TMI Blog2006 (6) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... the perfection of title in order to effect the sale. In this present case, without removing the liability of the Allahabad Bank, the title of the purchaser could not be perfected. Having regard to the facts and circumstances of this case and the position in law as discussed above, the meeting of the liability of the Allahabad Bank relating to the assets of Gobindo Sheet Metal was an expenditure incurred wholly and exclusively in connection with the transfer. We should follow the judgment of Hon'ble Calcutta High Court in the case of GOPEE NATH PAUL AND SONS AND ANOTHER VERSUS DEPUTY COMMISSIONER OF INCOME-TAX. [ 2005 (3) TMI 73 - CALCUTTA HIGH COURT] and of Hon'ble Kerala High Court in the case of COMMISSIONER OF INCOME-TAX VERSUS SMT. THRESSIAMMA ABRAHAM (NO. 1) [ 1996 (9) TMI 60 - KERALA HIGH COURT] in preference to the judgment of Hon'ble Bombay High Court in the case of COMMISSIONER OF INCOME-TAX VERSUS ROSHANBABU MOHAMMED HUSSEIN MERCHANT, FANCY CORPORATION LIMITED VERSUS DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER. [ 2005 (1) TMI 53 - BOMBAY HIGH COURT] for the following reasons: (1) Both in the cases of R.M. Arunachalam and V.S.M.R. Jagdishchandran, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ambat Echukutty Menon; Salay Mohd. Ibrahim Sail and K.V. Idiculla, but the same were distinguished by the Hon'ble High Court in the case of Smt. Thressiamma Abraham. These three judgments relied upon by revenue have been expressly over-ruled by Hon'ble Supreme Court in the case of R.M. Arunachalam. (6) In the instant case what appears to us to be clinching the issue is the fact that the assessee before us has not received a single paisa from out of sale proceeds of the assessee's shares running into crores of rupees. At the cost of repetition we may state here that there is not a whisper in the order of the Assessing Officer or the learned CIT(A) that the assessee, at any stage before, during or after the pledge of shares in question, received anything in terms of money or money's worth in relation to parting with of the assessee's shares for the benefit of Pertech and Swati. There is thus no force in the contention of the learned CIT(DR) that under clause 6 of the agreement the assessee could receive surplus sale proceeds after credit institutions satisfied their rights in full. Fact of the matter is that there was no surplus. Having regard to the huge a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appropriated by the financial institution. (iv) ignoring the provisions of section 2(47) and section 45. As per the provisions contained in these sections, the sale of these shares amounts to transfer resulting to capital gain taxable in the hands of the owner i.e., the appellant. 2. Facts of the case leading to this appeal briefly are that the assessee is a finance company and during the year it received income from interest, dividend and capital gains. During the course of assessment proceedings the learned Assessing Officer noted that there was a sale of 11,72,900/- shares of NIIT Ltd. Sale of these shares resulted in a capital gain after allowing indexation of the cost of acquisition amounting to Rs. 29,06,97,940/-. The assessee, however, did not offer this capital gain for assessment. According to the assessee, sale of these shares in view of the guarantee given by the assessee for loan taken by another company, did not result in any income to the assessee. The assessee did not receive any money from the sale of these shares. Under the provisions of section 45(1) any profits or gains arising from transfer of capital asset were chargeable to income-tax. In the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention of the assessee that debts against the shares in question had been incurred to improve the title of the assessee. Instead the debts had been incurred for the purpose of helping another company raise loan by mortgaging assessee's shares voluntarily and at assessee's own sweet will. Following the judgment of Hon'ble Supreme Court in the case of V.S. Malhotra (supra) the learned Assessing Officer held that discharge of mortgaged debts by the sale of shares of the assessee did not constitute a diversion of the sale consideration at source and that the debt discharged by the sale of shares could not be said to have enhanced the rights of the assessee in those shares, so as to constitute increase in the cost of acquisition of the shares to the assessee. The learned Assessing Officer further held that the assessee's liability to pay tax could not be neutralized by any agreement entered into for charges created against the shares voluntarily. The bank or any other person did not have any overriding title to the receipt. The learned Assessing Officer held that capital gain tax was clearly leviable on the assessee and any agreement as to mode of utilization of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT v. Smt. Thressiamma Abraham [1997] 227 ITR 802. In that case on similar facts the Hon'ble Kerala High Court held that where the entire sum had been appropriated towards discharge of the mortgage