge and a mortgage, that only in the case of a mortgage there is a transfer of an interest in the property while there is no such transfer of an interest when a mere charge is created over it, that in the case of a charge a right to payment out from a particular fund or a particular property without transferring that fund or property is alone created, and that right cannot be said to be an interest carved out of the properties in favour of the Government on the creation of a charge so that it could be said that there is a retransfer of an interest in favour of the assessee from the Government on the payment of estate duty, and, therefore, the estate duty paid cannot be taken as part of the cost of acquisition of the asset. Though the learned counsel for the assessee questions the said view of the Tribunal, we do not see how payment of estate duty will amount to acquisition of an interest in the capital asset. In the case of Arunachalam, he had got the entire right, title and interest in the properties left by Umayal Achi under the will executed by her, alone with her liability to pay estate duty on the properties passing on the death of the earlier owner, Ramanathan Chettiar, and as an accountable person he also became liable for the payment of estate duty on the properties passing on the death of Umayal Achi. The subsequent discharge of the said two liabilities will not amount to acquisition of any interest in the assets which had already been acquired by him as the earlier acquisition by the assessee cannot be said to be something short of the full right, title and interest in the properties. When Umayal Achi acquired by inheritance half of the properties held by Ramanath Chettiar, on his death she got full and complete title therein. Likewise, when Arunachalam got the properties under the will of Umayal Achi, he got full and complete title therein. The non-payment of the estate duty did not result in their getting an imperfect or incomplete title in the property. It is only when the title acquired by them is defective, incomplete or imperfect, the cost of making their title complete and perfect can be treated as the cost of acquisition. It is not, therefore, possible to treat the estate duty paid as part of the cost of acquisition as defined in s. 55(2) of the Act.
10. Coming to the alternate claim put forward by the assessees that the estate duty paid is to be treated as the cost of improvement of the assets sold, we find that the Tribunal has taken the view that unless there is a physical alteration or addition to the assets concerned or an addition of an incorporeal right as a result of the expenditure, the same cannot be treated as cost of i mprovement. This view has also been challenged by the assessees in these cases.
11. To attract the definition of 'cost of improvement'. the expenditure should be of a capital nature incurred in making additions or alterations to the capital asset. Thus, the question in these cases is whether by paying the estate duty, the assessees have made any addition or alteration to the capital asset and whether the said payment is in the nature of a capital expenditure.
12. The learned counsel for the assessees contended that the words 'expenditure of a capital nature incurred in making any additions or alterations to the capital asset' in s. 55(1)(b) of the Act cannot be given a restricted meaning as relating to physical additions or alterations to tangible or physical property, and that those words would comprehend also a removal of a burden or an encumbrance or an obligation. Any other construction, according to the learned counsel, would restrict the applicability of that provision only to tangible property and it could not be applied to the case of an intangible asset. Such a construction would also lead to the mode of computation being different from asset to asset. He further contended that it is neither necessary nor possible to restrict the meaning of the words 'cost of improvement' in relation to a capital asset in a literal sense and that it is possible to understand and interpret that provision in a general or commercial sense. In that connection, he relied on the decision of the Supreme Court in Miss Dhun Dadabhoy Kapadia v. CIT : 63ITR651(SC) , wherein the Supreme Court held that the principles to be applied are those which are part of commercial practice or which an ordinary man of business will resort to when making computation for his business purposes. Referring to the decision of the Calcutta High Court in CIT v. Bengal Assam Investors Ltd. : 72ITR319(Cal) and of this court in CIT v. V. Indira : 119ITR837(Mad) , both of which dealt with the scope of the expression 'cost of improvement', learned counsel submitted that 'cost of improvement' had been construed in the latter case in a narrow sense after distinguishing the former case as such it requires reconsideration. He also referred to the absence of the word 'thereto' in the definition of 'cost of any improvement' in s. 55(1)(b) and submitted that the section itself does not say that the 'improvement' is to be vis-a-vis the asset divorced of the ownership. According to him, if any expenditure incurred between the original acquisition and the sale had resulted in an addition to the value of the asset sold, then it should be taken to be the cost of the improvement of the asset as such. The learned counsel would further contend that there need not be any physical addition to the capital asset to get the benefit of deduction as cost of its improvement and it is enough if the expenditure has been incurred for improving the assessee's title to the asset. It is said that by paying the estate duty, the asset is freed from the statutory charge under s. 74 of the E.D. Act and as such there is an addition to the assessee's title to the asset.
