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TMI Blog2007 (7) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... rawal for the assessee. JUDGMENT The judgment of the court was delivered by VIKRAM NATH J.— The Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following question of law under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this court: "Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that there was an overriding charge against the sale proceeds of property and the assessee was not liable for capital gains in respect of Rs. 1,50,000 paid to bank in discharge of loan taken by M/s. Shanker Traders?" 2. The reference relates to the assessment year 1984-85. 3. Briefly state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hes of the Tribunal into consideration and also the decision of the hon'ble Delhi High Court in CIT v. Shakuntala Rajeshwar [1986] 160 ITR 840. 5. We have heard Sri A. N. Mahajan, learned standing counsel for the revenue. No one has appeared on behalf of the assessee despite notice having been issued by registered post for engaging another counsel in the year 2005 itself. Further, the office has submitted a report dated September 8, 2006, that neither undelivered cover nor the A.D. card has been received back. 6. Sri A. N. Mahajan has submitted that the view taken by the Tribunal in holding that the bank had an overriding title over the property sold and further real value, to which the assessee was entitled, was only Rs. 45,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged the mortgage debt, the amount paid by him for the purpose of clearing off the mortgage is not deductible for the purpose of computation of capital gains, the Kerala High Court has failed to note that in a mortgage there is transfer of an interest in the property by the mortgagor in favour of the mortgagee and where the previous owner has mortgaged the property during his lifetime, which is subsisting at the time of his death, then after his death his heir only inherits the mortgagor's interest in the property. By discharging the mortgage debt his heir who has inherited the property acquires the interest of the mortgagee in the property. As a result of such payment made for the purpose of clearing off the mortgage the interest of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an overriding title over the property sold. The reasoning given by the Tribunal with regard to overriding charge over the sale income is not correct for the reason as the assessee had himself created the mortgage by taking a loan from the bank and the said property had been secured for repayment of loan. It is not a case where the assessee had inherited the property or had acquired the property along with charge but in fact had himself created the charge over the property. In a case of inheritance/acquisition along with the mortgage perfecting his title by getting mortgage discharged, the assessee would be entitled to get the deduction of the mortgage debt but where the charge is created by the assessee himself, it cannot be said that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f application, of income by the assessee and not of diversion of income by overriding title." 10. Earlier in the case of CIT v. Sitaldas Tirathdas [1961] 41 ITR 367, the apex court laid down the test with regard to diversion of income by overriding title as follows (page 374): "In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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