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Issues Involved:
1. Deduction of mortgage charges from the sale consideration for computing capital gains. 2. Determination of the fair market value of the property as on 1st Jan., 1964 for capital gains computation. Detailed Analysis: Issue 1: Deduction of Mortgage Charges from the Sale Consideration The Revenue filed an appeal against the CIT(A)'s decision allowing the deduction of Rs. 7,51,000 paid towards mortgage charges from the sale consideration for computing capital gains. The Assessing Officer (AO) had disallowed this deduction, arguing that the payment to the mortgagee was an application of income after the receipt of sale proceeds and did not qualify as an expenditure incurred wholly and exclusively in connection with the transfer under Section 48 of the IT Act. The AO cited multiple cases to support his view, including: - Ambat Echukutty Menon vs. CIT (1978) 111 ITR 880 (Ker): Held that clearing a mortgage created by the previous owner does not constitute an improvement to the capital asset. - K.U. Idiculla vs. ITO (1985) 22 TTJ (Coch) 23: Supported the view that mortgage redemption is not deductible. - M.K. Bros. Pvt. Ltd. vs. CIT (1972) 86 ITR 38 (SC): Reinforced that such payments are not covered under Section 48. The CIT(A), however, allowed the deduction by relying on cases like: - Smt. S. Valliammai & Anr. vs. CIT (1981) 127 ITR 713 (Mad): Held that costs to make the title complete and perfect can be treated as the cost of acquisition. - Sajjan Bagaria vs. CIT (1978) 113 ITR 430 (Gau): Supported similar views. - CIT vs. Shakuntala Kantilal (1991) 190 ITR 56 (Bom): Held that payments necessary to remove encumbrances for effecting the transfer are deductible. The Tribunal upheld the CIT(A)'s decision, emphasizing the binding nature of the Bombay High Court's decision in CIT vs. Shakuntala Kantilal, which interpreted Section 48(i) to include expenditures incurred to remove encumbrances as deductible. The Tribunal noted that judicial discipline requires following the jurisdictional High Court's ruling, thus dismissing the Revenue's grounds of appeal on this issue. Issue 2: Determination of Fair Market Value as on 1st Jan., 1964 The Revenue contested the CIT(A)'s acceptance of the assessee's valuation of Rs. 9,38,000 as on 1st Jan., 1964, based on a valuation report dated 16th April, 1985. The AO had relied on the values declared in the Wealth-tax (WT) returns, which were Rs. 3,50,000 as on 31st March, 1963, and Rs. 3,75,000 as on 31st March, 1964. The CIT(A) accepted the assessee's valuation, arguing that the opinion of a registered valuer should not be disregarded without valid reasons. However, the Tribunal found this approach flawed, stating that the valuation report prepared 20 years later could not override contemporaneous documents like the WT returns and the purchase price of Rs. 3 lakhs. The Tribunal upheld the Revenue's claim, reversing the CIT(A)'s order on this issue. It emphasized that the fair market value as on 1st Jan., 1964, should be based on contemporaneous evidence, not on a much later valuation report. Conclusion The appeal by the Revenue was allowed in part: 1. The Tribunal upheld the CIT(A)'s decision to allow the deduction of mortgage charges from the sale consideration for computing capital gains. 2. The Tribunal reversed the CIT(A)'s decision regarding the fair market value as on 1st Jan., 1964, and upheld the AO's reliance on contemporaneous WT returns and purchase price.
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