TMI Blog1999 (9) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) N.M. A. Mohammed Haneefa v. ITO (1987) 23 ITD 409(Mad.) and (d) CIT v. Daksha Ramanlal (1992) 197 ITR 123(Guj.) 3. On the facts and in the circumstances of the case, the said learned Commissioner of Income-tax has also erred in not following the decision of Supreme Court in CIT v. Vegetable Products Ltd. (1973) 88 ITR 192, particularly when on this issue there are conflicting decisions of various High Courts. 3. The assessee vide its letter dated 3-9-1998 has also taken the following additional grounds : - 1. On the fact and in the circumstance of the case and in law, the gain Sale proceeds arising on sale of land did not accrue to the appellant by virtue of overriding obligation and hence no gain is taxable. 2. The appellant submit that by virtue of the provision of Transfer of Property Act and Sick Industrial Companies Act income is diverted by overriding title. 4. During the year under consideration, the assessee-company, vide an article of Agreement dated 29-3-1989, agreed to lease out a portion of its land admeasuring 50,000 sq.ft. (4,646 Sq. Mts.) to the Institute of Banking Personnel Selection (IBPS), a Society registered under the societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 82.50 Lakhs) is allowed to be appropriated by the Bank towards partial payment of Bank s past dues. (c) That for any reason whatsoever if the deal is not finalised then in that event the above No Objection Certificate will be treated as cancelled. 5. The dispute in the present appeal relates to the computation of capital gains with reference to the lease consideration received of ₹ 1,37,50,000 from the IBPS. The assessee took the stand that as the leased out land was under mortgage to the United Bank of India and as the consideration of ₹ 1,37,50,000 had to be paid to the said bank towards the discharge of the loan as a pre-condition for the bank giving the above mentioned No Objection Certificate for the lease deed, the amount paid to the bank has to be reduced from the consideration received for the purpose of computation of capital gains made by the assessee in respect of the said lease. The Assessing Officer, however, held that the assessee is not entitled for the deduction of the said amount paid to the United Bank of India towards the discharge of the loan and so computed the capital gains without allowing that deduction at a figure of ₹ 1,23, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or expenditure in connection with transfer of property and so held that the disallowance of the claim for deduction of ₹ 1,37,50,000 in the computation of capital gains is justified. He, however, gave deduction for the cost of acquisition of the land at ₹ 5,00,000 and subject to this relief, he sustained the assessment order. 6. Before us, the learned counsel for the assessee pleaded at the outset that the two additional grounds raised by the assessee and set out by us herein before deserve to be admitted because they do not require any additional facts to be looked into or enquiries to be made and they are only of a legal nature. It is also mentioned that both the Assessing Officer and the CIT(A) have referred to the order of the Board for Industrial and Financial Reconstruction (BIFR) dated 30-5-1990 in the case of the assessee and so no fresh facts are required for adjudicating upon the two additional grounds. Therefore, in the light of the decision of the Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383/97 Taxman 358, it is pleaded that the two additional grounds deserve to be admitted. It is also certified that all the papers f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untala Kantilal (1991) 190 ITR 56/(1980) 58 Taxman 106 (Bom.) (5) Addl. CIT v. Rani Pritam Kunwar 125 ITR 102 (All.) (6) CIT v. Surat Jilla Kamdar Sahakari Sangh Ltd. (1993) 200 ITR 157(Guj.) (7) CIT v. C.N. Patuck (1969) 71 ITR 713(Bom.). We have perused these decisions and we are of the view that the decisions at (1) to (3) above support the stand of the assessee. However, the rest of the decisions cited by the learned counsel for the assessee are distinguishable on facts. The decision of the Hon ble Bombay High Court in the case of Shakuntala Kantilal (supra) is, to our mind, distinguishable as in that case what is involved is encumbrance created by a prior agreement and the Hon ble High Court held that the amount paid to discharge such an encumbrance for which the assessee is otherwise liable by way of specific performance has to be deducted for the purpose of computing capital gains. In the present case, we are confronted with a mortgage debt created by the assessee and not an encumbrance for which the assessee is liable by way of specific performance. We are of the view that there is a subtle but a material difference between the facts of the two cases. The decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 111 ITR 880had been examined by the Supreme Court, and it had been held therein that the said decision did not lay down the correct law in so far as it held that where the previous owner had mortgaged the property during his lifetime the clearing off of the mortgage debt by his successor could neither be treated as cost of acquisition nor as cost of improvement made by the assessee. It had been held that where a mortgage was created by the previous owner during his lifetime and the same was subsisting on the date of his death, the successor obtained only the mortgagor s interest in the property and by discharging the mortgage debt he acquired the mortgagee s interest in the property and, therefore, the amount paid to clear off the mortgage was the cost of acquisition of the mortgagee s interest in the property which was deductible as cost of acquisition under section 48 of the Act. In the present case, however, the mortgage was created by the assessee himself. This was not a case where the property had been mortgaged by the previous owner and the assessee had acquired only the mortgagor s interest in the property mortgaged and by clearing the same, he had acquired the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this context, reliance is placed upon the Hon ble Madras High Court decision in the case of CIT v. C.V. Soundararajan (1984) 150 ITR 80/10 Taxman 80, the jurisdictional High Court decision in the case of Shakuntala Kantilal (supra) and the decision of the Madras Bench of the Tribunal in the case of N.M.A. Mohammed Haneefa v. ITO (1987) 23 ITD 409. In the case of C.V. Soundararajan (supra), the Hon ble Madras High Court had to deal with a payment made to a mother having right of residence in property for obtaining relinquishment of her right. This case is easily distinguishable because there is a quid pro quo for the payment and the assessee could not have sold the property free of the mother s right without making the payment in question for the relinquish- ment of her right. We have already discussed the issue in the case of Shakuntala Kantilal (supra) decided by the Hon ble Bombay High Court herein before. As already mentioned, in this case there was a prior agreement for sale of the property to a particular party which had to be settled before the property could be transferred to a different party subsequently. This is not simply a case of a mortgage of property for obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the obtaining of loan earlier and the benefit that has accrued to the assessee because of the loan does not figure anywhere in the computation of the capital gains or in the argu- ment of the learned counsel for the assessee. The computation of capital gains has to be worked out as per a self-contained code sections 45 to 55A of the Income-tax Act. The starting point of the computation is the cost of acquisition of the asset and the terminal point is the sale consideration. The fact that the asset had been mortgaged at an intermediate point does not seem to us to affect the mode of computation of capital gains in view of the said decision of the Apex Court in the case of V.S.M.R. Jagadischandran (supra). As the Apex Court has held, it will be different if the assessee had acquired an encumbered property and made payment towards the discharge of the encumbrance and the betterment of its title. That is not the situation here. Here is a case where the assessee has, after the acquisition of the asset, obtained the benefit of a commercial loan and in the process mortgaged the property. If, in the circumstances of the present case, the deduction for the repayment of the mortgage debt i ..... 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