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Alimony paid to wife claimed as deduction for capital gains

Keerthan (articleship) (161 Points)

28 October 2017

Dear Sirs,
Husband & Wife decided to take divorce and Court ordered husband to pay 3Cr to pay to wife. Husband doesnt have Cash available and hence requested court to give some time so that he will sell the property and pay part of proceeds to wife.
Court accepted and passed restriction order on title to property until the proceeds of property are paid to wife.

Husband hence sold the property, paid the part of proceeds i.e. 3Cr to wife and CLAIMED THAT 3CR AS DEDUCTION FOR THE PURPOSE OF CALCULATING CAPITAL GAIN.

PLEASE clarify whether it can be claimed as deduction based on the facts.

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19 Replies

Poltu Ghosh (Job) (1865 Points)
Replied 28 October 2017

No the same will not be allowed as deduction since it is application of income and not a charge on the income. It was husband's obligation to pay the alimony which he paid after selling the property. So the circumstances under which the husband sold the property does not preclude him from charging of tax.

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Keerthan (articleship) (161 Points)
Replied 28 October 2017

Sir, Thanks for the reply. But there was a restriction order saying that the 3Cr has to be paid in order to remove the restriction order on the property and it would amount to cost for improving the title.Isn't it?

Poltu Ghosh (Job) (1865 Points)
Replied 28 October 2017

No. such restriction is only to secure the payment of amount to wife and not to clear title of the property. I assume the husband had already clear title over the property before that.

Keerthan (articleship) (161 Points)
Replied 28 October 2017

Sir, i am convinced to you. I am searching but could find any case law in relation to same. Please throw some case law on me if u can find.

Poltu Ghosh (Job) (1865 Points)
Replied 29 October 2017

Sure. But since now busy with tax audit and ITR filing will provide after the busy work is over

Keerthan (articleship) (161 Points)
Replied 29 October 2017

Yes Sir, Thanks..Could not find in Indian Kanoon. Could you suggest me as to where to search

Poltu Ghosh (Job) (1865 Points)
Replied 29 October 2017

For the time being you may do a Google search. Though direct case on the subject may not be available and also not readily coming to.my mind also. But you may do a Google search with key words like diversion of income, application of income , charge over income and the alike. Actually it is a case to be answered based on 'concept of income theory'. I hope on reading of various decisions on the given topic you will be able to find the answer guided with judicial decisions

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Keerthan (articleship) (161 Points)
Replied 29 October 2017

Thanks a lot.....No issue sir

rama krishnan (12234 Points)
Replied 29 October 2017

Alimony paid to wife claimed as deduction for capital gains
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Husband & Wife decided to take divorce and Court ordered husband to pay 3Cr to pay to wife. Husband doesnt have Cash available and hence requested court to give some time so that he will sell the property and pay part of proceeds to wife.
Court accepted and passed restriction order on title to property until the proceeds of property are paid to wife.

Husband hence sold the property, paid the part of proceeds i.e. 3Cr to wife and CLAIMED THAT 3CR AS DEDUCTION FOR THE PURPOSE OF CALCULATING CAPITAL GAIN.

PLEASE clarify whether it can be claimed as deduction based on the facts.

Ans:
No the same will not be allowed as deduction since it is application of income and not a charge on the income. It was husband's obligation to pay the alimony which he paid after selling the property. So the circumstances under which the husband sold the property does not preclude him from charging of tax.

Keerthan (articleship) (161 Points)
Replied 29 October 2017

Dear Sir, The Course has passed on order saying that "No disposition by the owner of the estate is to be registered except with the consent of his wife or under a further order of a court.

So would it not amount costs incurred for improving the title.

Keerthan (articleship) (161 Points)
Replied 29 October 2017

Dear Sir, The Course has passed on order saying that "No disposition by the owner of the estate is to be registered except with the consent of his wife or under a further order of a court.

So would it not amount to "Costs incurred for improving the title".

Keerthan (articleship) (161 Points)
Replied 29 October 2017

Dear Sir,

I got this from the link (https://www.indiantaxupdates.com/difference-between-diversion-of-income-and-application-of-income/) Please refer (iii) from the example:

Diversion of Income is an obligation to apply the income in a particular way before it is received by the assessee or before it has arisen or accrued to the assessee results in diversion of income. The source is charged with an overriding title, which diverts the income. Therefore the essentials are the following:

(i) Income is diverted at source,

(ii) There is an overriding charge or title for such diversion, and

(iii) The charge / obligation is on the source of income and not on the receiver.

Examples of diversion by overriding title are –

(i) Right of maintenance of dependents or of coparceners on partition

(ii) Right under a statutory provision

(iii) A charge created by a decree of a Court of law.

Keerthan (articleship) (161 Points)
Replied 29 October 2017

Dear Sir, I got this from the link (https://www.indiantaxupdates.com/difference-between-diversion-of-income-and-application-of-income/) Please refer (iii) from the example: Diversion of Income is an obligation to apply the income in a particular way before it is received by the assessee or before it has arisen or accrued to the assessee results in diversion of income. The source is charged with an overriding title, which diverts the income. Therefore the essentials are the following: (i) Income is diverted at source, (ii) There is an overriding charge or title for such diversion, and (iii) The charge / obligation is on the source of income and not on the receiver. Examples of diversion by overriding title are – (i) Right of maintenance of dependents or of coparceners on partition (ii) Right under a statutory provision (iii) A charge created by a decree of a Court of law.

Read more at: https://www.caclubindia.com/forum/details.asp?mod_id=432356&offset=2

Poltu Ghosh (Job) (1865 Points)
Replied 29 October 2017

You need to work hard to study this aspect of income. Read the above principles with decided case laws. Do more in-depth study. In your given case the order of the court restraining husband from selling the property without wife's consent is not a charge over the title but only a means to secure the payment of alimony to wife. If this safegurad is not put in husband may sell the properties and divert the proceeds to someone else to deprive the wife from her alimony.

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