1994 (11) TMI 57 - HC - Income Tax

Capital Gains, Computation Of Capital, Cost Of Acquisition, Cost Of Improvement, Diversion Of Income, Income By Overriding Title

Summary

Issues Involved:
1. Computation of full value of consideration for capital gains.
2. Inclusion of liabilities charged on inherited property in cost of acquisition.
3. Diversion of income by overriding title.

Issue-wise Detailed Analysis:

1. Computation of Full Value of Consideration for Capital Gains:
The primary issue was whether the full value of the consideration for computing capital gains should be Rs. 83,700 or Rs. 5,544. The court held that the full value of the consideration should be Rs. 83,700, as recited in the documents. The assessee's argument that the amount should be reduced by the sum covered by the charge in favor of his wife was rejected. The court cited the Supreme Court's decision in CIT v. Sitaldas Tirathdas, emphasizing that for income to be considered diverted by overriding title, it must never reach the assessee as his income. In this case, the obligation to pay the debt was self-imposed and constituted an application of income rather than a diversion at source.

2. Inclusion of Liabilities Charged on Inherited Property in Cost of Acquisition:
The court examined whether the sum of Rs. 78,156, adjusted from the sale consideration against liabilities charged on the inherited property, should be included in the cost of acquisition for the purpose of section 48 of the Income-tax Act, 1961. The court referred to sections 48, 49, and 55 of the Act, which outline the computation of capital gains and the definitions of cost of acquisition and cost of improvement. The court upheld the decision in Ambat Echukutty Menon v. CIT, stating that the cost of acquisition is the cost at which the previous owner acquired the asset. The court disagreed with the Gujarat High Court's decision in CIT v. Daksha Ramanlal, which suggested that the cost of acquisition should include the amount spent on discharging the mortgage. The court reaffirmed that the cost of acquisition is limited to the cost to the previous owner and does not include additional amounts spent by the assessee to discharge liabilities.

3. Diversion of Income by Overriding Title:
The court addressed whether there was a diversion of income by overriding title to the extent of Rs. 78,156 adjusted from the sale consideration. The assessee contended that the amount covered by the charge did not constitute his income as it was diverted at source. The court rejected this argument, reiterating the principles from CIT v. Sitaldas Tirathdas and Moti Lal Chhadami Lal Jain v. CIT, which distinguish between diversion of income by overriding title and application of income. The court concluded that the obligation to pay the debt was self-imposed and did not qualify as a diversion by overriding title.

Conclusion:
The court concluded that the full value of the consideration for computing capital gains should be Rs. 83,700. The amount of Rs. 78,156 adjusted from the sale consideration against liabilities was not to be included in the cost of acquisition. There was no diversion of income by overriding title. The questions referred were answered in favor of the Revenue and against the assessee. There was no order as to costs, and a copy of the judgment was to be communicated to the Income-tax Appellate Tribunal, Cochin Bench, for information.