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TMI Blog1985 (2) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has admitted the same at Rs. 2,67,225 and exemption under section 54E of the Income-tax Act, 1961 ('the Act') has been allowed at a lower figure compared to the claim of the assessee. Aggrieved, the assessee filed an appeal before the AAC. 2. Before the AAC, the assessee contended that the mortgage loan due to the LTC is an outgoing from out of the sale proceeds and as such it should be deducted from the consideration received. According to the assessee, the net consideration received by the assessee was Rs. 2,61,225 as against Rs. 3,03,225 adopted by the ITO. The assessee further submitted that since the loan was discharged by the purchaser by direct payment to the LTC, the assessee never received the amount and should, therefore, not be called upon to pay tax on that amount. Accordingly, he requested that the capital gains may be computed by taking the net sale consideration at Rs. 2,61,225. On bearing the parties, the AAC held as under : " The purpose for which the loan was taken from LTC is not known. If it is taken for the acquisition of the property, it is already included in the cost of acquisition and if it is taken for some other purposes, I fail to unders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee to raise this additional ground. We have also heard the learned departmental representative, who supported the order passed by the AAC. 5. The fact remains that the assessee was originally the owner of a plot of land admeasuring two grounds and 120 sq. ft. having purchased the site alone by public auction from the Tamil Nadu Housing Board. The allotment of this plot of land is evidenced by a letter dated 20-6-1972. Thereafter he put up a construction thereon and executed a mortgage deed in favour of the LIC for raising a loan of Rs. 50,000. The mortgage loan was obtained for the purpose of construction according to the recitals in the said deed. Subsequently, the assessee entered into a sale agreement for the sale of the property in question on 4-4-1977. The sale consideration was agreed to be at Rs. 3,20,000. Clause 10 of the said agreement states as under : " The vendor states that the property is subject to a mortgage in favour of the Life Insurance Corporation of India and he shall arrange to pay the same from and out of the advance received from the purchaser, so that at the time of the sale, the property shall be free from any encumbrance and any attachme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusively in connection with such transfer and (ii)(a) the cost of acquisition of the capital asset and (b) the cost of any improvement thereto. The resultant figure, if the balance is on the debit side, shall represent capital gain and if on the credit side shall represent the capital loss. 8. In order to construe that what was paid to discharge the mortgage loan with the LIC is an expenditure, the learned counsel appearing for the assessee relied upon a decision of the Madras High Court in the case of CIT v. A. Venkataraman [1982] Tax 65(3) 119. In that case, the Madras High Court held that the payment made to the tenants to obtain the vacant possession was an expenditure incurred wholly and exclusively in connection with the agreement of sale which preceded the transfer and in fulfilment of the condition of sale. The amount paid was, therefore, deductible as an expenditure under section 48(1). 9. Another decision relied upon by the learned counsel was that in the case of CIT v. C. V. Soundararajan [1984] 150 ITR 80 (Mad.). In that case, the purchaser paid a sum of Rs. 60,000 to the mother of the assessee in order to purchase her right of residence to enable the assessee to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mortgage loan was obtained for the purpose of construction. Section 48 provides for deduction from the full value of the consideration received or accruing as a result of the transfer of capital asset of the 'cost of acquisition' thereof. The word 'acquire' according to its plain and natural meaning is a word of very wide import. According to this section, capital gains has to be computed after making deduction from the full value of consideration, inter alia, all cost of acquisition of the capital asset and any expenditure of capital nature in making any additions or alterations to the asset. There is a decision of the Delhi High Court in the case of CIT v. Mithileshkumari [1973] 92 ITR 9, wherein the Delhi High Court was of the view that the interest paid by the assessee on money borrowed for the purchase of open plot of land constituted part of actual cost to the assessee within the meaning of section 12B(2)(ii) of the Indian Income-tax Act, 1922, for the purpose of determining the capital gain derived from the sale of the land. In this connection, the learned departmental representative relied upon a decision of the Madras High Court in the case of CIT v. V. Indira [1979] 119 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the amount of mortgage loan was spent for the purpose of improving the capital asset. 14. Thus, considering the fact that the assessee obtained the mortgage loan from the LTC for the purpose of putting up constructions, looking into the ratio laid down in the above-said decisions, we are of the view that the amount paid to the LTC should be considered as an amount representing the cost of improvement to the property which would be deductible under section 49(1), read with section 55(1)(b) of the Act. The assessment shall be modified accordingly. 15. Another argument advanced by the learned counsel appearing for the assessee was that in view of section 54E, the capital gains should be computed by taking only the net sale consideration as the assessee could not deposit the entire sale consideration in specific securities since he did not receive the entire amount. The assessee has invested Rs. 2 lakhs on fixed deposit in July 1977. In view of our earlier finding that the assessee is entitled to relief under section 49(1), read with section 55(1)(b), there is no necessity to make any pronouncement on this point since the assessee is getting a larger relief. 16. In the result ..... X X X X Extracts X X X X X X X X Extracts X X X X
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