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2022 (2) TMI 973 - AT - Income TaxDeduction u/s 48(i) - expenditure incurred wholly and exclusive in connection with the transfer of Long Term Capital Asset - Payment necessary to clear the encumbrance and perfect the title over the property - HELD THAT - Any amount paid for removing encumbrance without which the sale or transfer could not be effected, is allowable as deduction u/s 48(i) of the Act. Similar is the view expressed by the Hon ble Madras High Court in case of V Laxmi Reddy vs ITO 2010 (11) TMI 367 - MADRAS HIGH COURT . In fact, the Hon ble jurisdictional High Court in case of CIT VS Abrar Alvi 2000 (3) TMI 20 - BOMBAY HIGH COURT while dealing with similar issue relating to payment by the father to his son to remove the encumbrance, held that the payment made is allowable under section 48(i) of the Act. In the facts of the present case, undisputedly, the payment made by the assessee to M/s Colo Colour Pvt Ltd is certainly for removing encumbrance and perfecting the title over the property sold. Otherwise, the transaction would have failed. Thus, considered in the light of the ratio laid down in the decisions cited before us, we are of the view that the amount paid by the assessee to M/s Colo Colour Pvt Ltd is an expenditure in connection with transfer of a capital asset as per section 48(i) of the Act; hence allowable.
Issues:
Allowability of deduction under section 48 of the Income Tax Act, 1961 for payment made in connection with the transfer of a capital asset. Detailed Analysis: Issue 1: Allowability of deduction under section 48 of the Income Tax Act, 1961 - The appellant challenged the Commissioner of Income Tax (Appeals)'s decision not to allow a deduction of ?80,00,000 claimed under section 48 for the calculation of Long Term Capital Gains. The appellant argued that the amount was paid in compliance with the Consent Terms approved by the Bombay High Court. - The assessing officer disallowed the deduction, stating that there was no specific direction from the Court to pay additional compensation to the buyer. The appellant contended that the payment was necessary to clear an encumbrance and perfect the title over the property, preventing the sale deed from being canceled. - The Tribunal examined the facts and found that the appellant, along with other co-owners, paid ?80 lakhs to the buyer as per the consent terms approved by the High Court. The Tribunal held that the payment was necessary to effect the transfer and was allowable under section 48(i) of the Act. - Citing relevant case laws, including CIT vs Shakuntala Kantilal and V Laxmi Reddy vs ITO, the Tribunal concluded that any amount paid to remove encumbrances essential for the transfer is deductible under section 48(i). The Tribunal emphasized that the payment made by the appellant was in connection with the transfer of the capital asset and hence allowable. - Considering the appellant's 20% share in the property sold and the High Court's direction, the Tribunal allowed the appeal and deleted the addition made by the assessing officer. The Tribunal pronounced the order in favor of the appellant on 16/12/2021. This detailed analysis highlights the appellant's successful challenge against the disallowance of a deduction claimed under section 48 of the Income Tax Act, 1961, showcasing the Tribunal's thorough examination of the facts and legal principles to reach a favorable decision for the appellant.
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