1992 (2) TMI 55 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee is entitled to claim deduction of Rs. 25,000 paid for redemption of the mortgage for the purpose of computing capital gains.

Summary:

Issue 1: Deduction of Rs. 25,000 Paid for Redemption of Mortgage
The Tribunal referred the question of whether the assessee is entitled to claim deduction of Rs. 25,000 paid for redemption of the mortgage for computing capital gains to the High Court u/s 256(1) of the Income-tax Act, 1961. The assessee received 292 sq. yards of land as a gift, which was subject to a mortgage, and sold it for Rs. 59,956. She claimed a deduction of Rs. 25,000 paid to the mortgagee, which was rejected by the Income-tax Officer and the Appellate Assistant Commissioner. The Tribunal, however, held that the assessee sold more than just the gifted capital asset; she sold the interest transferred to the mortgagee, and thus the Rs. 25,000 paid to redeem the mortgage should be considered in computing the capital gain u/s 48(ii).

The Revenue argued that the cost of acquisition should be computed as per section 49 and section 55(2)(ii), considering the cost to the previous owner or the fair market value as of January 1, 1954. The Tribunal's computation u/s 48 was deemed erroneous by the Revenue. The High Court examined relevant provisions, including sections 45, 48, 49, and 55, and noted that the cost of acquisition should be the cost to the previous owner or the fair market value on January 1, 1954, if the asset was acquired by gift.

The High Court considered precedents from the Kerala High Court in Ambat Echukutty Menon v. CIT and the Madras High Court in CIT v. V. Indira, which supported the Revenue's view but lacked detailed reasoning. The High Court disagreed with these precedents, emphasizing that "property" includes rights and interests. The assessee acquired the property subject to the mortgage and later acquired the mortgagee's interest by paying Rs. 25,000. Thus, the cost of acquisition included this payment.

The High Court concluded that the case was not fully governed by section 49(1)(ii) or section 55(2)(ii) but partly by section 48 and section 55(2)(i). The Rs. 25,000 paid to the mortgagee was part of the cost of acquisition and should be deducted in computing capital gains. The question was answered in the affirmative, in favor of the assessee, with no order as to costs.