debt and assessee in that case had not received a pie as a result of transfer, there could not be any income to the assessee much less any capital gain. It was held by Hon'ble High Court that the corporation to whom the property had been mortgaged as guarantee for repayment of loan taken by a third party had acted in exercise of the overriding title in its favour. Before the learned CIT(Appeals) the assessee before us relied upon the judgment of Hon'ble Supreme Court in the case of Addl. CIT v. Mohanbhai Pamabhai [1997] 165 ITR 166 also, wherein it was held that unless consideration flows as a result of a transfer, section 45 is not attracted. The assessee placed reliance on the judgment of Hon'ble Supreme Court in the case of Kunhayammed v. State of Kerala [2000] 245 ITR 360 also. 5. The learned CIT(Appeals) found that the issue before him was a legal issue i.e., where assessee's assets which were pledged as guarantor to a lending institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R.M. Arunachalam (supra) and V.S.M.R. Jagdishchandran (supra). In both the judgments Hon'ble Supreme Court had held that a self-created mortgage could not help the assessee to reduce his liability for capital gains tax. This proposition was well settled and no plea of harshness to the tax payer could be considered to dilute this legal position. The learned CIT, DR in particular brought attention to the following portion of the judgment in the case of R.M. Arunachalam ; In taking the view that in a case where the property has been mortgaged by the previous owner during his lifetime and the assessee, after inheriting the same, has discharged 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 mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Duty Act, 1953, relief under section 50B was given where any property was sold to meet estate-duty liability. No such corresponding relief had been provided under the capital gains tax. The legal position was that if the person sought to be taxed came within the letter of law he must be taxed. The learned CIT DR referred to the observations of Rowlatt, J. in the case of Cape Brandy Syndicate v. IRC 1 K.B. 64. He then referred to the decision of ITAT, Mumbai in the case of Fancy Corpn. Ltd. v. Dy. CIT [2000] 75 ITD 467. He pointed out that after taking into consideration the judgment of Hon'ble Kerala High Court in the case of Smt. Thressiamma Abraham (supra) ITAT had reached the following conclusion : We have to reject the contention of the assessee for the deduction of Rs. 1,37,50,000/- as expenses incurred in connection with the transfer because of the decision of the Apex Court in the case of V.S.M.R. Jagdishchandran (supra). The Apex Court has dismissed the appeal of the assessee stating that the questions raised were not arguable. To us, it appears that the Apex Court has implicitly held that the repayment of the mortgage debt cannot be regarded as an expenditure i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereinabove, we have to reject the contention of the assessee that the provisions of the Transfer of Property Act or even the Board for Industrial and Financial Reconstruction Act come to the assistance of the assessee for the deductibility of the amount of Rs. 1,37,50,000/- in the computation of capital gains. The BIFR Act, to our mind, operates in an altogether different field and it in no way enables the assessee to claim the deduction for the repayment of a mortgage debt in the computation of the capital gains. We cannot see the provisions of the BIFR Act as in anyway impeding the working out of the provisions of the IT Act in respect of the computation of capital gains. For the above reasons, we reject the contentions of the assessee and uphold the orders of the Revenue authorities. The learned DR in particular emphasized that if the view taken by Hon'ble Kerala High Court in the case of Smt. Thressiamma Abraham (supra) which had been over-ruled in the Supreme Court judgment, was to be applied that would lead to a major tax evasion device whereby any assessee anticipating a big capital gain might avoid capital gains liability by entering into a loan transaction and mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT, DR, therefore, argued that the relief granted by the learned CIT (Appeals) based on the judgment of Hon'ble Kerala High Court in the case of Smt. Thressiamma Abraham (supra) was erroneous when that judgment had been over-ruled by the judgments of Hon'ble Supreme Court. 9. The learned CIT, DR argued that by pledging the shares with credit institutions the assessee did not transfer its interest in those shares and the assessee had wrongly relied upon the provisions of sections 172 to 176 of Indian Contract Act, 1882 in that behalf. That aspect of the issue had been examined by Hon'ble Andhra Pradesh High Court in the case of Ghanshyamdas Kishan Chander v. CIT [1980] 121 ITR 121 wherein Hon'ble High Court held that where an assessee had mortgaged some capital asset for settlement of debts and later sold the same for payment of remaining debt, the transfer can be said to have taken place only when the sale was effected and not when the asset was mortgaged. For this proposition the learned CIT, DR relied upon the following passage appearing in that judgment : The definition of transfer , in relation to a capital asset under the Income-tax Act, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement which provided that if there was any balance left after appropriation of the debt, the same should be paid to the pledger. 