13. In CIT v. Bengal Assam Investors Ltd. : 72ITR319(Cal) , the assessee had incurred litigation expenses for compelling a company to register the shares purchased in its name and for acquiring the voting rights in respect of each share by cancelling the special resolution amending the articles of association providing for only one vote in respect of each member, and had claimed those expenses as deductions under s. 48 of the Act in the computation of capital gains arising on the sale of some of the shares. The ITO held that as the expenses claimed were not incurred either in connection with the sale or acquisition of the shares or in making any addition or alteration thereto, the same could not be allowed as a deduction. When the matter was taken to the High Court on a reference, it held that as the assessee's title to the shares was not complete until the assessee succeeded in having the shares registered in its name through the rectification proceedings instituted by it, the expenses incurred in conducting those proceedings were necessary for curing or perfecting or completing the assessee's title to the shares and hence was a capital expenditure forming part of the actual cost of the shares to the assessee. It also held that by incurring the expenditure for conducting the suits for amending the articles of association, the assessee was trying to enhance the value of the shares and hence the expenditure was also of a capital nature incurred for making additions or alterations to the shares.
14. Though the learned counsel for the assessees placed much much reliance on the above decision, we are clearly of the view that the principle laid down in that decision will not apply to the cases on hand. In that case, unless the shares acquired by the assessee are registered in the books of the company in its name, it cannot be taken to have acquired a complete title to the shares and, therefore, the expenses incurred in having the shares and, therefore, the expenses incurred in having the shares registered in its name in the books of the company was taken to be an expenditure of a capital nature, incurred for perfecting the assessee's title to the shares, forming part of its actual cost of the shares. By incurring the expenses for having the articles of association amended so as to get voting rights for each and every shares, the assessee had acquired additional voting rights in respect of each of its shares and, therefore, the therefore, the expenditure has been taken to be of a capital nature incurred for making addition to the assets.
15. In the cases before us, there is no question of title being incomplete or imperfect on the date of the acquisition by the assessees. Full the complete title in the properties had vested in them on the relevant dates. Though s. 74(1) of the E.D. Act, 1953, creates a charge on the immovable properties passing on death for payment of estate duty, the assessee's title to the immovable properties acquired cannot be said to be incomplete or imperfect in any way. The assessees have admittedly become the full owners of the assets even before the payment of estate duty and on payment of the same, they had not acquired any new rights, tangible or intangible, in the assets or the assets had not been physically or otherwise improved to any extent. Therefore, estate duty paid cannot be taken to be an expenditure of a capital nature incurred for perfecting an imperfect or incomplete title to the asset, nor can it be treated as an expenditure incurred for making an addition to the asset as contemplated by s. 55(1)(b) of the Act.
16. The scope of the expression, 'cost of acquisition of asset' and 'cost of any improvement thereto', occurring in s. 48 of the Act, came up for consideration before a Division Bench of this court in CIT v. V. Indira  111 ITR 837. In that case, the assessee's father had gifted to her a house property. A third party filed a suit claiming title to an area of land forming part of the gifted property. The assessee compromised with the said third party by paying him a sum of Rs. 6,943. She claimed that in computing the capital gains arising on the sale of the property, the said sum of Rs. 6,943 should be deducted as representing the cost of improvement to the property under s. 48 read with ss. 49(1) and 55(1)(b) of the Act. That claim was rejected by the ITO as well as by the AAC. When the matter went before the Tribunal, it held that by paying the said amount the assessee perfected her title to the property by removing the cloud cast on it by a rival claimant and this involved an improvement to the assessee's title to the property and, therefore, the amount in question would constitute the cost of acquisition within the meaning of s. 49(1) of the Act and the assessee is eligible to the deduction claimed by her. When the matter came to this court on a reference, the same contentions, which are now put forward before us, were urged. The Division Bench rejected those contentions and held that s. 48 of the Act provides for the deduction of cost of acquisition of the capital asset and also the cost of any improvement thereto subject to the terms of the other sections, that as the asset became the property of the assessee by way of gift, the cost of acquisition had to be the cost to the previous owner in accordance with s. 49(1), that as the previous owner had not paid the amount of Rs. 6,943 and the same had been paid only by the assessee, it could not be treated as the cost of acquisition to the previous owner and that, therefore, it could not qualify for deduction as the cost of acquisition of the asset. The court also held that the amount could not also be treated as 'cost of any improvement thereto' as the expression 'thereto' would appear to cover a case where the amount is expended on the asset itself. In the context, Sethuraman J. Speaking for the Bench, observed (p. 841) :
'We have now to examine whether the amount can be allowed as deduction as 'cost of any improvement thereto'. The expression 'thereto' would appear to cover a case where the amount is expended on the asset itself. Improving the owner's title to the asset is different from improving the asset itself. Therefore, the amount paid as and by way of settlement of a claim to the person who disputed the title of the assessee, cannot be said to be an expenditure by way of any improvement to the asset as such.'
