Q.I sold a property and declared capital gain on this sale in my IT return. The amount of capital gain was computed after deducting a sum of Rs 40 lakh paid to a party who claimed ownerships of the property. The buyer filed a suit in the court for declaration of the title. This amount of Rs 40 lakh was paid subsequent to the sale of the property. This amount has been paid in accordance with the consent terms approved by the High Court. I seek your opinion as to whether the amount paid by me would be allowable as deduction in computing the amount of capital gain? Tarsem Bansal, Patiala
In this connection I invite your attention to the decision of Mumbai Bench of the Income-Tax Appellate Tribunal in the case of Mahesh Pratap Singh Asher vs. ACIT (135)Taxmann.com(74)(Mumbai). The issue before the Tribunal was a claim for the deduction of a sum of Rs 80 lakh paid by the seller to improve the title to the property. The amount has been paid in accordance with the consent terms approved by the High Court. The Income-Tax Tribunal relied on the decision of the Mumbai High Court in the case of CIT vs. Shakuntala Kanti Lal(190)ITR(56)(MUM). High Court in this case had held that any amount paid for removing encumbrance without which the sale or transfer could not be affected, is allowable as deduction under section 48(i) of the Act. The Tribunal also relied on the decision of Madras High Court in the case of V. Lakshmi Reddy vs. ITO reported in (333)ITR(359). In view of the aforesaid decisions, you should be able to get the deduction for the amount of Rs 40 lakh paid by you for removing encumbrances and perfecting the title over the property.