10. The learned CIT, DR argued that there was no force in the contention of the assessee that it had not actually received any profit on sale of shares. Capital gains tax was attracted in the cases where an assessee had acquired the right to receive the profit and it was not necessary that assessee should have actually received the profit. That view was supported by judgment of Hon'ble Madras High Court in the case of T.V. Sundaram Iyengar Sons Ltd. v. CIT [1959] 37 ITR 26 . He placed reliance on the following extract : In order to attract liability to tax on capital gains under section 12B of the Indian Income-tax Act, 1922, it is sufficient if in relevant accounting year profits have arisen out of the sale of capital assets, that is to say, if the assessee has a right to receive the profits. It is not necessary that the assessee should have received them. When once profit have arisen in the accounting year out of the sale of capital assets, what the parties did subsequent to that year will not have any bearing on their liability to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned CIT (Appeals) had correctly decided that the facts of the assessee's case were entirely different from the facts of the case of V.S.M.R. Jagdishchandran (supra) and that on perusal of the agreements and other relevant documents it was seen that the creditors had unequivocal right of selling the shares in question and that the facts of the case of the assessee were fully covered by the judgment of Hon'ble Kerala High Court in the case of Smt. Thressiamma Abraham (supra). 13. The learned counsel argued that in the instant case the undisputed facts were that the assessee had not received any amount on sale of shares; that the assessee had no substantial interest in any of the creditor company and that the assessee had given collateral security just to help the debtor company. It was a matter of record that the lenders were given absolute right without giving any notice to the assessee to sell the shares and appropriate the proceeds against the loan. For that purpose the learned counsel invited our attention to clauses 5 and 6 of the pledge agreement between the assessee and Kotak Mahindra Finance Ltd. It was also a matter of record that the entire sale proceeds ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s capital gains must, therefore, clearly be such that consideration is received by the assessee or accrues to the assessee as a result of the transfer of the capital asset. [Emphasis supplied] The learned counsel argued that in the case before us neither any consideration was received by the assessee nor any consideration was receivable by the assessee. There was no consideration receivable even from debtors. No material had been brought on record to establish that the assessee received or was entitled to receive any consideration in relation to sale proceeds of the shares in question. On these facts no capital gains was chargeable to tax in the assessment of the assessee under the provisions of section 45 read with section 48 of the Act. 14. The learned counsel for the assessee took us closely through the judgment of Hon'ble High Court in the case of Smt. Thressiamma Abraham (supra) and argued that the case of the assessee was fully covered by the authority of Hon'ble Kerala High Court in that case. The judgment of Hon'ble Supreme Court in the case of V.S.M.R. Jagdish chandran (supra) was not applicable because in that case the assessee had created mortgage on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the pawner and wholly reverted to him on discharge of the debt. Again in the case of Bank of Bihar v. State of Bihar AIR 1971 SC 1210 the Hon'ble Apex Court reiterated the above legal position and held that so long as the claim of pawnee was not satisfied no other creditor of the pawnor had any right to take away the goods or its price. 15. The learned counsel, thus argued that on the facts of the case of the assessee before us there was an overriding title of lenders in respect of the sale proceeds. Therefore, there was a diversion at source of the sale proceeds itself and the assessee was not liable to charge under the head Capital gains . In any case provisions of section 45 read with section 48 were not attracted in the case of the assessee. Section 48 showed that the transfer contemplated by section 45 was a transfer as a result of which consideration was received by the assessee or accrued to the assessee. If in a case like that of the assessee neither any consideration was received nor any consideration accrued, there would be no capital gains chargeable to tax. There was clear authority of Supreme Court in the case of Mohanbhai Pamambhai (supra) to that effect. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court relied upon by the CIT (Appeals) in the case of Smt. Thressiamma Abraham (supra) was no longer good law. It was important to note that the said judgment had neither been reversed, nor the same has been adversely commented upon by the Apex Court or even Kerala High Court. In the case of SRV Press Publication (P.) Ltd. (supra), Hon'ble Kerala High Court only stated that views expressed in the case of Smt. Thressiamma Abraham (supra) were not applicable to the facts of the case before them. That aspect had been clearly brought out in the judgment of Hon'ble Calcutta High Court in the case of Gopee Nath Paul Sons v. Dy. CIT [2005] 278 ITR 240 . It, therefore, followed that the said judgment had all along continued to be good law. It was true that in the case of Roshanbabu Mohammed Hussein Merchant (supra) Hon'ble Bombay High Court had observed that the decision in the case of Smt. Thressiamma Abraham (supra) was no longer good law in the light of subsequent decisions of the Apex Court. Those observations were required to be seen in the context of the assessee in that case, who had voluntarily sought to sell the property in order to discharge his obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying in the possession of the assessee. The learned CIT, DR was not justified to make allegation for which the department had not carried out any enquiry even as on the date the learned CIT, DR made his submissions before the Tribunal. 20. We have carefully considered the rival submissions. In this appeal there is no dispute as to the facts of the case. The case of the assessee is that the assessee voluntarily pledged shares belonging to him and unequivocally gave delivery of possession to certain credit institutions as collateral security for loan of Rs. 13 crores taken by M/s. Pertech Computers Ltd. (hereinafter referred to as 'Pertech') and loan of Rs. 20 crores taken by M/s. Swati Holdings Ltd. (hereinafter referred to as 'Swati') from those credit institutions. As both Pertech and Swati failed to repay the loan to the credit institutions, the credit institutions sold the shares in financial year 1996-97 towards satisfaction of the amounts owed to them by Pertech and Swati. The sale proceeds of the shares pledged by the assessee amounted to Rs. 29,08,03,436/- and the same were entirely applied towards repayment of the loan taken by Pertech and Swati and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduce the debts in computation of capital gains as increase in the cost of acquisition of the property or as cost of improvement of the property or as the cost of obtaining clear title to the property. The Hon'ble Supreme Court held that since the mortgage was created by the assessee himself it was not a case of increase in cost of acquisition or cost incurred for obtaining clear title to the property. It was, therefore, held that the amount deducted by the buyer for discharge of mortgage debt out of the sale proceeds could not be claimed as deduction in computation of capital gains. After consideration we find that the only similarity between facts of that case is that the assessee before us also himself created the mortgage. But the similarity ends here. In the case of V.S.M.R. Jagdishchandran (supra) mortgage debt represented that assessee's own debt created for consideration of value received in past. In the case of the assessee third parties' debts were discharged resulting into no profit or gain at all to the assessee before us. Secondly, in that case the assessee himself sold the property and received sale consideration after discharge of mortgage debt. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith cost of acquisition at all but with the question that whether the sale proceeds of the shares pledged by the assessee can be construed as any part of the full of the consideration received or accruing to the assessee before us. We may also mention here that in the case of R.M. Arunachalam (supra) the Hon'ble Supreme Court did not permit the assessee to raise the question relating to the diversion as source by way of estate duty paid. 23. For the same reason as in respect of the judgments in the case of V.S. M.R. Jagdishchandran (supra) and R.M. Arunachalam ( supra), we do not find much assistance in the judgments in the case of Attili N. Rao (supra), N. Vajrapani Naidu ( supra) and S.R.V. Press and Publications (P.) Ltd. (supra). In the case of Attili N. Rao (supra) the assessee had mortgaged property belonging to him to the State Excise Department to provide security for the amounts of Kist which were due from him to the State. Eventually the State sold that immovable property by auction and deducted the amount due to it towards kist and interest and paid over the balance to the assessee. The assessee contended that the amount of kist deducted by the State was a cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appears to be in the fact in the former situation the present owner derived no benefit whatsoever from out of the encumbrance created by the previous owner, whereas in the second situation the previous owner had already derived benefit in terms of money or money's worth resulting into the