17. The Bench had distinguished the decision in CIT v. Bengal Assam Investors Ltd. : 72ITR319(Cal) on the ground that but for the expenditure incurred, the shares in that case would have been of no value, that part of the expenditure was for getting the shares registered in the assessee's name and as such formed part of the cost of acquisition, that the other part was for getting better voting rights for the shares resulting in an improvement of the asset and that, therefore, the said decision will have no application to the case before them. According to the Division Bench unless the asset itself is the beneficiary of the expenditure it cannot be said that there is any improvement to the asset, and if the expenditure was only in improving the title of the owner rather than improving the asset as such, there is no scope for deducting the expenditure as the cost of improvement to the asset.
18. In Ambat Echukutty Menon v. CIT : 111ITR880(Ker) , a Division Bench of the Kerala High Court has taken the view that an assessee cannot claim deduction of the amount paid by him to discharge a mortgage on the asset as the cost of improvement of the asset sold under s. 48 of the Act. In that case, one P acquired an immovable property in 1953 which he subsequently hypothecated. P died in 1957. The assessee, as one of his heirs, got an 1/5th share in the property. The heirs of P discharged the mortgage on the property by paying Rs. 58,843. Subsequently, the property was acquired under the Land Acquisition Act ad compensation had been paid to the assessee and his co-heirs. The assessee claimed deduction, from the compensation amount received by him from the government, of the sum paid by him to discharge the mortgage. The court held that having regard to the definition of 'cost of improvement' contained in s. 55(1)(b) of the Act, it could not be claimed as an expenditure incurred in making any additions or alterations to the capital asset that was originally acquired by the previous owner, and that where the previous owner had created a mortgage and the assessee and his co-owners cleared off the mortgage so created, it could not be said that they incurred any expenditure by way of effecting any improvement to the capital asset that was originally purchased by the previous owner. In this view, the court held that the mortgage amount paid could not be treated as 'cost of improvement of the asset'.
19. The capital asset, the sale of which has brought in the capital gain, may either be tangible or intangible. In the case of a tangible asset, an addition can be only in the form of physical addition. In the case of intangible assets, the addition cannot be physical. Therefore, it is not possible to say in every case that without any physical addition to the capital asset, there can be no improvement thereto. Whether physical addition is necessary or not will depend on the nature of the asset. We are concerned here with tangible assets and the question is whether by payment of the estate duty, which of course, results in the assets being released from the statutory charge, any addition is made to the asset as such physically or otherwise. Section 74(1) of course creates a first charge on the immovable property for payment of estate duty in respect of all properties passing on death. But, the proviso to sub-s. (2) says that the property shall not be so chargeable as against a bona fide purchaser thereof for value without notice. Sub-section (3) enables the Controller to release the whole or any part of the property from the charge if circumstances so warrant. A close reading of s. 74 would indicate that the charge created thereunder is quite ambulatory in effect and in extent, depending on the nature of the assets passing on the death and the discretion of the Controller to release the properties from the charge. Take a case where the deceased left immovable property as well as cash sufficient to met the estate duty liability on his estate. In that case, the Controller may release the immovable property. Take a case where the deceased had left only immovable property and the accountable person approaches the Controller and gets the whole or any portion of the property released from the charge to enable him to sell the whole or any part of the property for payment of the estate duty. In that case, the charge is effective only to the extent of the property not released from the charge. By paying the estate duty and thereby releasing the property from such an ambulatory charge the assessee cannot be said to make any addition to the property as such.
20. On the facts of these cases, it is not possible to say that the capital asset were the only assets from which the estate duty could be paid and, therefore, there was a danger of the capital assets being proceeded against in enforcement of the charge. As already stated, the assessees' title to the capital assets is already full and complete and the asset as such is not improved in any manner as a result of the payment of estate duty. Merely be cause estate duty has not been paid on the estate passing on death, the assessees' title to the asset was not in any way imperfect or incomplete. Along with the capital assets, in respect of which full title has been acquired by the assessees, the estate duty has come to them as a liability and by discharging that liability, the assessees' title to the capital assets had not been improved. Where a person inherits assets as we ll as liabilities and later discharges the liabilities, can be be said to have made an addition to the assets as such The answer can be only in the negative.
21. In the light of what we have stated above, we are not inclined to accept the assessees' contention that the removal of any burden, encumbrance or obligation on the asset will amount to an addition to the asset as such. Nor are we inclined to hold that any expenditure resulting in any addition to the value of the asset has to be treated as the cost of making any addition to the asset as such.
22. In the view we have taken, no exception could be taken to the decision in CIT v. V. Indira : 119ITR837(Mad) . It neither conflicts with the decision in CIT v. Bengal Assam Investors Ltd. : 72ITR319(Cal) nor does it require reconsideration.
23. In the light of the above discussion, we have to answer the questions in these cases in the negative and against the assessees. Each of the assessees will pay the revenue Rs. 250 as costs.