1999 (9) TMI 968 - AT - Income Tax

Issues Involved:
1. Disallowance of Rs. 1,37,50,000 in respect of mortgaged debt while computing capital gain under section 45 of the Income-tax Act, 1961.
2. Non-setting off of mortgaged debt of Rs. 1,37,50,000 while computing capital gain.
3. Non-following of the Supreme Court decision in CIT v. Vegetable Products Ltd. when there are conflicting decisions of various High Courts.
4. Additional grounds regarding gain sale proceeds not accruing to the appellant due to overriding obligation and income being diverted by overriding title.

Detailed Analysis:

1. Disallowance of Rs. 1,37,50,000 in respect of mortgaged debt while computing capital gain under section 45 of the Income-tax Act, 1961:
The assessee-company leased out a portion of its land for Rs. 1,37,50,000, which was under mortgage to United Bank of India. The bank issued a No Objection Certificate (NOC) for the lease, conditional upon the payment of Rs. 1,37,50,000 to discharge the loan. The assessee claimed this amount as a deduction in computing capital gains. The Assessing Officer denied this deduction, stating that repayment of mortgage debt is not considered cost of acquisition, cost of improvement, or expenditure connected with transfer under section 48(1) of the Income-tax Act. The CIT(A) upheld this decision, providing only a deduction for the cost of acquisition of Rs. 5,00,000.

2. Non-setting off of mortgaged debt of Rs. 1,37,50,000 while computing capital gain:
The assessee argued that the amount paid to the bank should be deducted from the lease consideration for computing capital gains. The Assessing Officer and CIT(A) rejected this, reasoning that the mortgage debt was self-created by the assessee and not a pre-existing liability. The Tribunal agreed with this view, highlighting that repayment of a mortgage debt does not qualify as an expenditure incurred in connection with the transfer of the asset.

3. Non-following of the Supreme Court decision in CIT v. Vegetable Products Ltd. when there are conflicting decisions of various High Courts:
The assessee contended that the CIT(A) erred by not following the Supreme Court's decision in CIT v. Vegetable Products Ltd., especially given conflicting High Court decisions. The Tribunal noted that the decision of the Supreme Court in V.S.M.R. Jagadischandran v. CIT, which held that repayment of a mortgage debt created by the assessee is not deductible for computing capital gains, was binding. Consequently, the Tribunal found no merit in the assessee's reliance on conflicting High Court decisions.

4. Additional grounds regarding gain sale proceeds not accruing to the appellant due to overriding obligation and income being diverted by overriding title:
The assessee raised additional grounds, claiming that the sale proceeds did not accrue to it due to overriding obligation and were diverted by overriding title under the Transfer of Property Act and the Sick Industrial Companies Act. The Tribunal admitted these grounds but ultimately rejected them. It cited the Supreme Court's decision in V.S.M.R. Jagadischandran, which clarified that a mortgage created by the assessee does not constitute diversion by overriding title. The Tribunal also rejected the argument that the repayment of the mortgage debt should be considered an expenditure incurred in connection with the transfer, as this was not supported by the Supreme Court's ruling.

Conclusion:
The Tribunal dismissed the appeal, upholding the orders of the revenue authorities. It concluded that the repayment of the mortgage debt did not qualify for deduction in computing capital gains, as it was a self-created liability and not an expenditure incurred in connection with the transfer of the asset. The Tribunal also found no merit in the additional grounds raised by the assessee, affirming that the provisions of the Transfer of Property Act and the Sick Industrial Companies Act did not support the claimed deductions.

← Previous Next →