1995 (4) TMI 129 - AT - Income Tax

Assessing Officer, Capital Gains, Computation Of Capital, Expenditure Incurred, Wholly And Exclusively

Summary

Issues:
1. Whether a sum paid directly to the bank by the purchaser should be deducted from the full value of consideration received for the computation of capital gains.
2. Whether the payment made to the bank on account of mortgage debt can be treated as expenditure incurred wholly and exclusively in connection with the sale.

Analysis:

Issue 1:
The appeal raised the question of whether a sum paid directly to the bank by the purchaser should be deducted from the full value of consideration for the computation of capital gains. The assessee claimed that the amount paid directly to the bank should be deducted as it did not reach the assessee due to an overriding title. The assessee argued that only the amount actually received should be considered as the full value of consideration. The Tribunal carefully considered the arguments but concluded that the amount paid to the bank accrued as a result of the transfer and hence formed part of the full value of consideration. The Tribunal rejected the doctrine of overriding title in this case as the amount had already reached the assessee in the form of a loan and interest, and the totality of ownership rights had vested in the assessee.

Issue 2:
The second issue revolved around whether the payment made to the bank on account of mortgage debt could be considered as expenditure incurred wholly and exclusively in connection with the sale. The assessee contended that the mortgage debt payment represented such expenditure as without redeeming the mortgage, the transfer could not have been valid. The Tribunal, however, disagreed with this argument, stating that allowing such deductions would undermine the capital gains tax scheme. Allowing deductions for mortgage debt payments or treating them as sale-related expenditure would enable individuals to circumvent tax laws by taking loans against assets before selling them. The Tribunal emphasized that the liability under the mortgage debt was a personal one and did not arise from the nature of the asset or any legal obligation.

In conclusion, the Tribunal dismissed the appeal, holding that the payment to the bank on account of mortgage debt could not be deducted from the full value of consideration nor treated as expenditure wholly and exclusively in connection with the sale for the computation of capital gains. The Tribunal emphasized the importance of upholding the integrity of the capital gains tax scheme and preventing circumvention of tax laws through such deductions.