Law:

Section:

Expenditure incurred by assessee to remove encumbrance created by assessee himself on property which was acquired by assessee without any encumbrance is not allowable deduction under section 48 Section 48 of the Income-tax Act, 1961 - Capital gains - Computation of - Assessment year 1990-91 - Whether expenditure incurred by assessee to discharge mortgage debt created by previous owner to acquire absolute right in a property is to be treated as 'cost of acquisition' and is deductible from full value of consideration received by assessee on transfer of that property - Held, yes - Whether, however, where a property is acquired by assessee free from encumbrances and, thereafter, an encumbrance by way of mortgaging said property is created by him, then assessee is not entitled to deduction under section 48(i) on account of repayment of mortgage debt or expenditure incurred to remove said encumbrance - Held, yes FACTS The assessee was a shareholder of 'M' Ltd. in which her husband was a director. 'M' Ltd. raised a loan from the bank and for the repayment of which the assessee stood as one of the guarantors and the assessee offered her plot of land as security for repayment of loan. As 'M' Ltd. failed to pay the loan, the bank filed a suit against the company. Subsequently, consent terms were arrived at in the said suit, as per which, the bank was to have a negative lien over the assessee's plot of land which was given as collateral security for the loan. The said lien was to remain operative till the bank's dues were fully paid. Thereafter, the assessee after obtaining permission from the bank, sold a part of the land for a consideration and deposited the same with the bank towards discharge of the debt. The assessee claimed that long-term capital gain arising on sale of her land was exempt from capital gains tax. However, the Assessing Officer completed the assessment under section 143(3) and taxed the said amount. On appeal, the Commissioner (Appeals) upheld the contention of the assessee. On revenue's appeal, the Tribunal upheld the order of the Commissioner (Appeals) on the ground that the sale proceeds did not reach the assessee and secondly, the amount paid by…

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