TMI Blog1988 (7) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing the capital gains. The ITO rejected the claims on the ground that it was not an expenditure which could be added to the cost of the property. On appeal, the CIT (Appeals) held that the amount did not go to improve the title either and hence was not deductible. 4. In the further peal before us the assessee relied on the decision of the Tribunal in the case of N. M. A. Mohammed Haneefa v. ITO [1987] 23 ITD 409 (Mad.) and contended that the amount paid for discharging the debts did not accrue to the assessee and in the alternative it should be deducted as an expenditure incurred in connection with the transfer of the property. The revenue resisted the application of the decision in the case of N. M. A. Mohammed Haneefa by pointing our that decision was rendered under section 54E and should be confined to the facts of that case and could not be extended to the computation of capital gains. 5. However, we are satisfied that the contention of the assessee is quite sound. Section 48 requires capital gains to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect the operation of the general law and take away the consequences resulting from the mortgages of a property. It is quite well-settled that when a person mortgages his property some interest in the property is transferred and the property was encumbered. If the assessee sells such a property along with the mortgage then it is burdened with an encumbrance and the price fetched will be much less [see - CWT v. P. N. Sikand [1977] 107 ITR 922 (SC)]. It follows that when an amount is spent for restoring the full interest in the property that amount goes to assure the purchaser of a property free of encumbrance and is thus an expenditure incurred for the purpose of the transfer of the property. 7. the revenue then argues that the full value of consideration referred to in the section includes also that amount paid to the mortgages and cannot, therefore, be ignored in computing the capital gains. Reliance was placed on the decision in the case of CIT v. George Henderson Co. Ltd. [1967] 66 ITR 622 (SC) and in the case of CIT v. Rikadas Dhuraji [1976] 103 ITR 111 (Mad.). these decisions also do not advance the case of the revenue because they only point out that where a property is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision in the case of CIT v. V. Indira [1979] 119 ITR 837 (Mad.) In that case the amount was paid for defending a suit claiming title to the property and it was held that the expenditure did not improve the asset. The case returned on the second limb of section 48 which refers to the cost of acquisitioner cost of any improvement thereto and held that under that limb only expenditure incurred on the improvement of the asset as such would be eligible for deduction. On the other hand, we have the decision of the Madras High court in the case of CIT v. V. Venkataraman [1982] 137 ITR 846 where it was held that the expenditure for getting vacant possession must be regarded as an expenditure incurred for the purpose of the transfer of the asset. In the present case also since the assessee was assuring a free title, expenditure incurred for moving the burden or encumbrance would be an expenditure incurred in connection with the transfer under the first limb of section 48, even if it does not fall under the second limb. 10. The revenue relied on the decision of the Andhra Pradesh High court in the case of CIT v. T. Srinivasa Rao [1987] 166 ITR 593 and argued that even in the case where mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kerala was bound by the decision of the Kerala High Court. The facts to differ from our own decision in the case of N. M. A. Mohammed Haneefa. 13. The revenue then relied on the provisions of section 51 to point out that the amount received in advance and retained should be deducted from the cost of acquisition and since the assessee had received the money by mortgaging the property and retained it, it should deducted from the cost of acquisition if it cannot be taken as part of the consideration. Section 51 reads as follows : "51. Where any capital asset was on any previous occasion the subject of negotiations for its transfer, any advance or other money received and retained by the assessee in respect of such negotiations shall be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition." It refers to negotiations for the transfer which have fallen through and the dance money received and retained by the assessee for such breach of agreement to transfer. Obviously, such agreements cannot include a mortgage. Move over the section requires the addition to be made even w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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