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2019 (4) TMI 817 - HC - Income TaxTaxability of capital gain - Diversion of income - non receipt of sales consideration in hand of assessee - Directly paid to bank as property was mortgage - mortgage deed was never registered and Bank did not have a right to bring the property to sale - whether on creation of mortgage, the bank had acquired overriding title to the property? - claim that amount paid to bank towards clearing the cloud over the title should be deducted as provided u/s 48 as expenditure incurred wholly and exclusively in connection with such transfer? HELD THAT:- Mortgage was by deposit of title deeds. In a mortgage by deposit of title deeds, the mortgagee, in this case, the State Bank of India, Pondicherry, does not acquire title, much less overriding title to the property. The charge created over the property was to the extent of the mortgage amount or not to the extent of value of the property. Since the mortgage had been created voluntarily, the balance sale consideration paid to discharge the mortgage would also be the total value of the property and capital gains is to be computed on the full value of consideration received or agreed as a result of transfer of the capital assets. The entire sale consideration which was the full value of the capital assets was paid directly to the bank. This was not paid to clear a cloud over the title. This was paid to clear the interest or charge over the property which had been offered as collateral security. In the present case, mortgage deed was never registered and State Bank of India, Pondicherry did not have a right to bring the property to sale. The assessee in the present case, continued to have title over the property along with her co-owners. They brought the property to sale through Bank. In Thressiamma Abraham's [1996 (9) TMI 60 - KERALA HIGH COURT] case, the mortgagee/financier namely, Kerala Financial Corporation sold the property in auction and realized the sale consideration. Thressiamma Abraham (supra) did not voluntarily sell the property. In view of the above reasonings, we hold that in the present case, there was no diversion of sale proceeds by virtue of overriding title, but on the contrary, there was only a mere application by the owners themselves of the profits realized on the sale of land towards the discharge of loan obligations of same firm. We also hold that the assessee cannot claim any part of such application as cost of acquisition for the purpose of computing capital gains as per the provisions of Section 48. We hold that the ratio laid down in the Hon’ble Supreme Court in the case of V.S.M.R. Jagadishchandran (Decd.) [1997 (7) TMI 6 - SUPREME COURT] and of the Madras High Court in N.Vajrapani Naidu [1998 (10) TMI 39 - MADRAS HIGH COURT] and in Sri Kanniah Photo Studio [2015 (8) TMI 270 - MADRAS HIGH COURT] which followed the ratio in the judgment of R.M.Arunachalam [1997 (7) TMI 5 - SUPREME COURT] laid down the correct position of law. - decided in favour of the Revenue
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