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Madras HC disallows Deduction for clearing off mortgage created by Assessee prior to Transfer of Land
The Madras High Court disallowed the deduction under section 48 for clearing off mortgage created by the assessee prior to the transfer of land.
The assessee, Tmt.T.A.H.Zubaida Ummal has raised the issue of whether the Income Tax Appellate Tribunal (ITAT) was right in not appreciating that no part of the consideration for the sale was received by the appellant and the same was directly paid to the Bank by the purchaser in the discharge of the mortgage amount and therefore no capital gains arises in the hands of the appellant.
The assessee further asked that the Appellate Tribunal was right in law in not holding that there was a diversion of the sale proceeds towards redeeming the interest of the mortgagor and therefore the amount so diverted was not liable to capital gains tax.
The Assessee contended that as she did not receive even a single pie from such sale consideration and seeked deduction of the entire sale consideration claiming that, since the entire sale consideration had been paid directly to the mortgagee/bank, it should be considered as expenditure incurred wholly and exclusively in connection with such transfer.
The division bench of Justice Dr. Vineet Kothari and Justice M.S.Ramesh took note of the decision of the Supreme Court wherein it was held that where the mortgage had been created by the owner after he had acquired the property, the clearing of the mortgage by him prior to the transfer of the property would not entitle him to claim deduction under Section 48 of the Act because, in such a case he did not acquire any interest in the property subsequent to his acquiring the same.
The court while answering in favor of the Revenue held that the assessee could not claim any part of such application as cost of acquisition for the purpose of computing capital gains as per the provisions of section 48.
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