1998 (4) TMI 119 - HC - Income Tax

Summary

Issues involved: Interpretation of capital gains u/s 48 of the Income-tax Act in a case involving sale of property under mortgage to the Government.

Issue 1: The Appellate Tribunal's correctness in determining the amount realized from the sale of the assessee's interest in the property.
The assessee, an individual, mortgaged property to the State Excise Department, which was later sold in public auction by the Government. The Tribunal held that the capital gains should be computed after deducting the amount paid to the Government on the mortgage. The Tribunal's decision was based on the fact that the property was mortgaged to the Government, creating an interest in favor of the Government. The Tribunal's decision was supported by the judgment in CIT v. Bilquis Jahan Begum [1984] 150 ITR 508.

Issue 2: Determining whether the amount realized under the charge or mortgage by the Government constitutes the 'full value of consideration' u/s 48 of the Income-tax Act.
The Tribunal held that the amount realized under the charge or mortgage, which did not reach the assessee but went to the Government, should be deducted before computing capital gains. This decision was based on the understanding that the value of the property should be reduced by the interest created in favor of the Government through the mortgage.

Issue 3: Whether the amount payable by the assessee in discharge of the mortgage debt to the Government is deductible as an expenditure towards the cost of acquisition of the capital asset u/s 48 of the Income-tax Act.
The Tribunal justified that the amount payable by the assessee to the Government on the mortgage should be deducted before calculating capital gains. This deduction was considered as an expenditure incurred towards the cost of acquisition of the capital asset, aligning with the provisions of section 48 of the Income-tax Act.

Issue 4: Determining the computation of capital gains based on the assessee's interest in the property sold.
The Tribunal correctly held that the capital gains should be computed after deducting the amount payable to the Government on the mortgage, as the property was sold subject to the mortgage deed or charge in favor of the Government. The Tribunal's decision was in line with the understanding that the value realized by the assessee was after deducting the amount payable to the Government on the mortgage.

The judgment affirmed the Tribunal's decision, emphasizing that the capital gains should be calculated after deducting the amount paid to the Government on the mortgage. The Tribunal's interpretation was supported by legal precedents and the specific circumstances of the case.