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TMI Blog2015 (8) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... r had held that since the mortgage loan had been long time after the acquisition of the property, the same would not stand covered under Section 48 (1) of the Act. That being the case, it does not appeal to us that the explanation relating to discharge of the mortgage to the bank, as submitted by the assessee, can be termed as expenditure, as the property had been acquired long time before taking the mortgage loan from the bank. The Tribunal, to come to the finding that the said discharge of mortgage to the bank cannot be termed as expenditure, has placed reliance on the jurisdictional Court's decision in Vajrapani Naidu's case [1998 (10) TMI 39 - MADRAS High Court] wherein held the amount was paid as part of the consideration to the sale. The distinction that was sought to be made by the Tribunal between the case where the mortgage is discharged by the vendor prior to the sale and the case where the discharge of the mortgage is effected at the time of the sale by payment of the outstanding amount to the mortgagee by the vendor and the sale free from encumbrances, is untenable. The only point of relevance is whether the mortgage was created by the vendor or whether it subsiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income on 1.2.06 admitting loss of ₹ 7,42,240/-. During the assessment year in question, the appellant sold land along with building at Nageswaran Koil Street, Kumbakonam for ₹ 75 Lakhs. The appellant had taken mortgage loan on the said property with City Union Bank. For clearing the mortgage, the appellant made a one-time settlement with the bank in respect of the aforesaid loan and paid a sum of ₹ 22,51,220/- to the bank. While computing the capital gain, this amount of ₹ 22,51,220/- was claimed as expenses by the appellant under Section 48 (1) (i) of the Act. The Assessing Officer, in the course of assessment, however, held that the loan in question had been obtained by mortgaging the property long time after acquiring the same and, therefore, the same is not covered under Section 48 (1) (i) of the Act and, therefore, disallowed the assessee's claim for the purpose of computing the capital gains. 4. Aggrieved by the said disallowance, the assessee preferred appeal before the CIT (Appeals), who, relying upon the judgment of the Calcutta High Court in the case of Gopee Nath Paul Sons - Vs - Dy. Commissioner of Income Tax (2005 (278) ITR 240) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of two different High Courts, the Tribunal having considered the facts of the case in depth, by normal rule of precedence, followed the decision of the jurisdictional High Court in Vajrapani Naidu's case (supra), and allowed the appeal and, therefore, no interference is warranted with the well considered findings recorded by the Tribunal. 8. Heard the learned counsel for the appellant/assessee and the learned standing counsel appearing for the respondent/Department and perused the materials available on record as also the judgments relied on by the different authorities to arrive at their respective conclusions. 9. This Court has carefully considered the facts in the present case as also the judgment of this Court as well as the Calcutta High Court. We find, on facts, there is a sale by the present appellant/assessee of land and building for ₹ 75 Lakhs, which is not in dispute. Insofar as the one time settlement of ₹ 22,51,220/- paid to City Union Bank to satisfy the mortgage over the property, the assessee claimed the same as expenses incurred in connection with the transfer for the purpose of computing capital gains under Section 48 (1) (i) of the Act, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds and bona fide paid certain amounts to the creditors of the vendor assessee, including mortgages on the property, which was the subject matter of sale. The Income Tax Officer and the Commissioner rejected the claim for deduction in terms of Section 48 (1). While the Tribunal reversed the view, this Court rejected the view of the Tribunal, in the following manner :- That view of the Tribunal is wholly unsustainable. The burden had been created by the vendor on the property sold by him. As the burden had been created for his own benefit by offering the property as security to his lenders, the amounts spent for discharging that burden of the vendor whether prior to sale, or at the time of sale, by payment to such creditors including the mortgagees, directly by the vendee cannot be regarded as expenditure wholly and exclusively in connection with the transfer. When the mortgaged property is sold, if the consideration for the sale comprises the consideration for the sale of equity of redemption, and the amount required for the discharge of mortgage, it is the aggregate of both these sums that constitutes the consideration for the sale. The fact that the vendee makes the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his own benefit by offering the property as security to City Union Bank, the amount spent for discharging that burden whether prior to sale, or at the time of sale, by way of one-time settlement to the Bank, cannot be regarded as expenditure wholly and exclusively in connection with the transfer. In the present case, the discharge was in the course of sale. We find that the payment of the outstanding amount in discharge of mortgage by the vendor, viz., appellant herein, cannot partake the character of an expenditure. It is not a case where the assessee had discharged the mortgage created at the time of acquisition of the property by the present appellant/assessee, to make a distinction otherwise. 14. The decision of the Calcutta High Court in Gopee Nath Paul's case (supra), on facts, is distinguishable and will not apply to the facts of the present case. In the said case, there were two firms and there were common partners. One of the firm was suffering a suit claim by Allahabad Bank. Simultaneously, another suit was filed between the partners of the two firms and based on arbitration agreement, the suit between the partners was concluded on the basis of compromise and the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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