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TMI Blog2018 (10) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Hon’ble Supreme Court in the case of R.M. Arunachalam vs. CIT [1997 (7) TMI 5 - SUPREME COURT], the amount for discharge of mortgage interest has to be considered as cost of acquisition and accordingly the net consideration on sale of the flat in question will be Nil. Accordingly, we set aside orders of the authorities below, qua this issue and allow the claim of the assessee. - ITA No. 489/JP/2015 - - - Dated:- 10-10-2018 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri Vivek Bansal Shri I.P. Bansal (Advocates) For the Revenue : Shri K.C. Meena (Addl. CIT) ORDER PER VIJAY PAL RAO, JM : This appeal by the assessee is directed against the order dated 16th March, 2015 of ld. CIT (A)-2, Jaipur for the assessment year 2011-12. The assessee has raised the following grounds :- 1. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in taxing a sum of ₹ 72,62,167/- as long term capital gain in the hands of the assessee appellant. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a consideration of ₹ 94,00,000/-. The buyer has paid the entire sale consideration of ₹ 94,00,000/- to PNB against the dues of M/s. MPL Corporation Ltd. for which the said flat was pledged as collateral security with the Bank. Thus the assessee submitted that there was no capital gain on sale of the said flat in the hands of the assessee. The AO did not accept the contention of the assessee and assessed the capital gain of ₹ 72,62,167/- as long term capital gain. The assessee challenged the action of the AO before the ld. CIT (A) and raised the contention that when the said flat was inherited by the assessee through the Will along with the charge being mortgaged with the bank, then the amount directly recovered by the bank from the sale consideration of the flat shall be allowed as deduction from the total consideration while computing the capital gain under section 45 and 48 of the IT Act. The assessee has also relied upon various decisions on this point that the benefit of amount paid to the bank for discharge of mortgage debt is available against the sale consideration for computation of long term capital gain. However, the ld. CIT (A) did not accept the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enied the consequential benefit to the assessee while computing the long term capital gain. The assessee is entitled to get the indexation benefit from financial year 1991. In support of his contention he has relied upon the decision of Hon ble Bomay High Court in the case of CIT vs. Manujla J. Shah, 355 ITR 474 (Bom.) as well as the decision of Hon ble Delhi High Court in the case of Arun Shungloo Trust vs. CIT, 205 taxman 456 (Delhi). The ld. A/R has pointed out that a similar view has been taken by the Hon ble Karnataka High Court in the case of CIT vs. Smt. Asha Machaiah, 227 Taxman 155 (Kar.). The AO as well as the ld. CIT (A) has denied the benefit by ignoring the binding precedents. Thus the ld. A/R has submitted that if the amount of discharge of mortgage debt is allowed as cost of acquisition and indexation benefit is allowed from the date of acquisition by the father of the assessee as per the provisions of sections 48 and 49 of the Act, then there would be no capital gain arising from the present sale transaction. 4. On the other hand, the ld. D/R has submitted that the assessee has inherited the flat in question by Will and as per the last Will of the father of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e along with the flat in question. The ld. CIT (A) denied the benefit of payment of the mortgage debt or clearing of the mortgage debt on the ground that the debt was not the liability and responsibility of the assessee but was the responsibility of the brother of the assessee. We find that this issue was considered by the Hon ble Gujarat High Court in the case of CIT vs. Daksha Ramanlal (supra) in para 9 to 11 as under :- 9. Though the Madras and Kerala High Courts have taken the view that, when a capital asset is received by an assessee by one of the modes specified by section 49, what has to be taken into consideration is the cost of acquisition to the previous owner and any sums paid by the assessee for removing any encumbrance thereon cannot be deducted while computing the capital gains on sale of such property. With due respect to them, we cannot agree with that view. In our opinion, what has been overlooked in those cases is that the word 'property' does not mean merely the physical property, but also means right, title or interest in it. In case of a mortgage or lease, different persons will have different rights in the same property. If a person is an abso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the total cost of acquisition of the property, which the assessee sold and thereby made capital gains. 10. As we are taking this view, it is not necessary to consider the two decisions in Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 (SC) and CIT v. Bilquis Jahan Begum [1984] 150 ITR 508 (AP) 1 , relied upon by the learned counsel for the respondent in support of his contention that in working out the capital gains or loss, the principles that have to be applied are those which are a part of the commercial practice or which an ordinary man of business will resort to when making computation for his business purpose. 11. The view which we have taken also gets support from the decision of the Madras High Court in CIT v. C.V. Soundararajan [1984] 150 ITR 80 2. In that case, the assessee had paid a certain sum to his mother in order to obtain relinquishment of her right of residence in the property, which the assessee sold. While computing the capital gains arising from the sale of that property, the assessee claimed deduction for the sum paid to the mother. The ITO allowed that claim, but the Commissioner, exercising his revisional powers, set asid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed to be the cost for which the previous owner acquired it, as increased by the cost of any improvement of the assets incurred or borne either by the previous owner or by the assessee. According to the High Court, having regard to the definition of the expression 'cost of improvement' contained in section 55(1)(b) in order to entitle the assessee to claim a deduction in respect of the cost of any improvement, the expenditure should have been incurred in making any additions or alterations to the capital asset that was originally acquired by the previous owner and if the previous owner had mortgaged the property and the assessee and his co-owners cleared off the mortgage so created, it could not be said that they incurred any expenditure by way of effecting any improvement to the capital asset that was originally purchased by the previous owner. This decision has been followed in subsequent decisions of the High Court in Salay Mohamad Ibrahim Sait v. ITO [1994] 210 ITR 700 (Ker.) and K.V. Idiculla v. CIT [1995] 214 ITR 386 / 81 Taxman 190 . A contrary view has been taken by the Gujarat High Court in CIT v. Daksha Ramanlal [1992] 197 ITR 123 . In taking the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gage debt by him prior to transfer of property would not entitle him to claim deduction under section 48 because in such a case he did not acquire any interest in the property subsequent to his acquiring the same. Accordingly, we find that the ld. CIT (A) has committed an error in distinguishing these decisions relied upon by the assessee in support of the claim. 6. As regards the indexation cost of the flat is concerned, there is no dispute that the flat in question has been acquired by the assessee under the Will and, therefore, the provisions of section 49(1)(ii) provides that the cost of acquisition of the asset shall be deemed to be cost for which the previous owner of the property acquired it as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. The Explanation to section 49(1) further clarifies the term previous owner of the property in relation to any capital asset means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to clauses (i), (ii) and (iii) of sub section (1). The Hon ble Bombay High Court in the case of CIT vs. Manjula J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue that since the indexed cost of acquisition as per clause (iii) of the Explanation to Section 48 of the Act has to be determined with reference to the Cost Inflation Index for the first year in which the asset was held by the assessee and in the present case, as the assessee held the asset with effect from 1/2/2003, the first year of holding the asset would be FY 2002-03 and accordingly, the cost inflation index for 2002-03 would be applicable in determining the indexed cost of acquisition. 17. We see no merit in the above contention. As rightly contended by Mr. Rai, learned counsel for the assessee, the indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was 'held by the assessee'. Since the expression 'held by the assessee' is not defined under Section 48 of the Act, that expression has to be understood as defined under Section 2 of the Act. Explanation 1(i)(b) to Section 2(42A) of the Act provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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