The Tax Publishers2019 TaxPub(DT) 2284 (Mad-HC) : (2019) 413 ITR 0258 : (2020) 313 CTR 0676 : (2019) 263 TAXMAN 0569

INCOME TAX ACT, 1961

Section 48

Where the mortgage is created by the owner after she has acquired the property, then clearing off of the mortgage debt by her prior to transfer of the property would not entitle her to claim deduction under section 48 because in such a case she did not acquire any interest in the property subsequent to her acquiring the same.

Capital gains - Computation - Mortgage created by assessee prior to transfer - Whether entitled to deduction under section 48

Assessee offered her property as collateral security in favour of bank in respect of loan taken from bank. In view of default in repayment of loan, the property was sold and the entire sale consideration was paid to bank to the credit of loan account. Revenue alleged that mortgage deed was not registered thus bank did not have any independent authority to sell the property. Further, it was alleged that assessee was liable to be taxed for capital gains for the consideration received, as payment to bank was only application of her income. Assessee contended that, as she did not receive even a single pie from such sale consideration, the same should be considered as expenditure incurred wholly and exclusively in connection with such transfer. Held: As mortgage deed was never registered and bank did not have right to bring the property to sale, the assessee continued to have title over the property. The sale consideration so received was for the value of property and it was immaterial whether it was paid directly to the mortgagee bank or not. Therefore, there was no diversion of sale proceeds by virtue of overriding title, but on the contrary, there was only a mere application by the owner herself of the profits realized on the sale of land towards the discharge of their loan obligations. Hence, assessee could not claim any part of such application as cost of acquisition for the purpose of computing capital gains as per provisions of section 48.

Followed:R.M. Arunachalam v. CIT (1997) 227 ITR 222 (SC) : 1997 TaxPub(DT) 1307 (SC), V.S.M.R. Jagadishchandran (Decd.) v. CIT (1997) 227 ITR 240 (SC) : 1997 TaxPub(DT) 1309 (SC), Sri Kanniah Photo Studio v. ITO, Ward-I (1)31, Kumbakonam (2016) 286 CTR 538 (Madras) and CIT v. N. Vajrapani Naidu, (2000) 241 ITR 560 (Mad) : 2000 TaxPub(DT) 384 (Mad-HC). Distinguished:CIT v. Abrar Alvi (2001) 247 ITR 312 (Bom) : 2001 TaxPub(DT) 363 (Bom-HC), CIT v. Shakuntala Kantilal (1991) 190 ITR 56 (Bom) : 1991 TaxPub(DT) 1265 (Bom-HC) and CIT v. Sunil Kinariwala, (2003) 1 SCC 660, CIT v. Thressiamma Abraham, (1997) 140 CTR 540 (Ker).

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 1995-96



IN THE MADRAS HIGH COURT

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT

TaxPublishers.in

'Kedarnath', 7, Avadh Vihar, Near Nirali Dhani,

Chopasni Road

Jodhpur - 342 008 (Rajasthan) INDIA

Phones : 9785602619 (11 am - 5 pm)

E-Mail : mail@taxpublishers.in / mail.taxpublishers@gmail.com