encumbrance being created. If this logic is applied, the case of the assessee before us is at par with the cases where the encumbrance is created by the previous owner of the property. In our humble opinion, the judgments of Hon'ble Supreme Court in the cases referred to in paras 22 and 23 above do not lay down a proposition of law that any encumbrance whatsoever created during the ownership of the present owner should always be ignored. At any rate, in the case before us the present owner i.e., the assessee himself did not create any encumbrance. He pledged the shares only by way of a collateral security. It was only on the failure of the third parties to discharge their debts that the assessee lost title over its property. That is the second vital distinction between the facts of the cases relied upon by the revenue and the facts of the case of the assessee before us. The point that we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsence of any undertaking in that behalf from Pertech and Swati in favour of the assessee before us, there was no legal basis to hold that on sale of shares in question by credit institutions Pertech and Swati became debtors to the assessee of the equal amount. The learned counsel has further argued that the assessee had already done all that was required of him for transfer at the time of pledging of shares itself. The assessee had handed over original share certificates and duly signed blank transfer deeds and handed over the same to the lenders. The lenders had been duly authorized to attend the General Body Meeting of NIIT the company whose shares had been pledged by the assessee. Thus, there was transfer of complete interest by the assessee-company to the lenders subject to redemption of the assesses's shares in the event of Pertech and Swati honouring their obligations towards the lenders. On consideration of the matter we see considerable force in these contentions of the assessee. There is no material to hold that on the sale of the assessee's shares by the credit institutions Pertech Swati became the debtors of the assessee of the equal amount, not to speak of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is. Accrual, as rightly stated by the learned CIT, DR, pre-supposes right to receive. The learned CIT, DR has, therefore, referred to clause 6 of the agreement between the assessee and the credit institutions and argued that the assessee had a right to receive the profit from the sale of shares if there was any balance left after appropriation of the debt by the credit institutions. The learned CIT, DR has, however, not noticed that on the facts and in the circumstances of the case the assessee did not receive a single paisa because the entire sale proceeds were consumed in appropriation of the debt owed by Pertech and Swati and there was no balance left. Thus, on the facts and circumstances of the case the assessee neither received nor had any right to receive any part of the sale proceeds of the shares in question. 27. We now turn to the judgment of Hon'ble Kerala High Court in the case of Smt. Thressiamma Abraham (supra) on which considerable reliance was placed by the learned counsel of the assessee. It is because there is considerable verisimilitude between the facts of that case and the facts of the case of the assessee before us. The assessee in that case also stood g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot a single pie from the sale proceeds. As to the reliance placed by the revenue on the judgments of the Kerala High Court in the cases of Ambat Echukutty Menon (supra), Salay Mohamad Ibrahim Sait (supra) and K.V. Idiculla ( supra) the Hon'ble Kerala High Court found that the facts in those cases were entirely different as those cases related to the question of deduction from the full value of consideration, the situation in the case of Smt. Thressiamma Abraham (supra) was diversion of amounts at source by overridding title.The issue in the case of Smt. Thressiamma Abraham (supra) was the basic question as to whether any capital gains arose on undisputed factual matrix. 28. The impugned order of the learned CIT(A) has heavily relied upon the judgment of Hon'ble Kerala High Court in the case of Smt. Thressiamma Abraham (supra). During the course of hearing before us the learned CIT, DR has vehemently argued that the aforesaid judgment is no longer good law after the judgments of Hon'ble Supreme Court in the case of V.S.M.R. Jagdishchandran (supra) and R.M. Arunachalam ( supra). The learned CIT, DR has further argued that Hon'ble Bombay High Court in the case of Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... band was a director. Merchant Steel raised a loan from the State Bank of Saurashtra and for the repayment of the loan the assessee stood as one of the guarantors and the assessee had offered a plot of land belonging to her as security for repayment of the loan. Thereafter the assessee after obtaining permission from the bank, sold a part of the plot of land for a consideration of Rs. 3,92,000/- and deposited the entire amount with the State Bank of Saurashtra towards discharge of the debt. The assessee claimed that the