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Issues involved: Determination of deduction of various sums in computing capital gain on the sale of property; Entitlement to deduction under provisions of the Income Tax Act or based on the doctrine of real income for the assessment year 1983-84.
Summary: The High Court of Andhra Pradesh addressed the issue of deduction of specific sums in computing capital gains on the sale of a property. The assessee claimed certain expenditures totaling Rs. 2,04,107, which included amounts for interest, cancellation fees, tenant payments, and embezzled funds. The Income-tax Officer disallowed a significant portion of the claimed expenses, leading to an appeal process. The Tribunal reduced the disallowance to Rs. 2,22,107. The Court considered the nature of each expense to determine its eligibility for deduction. In the case of the embezzled amount of Rs. 63,000, the Court held that the assessee was not entitled to deduction as the loss occurred in the capacity of an owner and was not incidental to the transaction. However, expenses related to payments made to tenants for vacating the premises were deemed to have a direct connection to the sale transaction, making them eligible for deduction in computing the capital gain on the property sold. Consequently, the Court allowed deductions for amounts of Rs. 43,107, Rs. 34,200, Rs. 60,000, and Rs. 3,800, as these expenses were incurred to facilitate the vacation of tenants from the building being sold. The Court provided a mixed ruling, partly in favor of the assessee and partly against, based on the nature and relevance of each expense to the property sale transaction. In conclusion, the Court partially upheld the assessee's claim for deductions, emphasizing the direct nexus between certain expenses and the sale transaction while denying deduction for embezzled funds that were not directly related to the property sale process.
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