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TMI Blog1987 (7) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... the multi-storeyed hotel complex known as " Hotel Anand " and the two-storeyed building used as restaurant with all fittings and furniture were being conveyed under the document. It also recited that the consideration was received in the following manner. A sum of Rs. 21 lakhs paid as advance to the assessee on 7-4-1978 ; a sum of Rs. 3,68,000 paid to the State Bank of India on behalf of and at the request of the assessee for discharging a term loan of Rs. 3,68,000 by deposit of title deeds due by the assessee to the Bank ; a sum of Rs. 2,88,000 paid to the South India Bank Ltd. on behalf of and at the request of the assessee by way of discharging the term loan of a sum of Rs. 2,88,000 and a sum of Rs. 4,69,000 received on the date of registration of the sale deed in the presence of the Registering Officer. Another receipt was given on 7-6-1978, for the sum of Rs. 2 lakhs being the consideration for the sale of furniture, utensils and other movables in the hotel, a list of which was annexed thereto. 3. The assessee had computed his income for the assessment year 1979-80 corresponding to the previous year ended 31-3-1979 at Rs. 65,573. This was arrived at by setting off the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after deducting the amounts paid in discharge of the debts to arrive at the net consideration. This was reiterated by the assessee before the Commissioner of Income-tax (Appeals) by a memo dated 22-12-1982 supported by an affidavit of Sri Sellamuthu, the purchaser that it was a condition of the sale that the property should be free of encumbrances and by a further letter dt. 8-1-1984. The Commissioner of Income-tax (Appeals) observed that this was not a lump sum sale at all and, therefore, the provisions of section 41(2) were attracted. He was of the view that the money paid for the discharge of the debts did not affect the cost of the property and, therefore, could not be taken into account in computing the capital gains. 6. In the further appeal before us it was contended on behalf of the assessee that the intention of the parties was to transfer the business as such even though the transaction was put through by two documents, one for immovable property and another for movable property and since no price was paid specifically for any individual assets such as furniture, fittings etc. section 41(2) profit should not be assessed to tax. Reliance was placed on the decision in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment also on the transaction of the assessee. 8. On a consideration of the rival submissions, we are of the opinion that the assessee is entitled to further relief u/s 54E though not in respect of sec. 41(2). Both these claims depend on the basic question as to the nature of the asset that was sold. The case of the assessee is that the intention of the parties was to transfer the business as a going concern. But unfortunately the documents by which the transfer was effected do not spell out that intention. The agreement dt. 7-4-1978 does not mention any desire on the part of the purchaser to acquire the business as a going concern. The registered sale deed in respect of the immovable property and the receipt in respect of the movable property also do not specifically refer to the taking over of the business as such. The only reference in the agreement and the sale deed is to the property known as " Anand Hotel " from which it is submitted that an inference should be drawn that the intention was to sell the hotel business as such. But if it were so, there would have been certain terms regarding the liability to the workers apart from other liabilities of the business as such. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th profit under section 41(2) and capital gains. It follows that the difference between written down value and the price fetched was rightly assessed in two facts viz. the difference between written down value and cost under section 41(2) profit and the difference between cost and price fetched as capital gains. 10. Having found that the assessee is liable to capital gains u/s 48 read with section 50 in respect of the entire difference between the price fetched and the written down value after necessary adjustment in respect of profits taxed under section 41(2), the question we face is whether the assessee is entitled to relief u/s 54E and to what extent. That section provides that where the net consideration or any part of it is invested in a specified asset, then the assessee would be entitled to exemption from tax on capital gains in proportion thereof. Explanation 5 defines " Net consideration " to mean the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. The case of the assessee on this issue is that what was sold was only the eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the mortgage. 12. The contention of the Revenue, on the other hand, is that there is a constructive receipt of the entire money by the assessee and only a discharge of the personal obligation to pay back the loan. The Revenue relied on the decision of the Supreme Court in the case of CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622 to contend that the expression ' full value of the consideration ' means whole price paid without any deduction whatsoever and on the decision of the Kerala High Court in the case of Ambat Echukutty Menon v. CIT [1978] 111 ITR 880 to contend that the amount paid to discharge the mortgage cannot be deducted from the full consideration received on the transfer of the asset. But both these cases are of no assistance in resolving this issue because in the first case the Supreme Court had only explained that the words " full consideration " cannot be read as " the market value of the property " and in the decision of the Kerala High Court the assessee had discharged the mortgage prior to the transfer and hence it was independent of the transfer. In the present case, however, the purchaser himself has paid off the mortgage at least in one case i.e. th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship prior to the act of transfer of the property, which stood diminished by reason of transfer of some interest in the property by way of mortgage, this expenditure also is an expenditure incurred for the purpose of transferring the full ownership rights in the property in terms of the agreement to sell the property. On this aspect the decision of the Madras High Court in the case of CIT v. A. Venkataraman [1982] 137 ITR 846 is of great assistance in resolving this issue. In that case, the assessee entered into an agreement for the sale of a property with the purchasers who insisted on getting vacant possession and the assessee had paid certain amounts to the tenants to get the land vacated prior to the sale and it was held that the amount so paid was allowable as deduction as an expenditure for the purpose of the transfer because there was an agreement to give vacant possession when sale was effected. In the present case also there is an agreement to transfer the property free of encumbrances as per terms of the agreement to sell dated 7-4-1978 and in pursuance of that agreement the assessee has arranged through the purchasers to pay off the mortgagee before executing the sale de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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