Alimony paid to wife claimed as deduction for capital gains

Dear All,

What if the amount paid is treated as commission paid to Ex-wife for selling the property after properly deducting TDS? Then will it not amount to Selling expenses that can be deducted from the full value of consideration. Then in such a case, the ex-wife will have to pay tax on that figure. However, had she been paid the same amount as alimony, then the same will not be subject to tax. (https://www.businesstoday.in/moneytoday/cover-story/alimony-after-divorce-time-of-payment-governs-taxable-or-not/story/192710.H T M L)

Imagine what a sweet revenge it will be? Take this 3 Cr. Pay tax on Rs.3 Cr. 

Also, the husband may also transfer a property worth Rs.3 Cr instead of Cash Payment. Then, in such a case also it will be taxed to the ex-wife under Sec.56(2)(vii). Any objections?

I believe that the query has already been answered, but there is another aspect by you must see.

Your present query is to consider as to whether the alimony can be treated as the cost of improvement for the purpose of computation or not?

You have been correctly advised by the above experts that the same is an application of money and not charge on it. But I am observing that your main emphasis is on "diversion of income", which is to be seen while making the computation of the income, i.e. as to the amount of income which will accrue? In your case, you are trying to claim a "deduction".

There is a minute difference in a "diversion of income" (A general provision) and a "deduction" (specific provision u/s 48) . However, in this case, the answer is going to be same.

The amount cannot be claimed as a deduction u/s 48 because in this case, the assessee himself instigated encumbrance on the property. No, doubt that there is a restriction due to the court's order but this restriction has been put by the court due to the specific request by the assessee.

A deduction is available in respect of the cost of transfer. The specific expenditure incurred for effectuating the transfer. Here, the purpose of payment was a discharge of alimony.

In the case of Roshanbabu Mohammed Hussein (2005 144 TAXMAN 720 Bom ) it was held that the amount paid to discharge the debt was neither diverted by overriding title nor such expenditure can be regarded as an expenditure incurred in connection with the transfer.

[Kindly note that in this judgement also the court has given due regards to both the topics, that are, "diversion of income" and "deduction"]

 The property, was acquired, was held by the assessee without any encumbrances and if the assessee himself creates a charge or an encumbrance then that can not be allowed as deduction.

Further, the amount in the hands of wife would be a capital receipt, not liable to tax.