long-term capital gain arising on the sale of the above land was exempt from capital gains tax. The learned Assessing Officer rejected the contentions of the assessee and taxed the capital gains, but on assessee's appeal the learned CIT(Appeals) decided in favour of the assessee. On appeal filed by revenue, the Tribunal upheld the order of CIT(Appeals) on the ground that first, the sale proceeds were diverted by an overriding title in favour of the bank and, secondly, the amount paid by the assessee to discharge the debt was an expenditure incurred by the assessee for removing the encumbrance which was absolutely essential to effectively transfer the plot of land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated under section 48 of the Income-tax Act. It is not in dispute that in both the appeals which are before us, the property on which the encumbrance was created by the assessee was acquired by the assessee free from encumbrances. Therefore, in the light of the decisions of the Apex Court referred to hereinabove, it must be held that the assessee is not entitled to the deduction of the expenditure incurred to remove the encumbrance created by the assessee himself. The contention that the assessee has not received a pie from the transfer and the entire sale proceeds realised on transfer of the mortgaged asset has been appropriated towards discharge of mortgage is also without any merit. As held by the Apex Court, when the property belonging to the assessee is sold in discharge of the mortgage created by the assessee him-self, then, irrespective of the amount actually received by the assessee, the capital gain has to be computed on the full price realised (less admissible deduction) on transfer of the asset. To illustrate, suppose the assessee mortgages its capital asset and obtains a loan of Rs. 1 lakh from a bank. Thereafter, if the assessee transfers the said capital asset w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lien and all attachments until further orders of this Court. This was done in order to effectuate the transfer of the assets of these two firms after securing payment of the liability towards the Allahabad Bank in respect of one of the firms. It appears that there was but one sale comprising the assets of both the firms and the bid of one Ganesh Prasad at Rs. 3,51,00,000/- was accepted as the highest bid and that the payment towards the same was made in driblets from time to time. After considering the arguments of the parties Hon'ble Calcutta High Court delivered their verdict in the following words : The decision in S.R.V. Press and Publications (P.) Ltd. [2000] 241 ITR 626 (Ker.), cited by Mr. Som is also distinguishable and would have no manner of application in the present case in view of the fact that the amount was spent in that case after the receipt of the consideration by the liquidator to discharge the liability of the assessee in respect of finance received from the Karala Finance Corporation on the security of the property which was created after acquisition in the course of a winding up proceeding. There was nothing from which it would be held that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shchandran (supra), the Hon'ble Supreme Court were not considering a situation pertaining to loss of capital asset on account of guarantee for a third party loan. In the case of R.M. Arunachalam (supra) the question was whether estate duty paid can be treated as a part of cost of acquisition of asset to the inheritor. In the case of V.S.M.R. Jagdishchandran (supra) and Attili N. Rao (supra) encumbrance was created by the owner of the capital asset for his own benefit and those assessees had already received value corresponding to mortgage liability. Thus, in none of the cases there was any loss or erosion in the value of capital asset without any benefit whatsoever to the owner. We are immediately reminded of the famous dictum of Lord Halsbury in the case of Qninn v. Leathem [1901] AC 495 (HL) A case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it. There are any number of Indian authorities to the same effect e.g., Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 (SC); CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC); CWT v. Dr. Karan Singh [1993] 200 ITR 614 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the bank and voluntarily deposited part of the sale proceeds of the plot of land towards discharge of the debt so as to have clear title over the remaining plot of land; whereas in the case of Smt. Thressiamma Abraham (supra) as well as in the case before us the mortgaged property had been sold by the credit institutions. (4)In the instant case the assessee had already handed over share certificates in original along with duly signed bank transfer deeds to the credit institutions. Thus, the assessee had already completed his part of transfer at the time of the pledge of the shares and in the event of the failure on the part of Pertech and Swati the credit institutions could freely sell the shares in the open market. (5) During the course of arguments in the case of Smt. Thressiamma Abraham, the revenue had placed reliance on the earlier