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TMI Blog1969 (11) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts due under the two mortgages. On April 25, 1933, the assessee filed a suit against Thakur Raghuraj Singh to recover the amounts outstanding under the two loans. On July 4, 1933, there was a compromise between the parties. The suit was decreed in terms of the compromise. Under the compromise, the defendant was declared liable to pay a sum of Rs. 3,88,300 with future interest. Clause (2) of the compromise provided that the defendant must execute in favour of the plaintiff a sale deed in respect of eight villages, which would be selected by the plaintiff, and which would be sufficient to satisfy the decretal amount. The defendant-judgment-debtor failed to execute a sale deed as required by the compromise decree. The decree-holder, therefore, applied for execution. On February 24, 1939, the court executed a deed in favour of the assessee. The deed was described as a sale deed with respect to eight villages. The decree-holder was put in possession over the eight villages covered by the sale deed. The decree-holder took up the position that, in spite of the execution of the document dated February 24, 1939, the sum outstanding against the defendant in February, 1939, continued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arded as a mortgage by conditional sale so as to enable the assessee to deduct the bad debt of Rs. 2,49,899 under section 10(2)(xi) of the Act? " In this question the expression " decree dated February 24, 1939 " appears to have been used for the expression " instrument dated February 24, 1939 ". Section 58, Transfer of Property Act, enumerates mortgages of different types. A mortgage by conditional sale has been described in clause (c) of section 58, Transfer of Property Act. Section 58(c), Transfer of Property Act, states : " Where the mortgagor ostensibly sells the mortgaged property-..... on condition that on such payment being made the, buyer shall transfer the property to the seller, the transaction is called a mortgage by, conditional sale and the mortgagee, a mortgagee by conditional sale : Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale. " The proviso to clause (c) of section 58, Transfer of Property Act, was inserted by Act XX of 1929. Learned counsel for the parties cited cases decided before 1929 and after 1929 on the interpretation of clause (c) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l question in such a case is not what the parties intended or meant but what is the legal effect of the words which they used. If, however, there is ambiguity in the language employed, then it is permissible to look to the surrounding circumstances to determine what was intended. " It was further observed on page 348 : " Now, as we have already said, once a transaction is embodied in one document and not two, and once its terms are covered by section 58(c), then it must be taken to be a mortgage by conditional sale unless there are express words to indicate the contrary, or, in a case of ambiguity, the attendant circumstances necessarily lead to the opposite conclusion." In Bhaskar Waman Joshi v. Shrinarayan Rambilas Agarwal their Lord ships of the Supreme Court observed on page 304 : " The question whether by the incorporation of such a condition a transaction ostensibly of sale may be regarded as a mortgage is one of intention of the parties to be gathered from the language of the deed interpreted in the light of the surrounding circumstances...... What distinguishes the two transactions is the relationship of debtor and creditor and the transfer being a security for the deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as executed by the court in execution of a decree. It was urged for the department that, having taken so much trouble to recover the two loans advanced in 1928 and 1931, the plaintiff was not likely to be content with a mere mortgage of eight villages. It was pointed out that under the agreement dated October 25, 1931, as many as 15 villages had been mortgaged. It was, therefore, urged for the department that the decree-holder was not likely to accept a mortgage for 8 villages only. In this connection it may be pointed out that the agreement dated October 25, 1931, was for a simple mortgage covering fifteen villages. Under the transaction dated February 24, 1939, the transferee obtained actual possession over eight villages. It cannot, therefore, be said that on the footing that this was a mere mortgage, the transaction was necessarily unfavourable to the plaintiff-decree-holder. Clause (2) of the document provides that the conditions of the transfer would be binding on every person in whose possession the property would be found. That means that the provision for reconveyance would be binding on a transferee from the assessee. It may be difficult to enforce such a condition on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was fairly long (20 years). Secondly, there was a judgment-debt outstanding in favour of the assessee on the date the instrument was executed. Thirdly, there were two prior mortgages of the years 1928 and 1931. Fourthly, it was emphasised in the document that the provision for reconveyance would be binding on every person in whose possession the property could be found. Fifthly, village Kunmau was offered as additional surety. Sixthly, the ostensible sale and the condition for repurchase were contained in the same document. According to the decision of the Supreme Court in Chunchun Jha v. Ebadat Ali, whenever an ostensible sale and a condition for repurchase are contained in one document, there is a presumption that the transaction constitutes a mortgage by conditional sale. The department has not been able to rebut the presumption. On the contrary, the factors suggesting a mortagage by conditional sale outweigh the factors suggesting a sale with a condition for repurchase. There are no express words in the instrument to the effect that this was not a mortgage by conditional sale. The language of the document is not ambiguous. Under the circumstances, it must held that the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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