TMI Blog2005 (11) TMI 437X X X X Extracts X X X X X X X X Extracts X X X X ..... or part performance thereof, but would only give the right of preference for the satisfaction of the debt. Section 2(47)(v) of the Income-tax Act or section 53A of the Transfer of Property Act, do not speak of transfer of title of ownership, but only speaks of transfer of possession of the property. Section 53A of the Transfer of Property Act, deals with part performance of a contract of transfer and not a final transfer. Final transfer of the property could be only with the execution of the registered sale deed as provided under the law and that can be done only after the bank issues the no-lien certificate. Section 2(47)(v) of the Income-tax Act, refers to transactions in the nature of contracts referred to in section 53A of the Transfer of Property Act. Therefore, in our opinion, the condition u/s 53A of the Transfer of Property Act is satisfied in this case and as per section 2(47)(v), there is a transfer of immovable property in the assessment year 1998-99 only. Hence, the capital gains arise in this year only and not in 1999-2000. Thus, it is clear that the Assessing Officer was enthusiastic to tax the capital gains in the assessment year 1999-2000 since it had taxable positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing of cosmetics. It filed its return of income on November 30, 1998, for the assessment year 1998-99 declaring a loss of Rs. 1,65,645 and on December 31, 1999, for the assessment year 1999-2000 declaring nil income. The case was taken up for scrutiny. It was noticed that the assessee had closed its factory during the year 1998-99 and sold its land and other assets of its factory to M/s. Selwel Fasteners Ltd., a joint venture company between the assessee and M/s. Selectus Ltd., U.K. The assessee and M/s. Selectus Ltd., entered into an agreement of sale dated November 27, 1997, according to which the assessee would sell and transfer to the new company, the land, building, plant and machinery with good title and free from all encumbrances at a price of Rs. 1,85,00,000 which was receivable in the form of cash and also allotment of NCDs and interest-free deferred payment facilities. Thereafter the assessee was paid Rs. 1,00,00,000 in March, 1998 and handed over the physical possession of the factory and its plant and machinery on March 31, 1998, to the vendee who undertook the job of renovating the factory. The assessee had mortgaged the land and building and other assets at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gains on the sale of assets this year since in the assessment year 1999-2000 the assessee has positive taxable income of Rs. 1,02,23,453 and the business loss would not be available to set off the capital gains. 6. Heard both the parties and considered their rival contentions. It is not in dispute that the assessee received the sale consideration of Rs. 1,00,00,000 in cash in March 1998 and that it has given physical possession on March 31, 1998 to the purchaser. What is in dispute is whether there was a transfer of property when the bank had a lien on the property? For proper appreciation of the case, section 45(1) of the Income-tax Act, reads as under : Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H be chargeable to income-tax under the head Capital gains , and shall be deemed to be the income of the previous year in which the transfer took place . This section mentions transfer which is defined in section 2(47). In this case, the relevant section 2(47)(v) is reproduced hereunder : any transaction involving the allowing of the possessio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Property Act, section 58 defines mortgage as under: A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability. The purpose or object of mortgage is to secure a debt. In a sale, all the rights of ownership which the transferor has, pass to the transferee, whereas in a mortgage, some rights are transferred to the mortgagee and some remain vested in the mortgagor. The nature of the right of transfer depends upon the form of the mortgage. But, whatever be the form of mortgage, there is a transfer of some interest only and not a transfer of the whole interest of the mortgagor. The characteristic feature of mortgage is that the right in the property created by the transfer is accessory to the right to recover the debt. Therefore, it creates a pecuniary liability on the mortgagor and the mortgagee becomes a secured creditor who has the first charge on the immovable property for the satisfaction of his debt. Any mortgage of the property would not invalidate the contract o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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