judgments of Kerala High Court in the case of Ambat Echukutty Menon (supra); Salay Mohd. Ibrahim Sait (supra) and K.V. Idiculla (supra), but the same were distinguished by the Hon'ble High Court in the case of Smt. Thressiamma Abraham. These three judgments relied upon by revenue have been expressly over-ruled by Hon'ble Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , his wife and his son as shareholders for a sum of Rs. 93,450/-. On August 25, 1961 the assessee sold 5678 sq. yds. from out of the remaining portion of the same land to another party at the rate of Rs. 60 per sq. yd. The assessee claimed capital loss in relation to the property sold to the family company. There was provisions of section 52 on the statute book in relation to the relevant assessment year 1962-63. The Assessing Officer sought to apply the provisions of section 52 and substitute the price at which the assessee sold part of land to the family company by what, according to him, was the fair market value thereof on the date of sale. Agreeing with the view expressed by Hon'ble Madras High Court in the case of Sundram Agencies (P.) Ltd. v. CIT, Hon'ble Delhi High Court held that the provisions of section 52 did not discard or avoid honest transactions made out of love and affection or for other conceivable reasons other than the avoidance or reduction of liability to tax on capital gains. It was, therefore, held that the transaction was exempt from assessment under section 45 of the Act by virtue of section 47(iii) of the Act. 34. In the case of Addl. CIT v. Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feror receives no consideration at all but should be attracted when he takes a single rupee. The language of section 47(iii) does not compel such a construction and the only meaning of the word under in that clause can be involving or by way of ; to the extent to which there is a shortfall of consideration the transfer can be said to be under or by way of a gift, the word gift being used in its ordinary meaning in common parlance and not in the sense in which it is used in the G.T. Act, or the Transfer of Property Act. The same position has been reiterated by Hon'ble Delhi High Court in their judgment in the case of CIT v. Bharat Development (P.) Ltd. [1986] 158 ITR 159 (Delhi) that in case of sale if the price at which the shares are sold is less than the intrinsic value of shares, in that case the provisions of section 47(iii) of the Act would apply. We may point out that the aforesaid judgments of Delhi High Court in the cases of Shiv Shanker Lal (supra), Mrs. Avtar Mohan Singh (supra) and Bharat Development Private Ltd. (supra) have been rendered in relation to the provisions of section 52 that have been omitted from Income-tax Act with effect from 1-4-1988. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Mohanbhai Pamabhai (supra), affirmed by Hon'ble Supreme Court in Mohanbhai Pamabhai's case (supra), Hon'ble Gujarat High Court have stated the position in the following words : But, section 48 shows that the transfer that is contemplated by section 45 is a transfer as a result of which consideration is received by the assessee or accrues to the assessee. Section 48 provides the mode of computation of capital gains by enacting that the income chargeable to tax as capital gain shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely : (i) expenditure incurred wholly and exclusively in connection with such transfer; and (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. The amounts specified in clauses (i) and (ii) are to be deducted from the consideration received or accruing as a result of the transfer of the capital asset for the purpose of determining the profits or gains chargeable to tax. It is, therefore, clear that the transfer of a capital asset, in order to attract the capital gains tax, mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted with and entirely for the benefit of Pertech Swati, were the share certificates themselves. The assessee had at that stage completed his part of the transferor and it was open to anybody to insert his name as transferee and claim the ownership of the shares in question. If at all the assessee applied anything for the benefit of Pertech Swati, it was the share certificate themselves and not sale proceeds of the share certificates. Credit institutions subsequently sold these shares in the open market not on behalf of the assessee but on behalf of Pertech Swati. By appropriation of the sale proceeds by the credit institutions, it is the liability of Pertech Swati that was discharged and no consideration was either received or accrued to the assessee before us. On these facts it is difficult to say how capital gains liability is attracted in the hands of the assessee before us. As early as in Raja Bejoy Singh Dhudhuria v. CIT [1933] 1 ITR 135 (PC) in the case of Raja Bejoy Singh Dhudhuria (supra) the Hon'ble Privy Council have held as under : When the Act by section 3 subjects to charge all income of an individual, it is what reaches the individual as income whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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