1984 (12) TMI 104 - AT - Income Tax

Summary

Issues Involved:
1. Determination of the full value of consideration for capital gains calculation.
2. Claim for cost of improvement of the property.
3. Application of the doctrine of diversion by overriding title.
4. Treatment of interest received from the bank.

Issue-wise Detailed Analysis:

1. Determination of the Full Value of Consideration for Capital Gains Calculation:
The primary issue was whether the full value of the consideration received by the assessee from the transfer of the property should be Rs. 83,700 or Rs. 5,544. The assessee argued that only Rs. 5,544 should be considered as the sale consideration since Rs. 78,156 was adjusted against the amount due to his wife, which was a first charge on the property. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) both held that the full consideration was Rs. 83,700. The Tribunal agreed with the ITO and AAC, citing that the full value of the consideration accruing from the transfer was indeed Rs. 83,700. They referenced the Kerala High Court decision in Ambat Echukutty Menon v. CIT, which stated that the payment of a mortgage amount does not constitute the cost of acquisition or improvement of the property.

2. Claim for Cost of Improvement of the Property:
The assessee claimed that Rs. 49,047 had been spent on improving the property and should be deducted from the sale consideration. The ITO allowed only Rs. 20,000 as the cost of improvement, and the AAC confirmed this amount. The Tribunal upheld this decision, indicating that the assessee's claim for the higher amount was not substantiated sufficiently.

3. Application of the Doctrine of Diversion by Overriding Title:
The assessee contended that Rs. 78,156 should be considered diverted by overriding title and should not be included in his income. The Tribunal examined this argument but found it unconvincing. They referenced the commentary of Chaturvedi and Pithisaria's Income-tax Law and previous case law, including M.K. Bros. (P.) Ltd. v. CIT and Addl. CIT v. Rani Pritam Kunwar, but concluded that the facts of those cases were different from the present case. The Tribunal held that the payment of the subsisting mortgage amount by way of adjustment was an application of the sale consideration, not a diversion at source.

4. Treatment of Interest Received from the Bank:
The assessee had initially taken a ground that the AAC had omitted to consider a ground regarding the wrongful addition of Rs. 9,004 as interest received from the bank by the ITO. However, during the appeal hearing, the assessee's counsel stated that this ground was not being pressed. Consequently, the Tribunal decided this issue against the assessee.

Conclusion:
The Tribunal upheld the decisions of the ITO and AAC, determining that the full value of the consideration for the property transfer was Rs. 83,700, and the cost of improvement was Rs. 20,000. The Tribunal rejected the assessee's argument regarding the doctrine of diversion by overriding title and confirmed that the interest received from the bank was correctly added to the assessee's income. The Tribunal noted the real hardship in cases where properties are inherited with encumbrances, but emphasized that the remedy lies with the Legislature.