2013 (4) TMI 636 - AT - Income Tax

Computation of capital gains - deduction u/s 48 or u/s 54 - consideration paid to wife under the condition of separation - cost of the flat which the assessee was required to provide to his wife who had separated from him. Held that - Respectfully following the decision of the Hon ble Karnataka High Court in the case of Director of IT, International Taxation Vs. Mrs. Jennifer Bhide 2011 (9) TMI 1961 .we are of the considered opinion that the flat purchased by the assessee in the name of his wife out of the sale consideration of flat in the name of the assessee should be considered as allowable deduction u/s.54(2) of the Income Tax Act. Since in the instant case the flat in the name of the assessee was sold on 08-05-2006 for Rs. 50 lakhs and since flat in the name of the wife and daughter has been purchased on 22-03-2006 for a consideration of Rs. 28 lakhs, plus registration expenses etc, therefore, the assessee is entitled to benefit of deduction u/s.54(2) in respect of the property purchased in the name of his wife. However, since the total cost of the property including stamp duty and registration expenses is not verifiable, we deem it proper to restore the issue to the file of the AO with a direction to verify the details and allow the deduction accordingly in respect of the flat purchased by the assessee in the name of his wife instead of the flat purchased in his name. We hold & direct accordingly.

Issues Involved:
1. Deduction under Section 48 of the Income Tax Act for the cost of a flat provided to the assessee's separated wife.
2. Allowance of deduction under Section 54 for the flat purchased in the name of the assessee's wife.

Detailed Analysis:

1. Deduction under Section 48 of the Income Tax Act for the cost of a flat provided to the assessee's separated wife:

The primary issue was whether the cost of a flat provided to the assessee's separated wife could be deducted under Section 48 of the Income Tax Act. The assessee argued that the expenditure of Rs. 29,60,000 for purchasing a flat for his wife and daughter, who had separated from him, should be considered as an expenditure incurred wholly and exclusively in connection with the transfer of the old property. He claimed that this expenditure was necessary for the sale of the property, akin to business expenditure under Section 37(1).

The Assessing Officer (AO) rejected this claim, stating that the expenditure did not fit within the deductions specified under Section 48. The AO emphasized that compensation payable to a separated wife is different from expenses related to the transfer of property. Consequently, the AO computed the taxable capital gain at Rs. 29,30,632.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that the various legal precedents cited by the assessee were distinguishable and not applicable. The CIT(A) found no evidence of a legal battle necessitating the purchase of a separate flat for the wife and daughter. The CIT(A) concluded that the dispute between the husband and wife was a family matter and could not be treated as an encumbrance on the property.

2. Allowance of deduction under Section 54 for the flat purchased in the name of the assessee's wife:

The assessee also sought a deduction under Section 54 for the flat purchased in the name of his wife. The assessee argued that the amount spent on the flat for his wife should be considered for deduction under Section 54, as it was purchased out of the sale consideration of the original property. He cited the decision of the Karnataka High Court in the case of Director of IT, International Taxation Vs. Mrs. Jennifer Bhide, which held that the investment need not be in the name of the assessee to qualify for deduction under Section 54.

The Tribunal considered the rival arguments and the relevant legal precedents. It agreed with the assessee's alternate contention that the flat purchased in the name of his wife should be considered for deduction under Section 54(2). The Tribunal noted that the Karnataka High Court had held that the investment of the sale consideration in acquiring residential premises, even if not in the name of the assessee, qualifies for deduction under Section 54.

The Tribunal directed the AO to verify the details of the flat purchased in the name of the wife, including stamp duty and registration expenses, and allow the deduction accordingly. The Tribunal emphasized that the flat purchased in the name of the wife should be considered for deduction instead of the flat purchased in the assessee's name.

Conclusion:

The appeal was partly allowed for statistical purposes. The Tribunal upheld the disallowance of the deduction under Section 48 for the cost of the flat provided to the assessee's separated wife. However, it allowed the deduction under Section 54 for the flat purchased in the name of the wife, directing the AO to verify the details and allow the deduction accordingly.

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