9911796707
TMI Blog1995 (4) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant. (2) The learned CIT(A) erred in rejecting the claim of the appellant that the amount of Rs. 9 lakhs paid by the purchaser directly to the mortgage bank, never reached the appellant because of overriding title of the said mortgage. He erred in holding that the payment of mortgage was a payment of liability and it had nothing to do with the capital gain without appreciating that the amount sought to be deducted was because of overriding obligation which did not reach the appellant and that it was not claim of deduction of any expenditure. (3) The learned CIT(A) erred in observing that because the said capital assets was subject to the change of a debt, the cost of acquisition was required to be reduced. (4) The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e price realised on the sale of the property had thus two components; (i) the component represented by the price which could be ascribed to the interest of the assessee in the property, (ii) component represented by the amount of secured debt and interest due to the bank. Since the mortgage debt was directly paid to the bank, that amount never reached the assessee and, therefore, that amount was not to be treated as part of the price consideration for the purpose of computation of capital gains. This plea was not accepted by the Assessing Officer. The plea was reiterated before the learned CIT(A), but unsuccessfully. 5. Before us, a number of points were raised by the learned counsel for the assessee. The first point raised by him was tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, inasmuch as the assessee had already received that amount from the bank and taken benefit thereof. It would therefore, not to be correct to say that, that sum of Rs. 7 lakhs did not form part of the full value of consideration. He further urged that this is not a case of overriding title but only of application of income. The other plea of the learned departmental representative was that the amount paid to the bank towards the mortgage liability could in no case be treated as expenditure incurred wholly and exclusively for the purposes of the transfer and, therefore, it was not covered by clause (i) of section 40 of the Income-tax Act. In support of his contention, the learned departmental representative placed reliance upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f personal obligation to pay. It was on account of failure to perform the contract of sale of the same property that a suit followed and a charge was created under a Court decree. Thus the obligation under the charge arose only out of the asset itself. The decision rendered in that case would, therefore, not offer any material assistance to the assessee before us. The next decision cited was the decision of the Madras Bench of the Tribunal in the case of R. Srinivasan. In this case, the mortgage loan raised was utilised for the purpose of putting up construction on the property, which was subject-matter of sale and capital gain. It was in that factual context that it was held that the amount of the mortgage debt represented cost of improvem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of a High Court in preference to the ratio of the decisions of the Tribunal. We have given our careful thought to this aspect of the matter and are of the view that neither the amount paid to the bank can be deducted out of the full value of the consideration nor that amount can be treated as an expenditure incurred wholly and exclusively in connection with the sale. We feel that the doctrine of overriding title cannot be invoked in a case of the nature of the present one, for the reason that the amount paid to the bank on account of the mortgage loan had already reached the assessee in the form of a loan (plus interest) and, therefore, it would not be correct to say that that amount did not reach the assessee and was diverted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the liability under the mortgage debt in the present case was essentially a personal liability. The mortgage provided only a security and made the debt a secured one. The liability did not arise out of the essential nature of the asset or any event arising out of it, nor the liability arose out of any operation of law or order of Court. It is only on the failure of a debtor to discharge his personal liability under the loan that rights under the mortgage become enforceable by a mortgagee. In his connection, it would be important to take note of the scheme of the Capital gains tax under the Income-tax Act and the provisions relevant thereto. Allowing the deduction of such payments out of the 'full value of the consideration' or treatmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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