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TMI Blog1985 (10) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Court and realised a sum of Rs. 5,62,980. Out of it, it had realised its arrears and interest amounting to Rs. 1,29,020 and paid the balance amount to the assessee. The assessee returned Rs. 83,130 as capital gains as per the working shown in the sheet filed before this Tribunal. The ITO while completing the assessment dated 14-2-1983 under section 143(3) read with section 144B of the Income-tax Act, 1961 ('the Act') computed the capital gains at Rs. 2,69,480. 3. When the matter was carried in appeal before the learned Commissioner (Appeals), it was the contention of the assessee that the amount of Rs. 1,29,020 realised by the Excise Department did not reach the assessee's hands, as it was received by the State Excise Department by overriding title. It was also the contention of the assessee that the interest was paid both to the Excise Department as well as to Smt. A. Polamma for safeguarding the asset and, therefore, then should be considered as an expenditure in realising the sale price. The learned Commissioner (Appeals) in his impugned orders held that he can consider only the deductions contemplated under section 48 of the Act, viz., (i) the expenditure incurred who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that a secured debt is a debt secured by mortgage and includes a debt secured by a charge under section 100 of the Transfer of Property Act. Under section 100, the rights of a charge-holder are those which are exercised by a simple mortgagee. He also submitted that if a charge created on the property is enforceable on a single occasion, the property sold in enforcement thereof will pass unencumbered in the hands of the purchaser. He submitted that the State Government auctioned the property with a view to realise its arrears as well as interest due from the assessee under the mortgage or a charge as the case may be. There is no dispute over the fact that the mortgage or charge in this case is enforceable only on a single occasion and, therefore, he submitted that the property, in this case a house site near Visakhapatnam, would pass to the auction purchaser unencumbered. That means neither the charge nor a mortgage liability goes with the property to the purchaser. In those circumstances, he submitted that the amount realised by the Government, viz., Rs. 1,29,020 is an amount which the assessee is obliged to pay out of his income and an amount which by the nature of the applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portionate price which can be legitimately ascribed to that limited interest and nothing more. A simple mortgagee holds an interest in the mortgaged property. A charge-holder is also a secured creditor. Therefore, the amount realised by the assessee towards his interest in the hypotheca which is described as 'the full value of the consideration received or accruing as a result of the transfer of a capital asset' cannot be taken to be full market value of Rs. 5,62,980 realised out of the auction held by the State Government but it should be held as Rs. 5,62,980 minus Rs. 1,29,020, i.e., Rs. 4,33,960. Therefore, the learned counsel argued that the returned capital gains by the assessee should have been accepted and to the extent of the excess computed orders of the lower authorities are bad in law. 5. The learned departmental representative, in the first instance, very much relied upon the decisions of the lower authorities. He also contended that payment of the amount due under the charge created in favour of the Government is a mode of appropriation made by the assessee after the whole of the sale consideration came into his hands. He further argued that for purposes of computati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal gains tax the whole price realised by the sale of the whole interest in the property cannot be taken for the simple reason that no man can convey a better title than what he himself has. In our understanding of the facts of this case the assessee created a mortgage or a charge in this property in favour of the Government as long back as the accounting year relevant to the assessment years 1970-71 and 1971-72. Therefore, by the date of auction conducted by the State Government which took place in the accounting year relevant to the assessment year 1982-83 two persons were having interest in the property. The assessee, no doubt, holds the property subject to the mortgage deed or a charged debt due to the Government. The debt due to the Government is a secured debt. In the auction the property was sold free of charge or mortgage in favour of the Government. Thus, the full sale price realised by the sale of the property was having two components : the first of the components represents the price which can be ascribed to the interest of the assessee held in the property and the second represents the arrears of debt as well as interest due to the Government and is embedded in it. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as follows : "... Whether the deductions specifically referred to in section 48 are exhaustive or not is quite a different matter for consideration; but it would be wrong to say that the full value of the consideration for the sale of the property could be reduced by the estate duty liability, unless such a liability could be held to be a valid deduction under section 48 of the Act...." Therefore, in our opinion, the Andhra Pradesh High Court decision is an authority only for the proposition that the estate duty liability cannot constitute a valid deduction under section 48. But that is not the issue before us. 7. In our opinion, the issue before us is somewhat seemed to have been covered by the decision of the Madras High Court in CIT v. C. V. Soundararajan [1984] 150 ITR 80. In that case in a family partition the assessees were allotted a property in which their mother was given a right of residence. In order to obtain a relinquishment of the said right of residence to enable them to sell the property, the assessees paid to their mother a sum of Rs. 60,000. In computing the capital gains arising on the sale of the property, the claim of the assessees for deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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