TMI Blog1999 (9) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... act in holding that the repayment of the loan was in connection with the transfer of the property and hence it will fall under section 45(2) as an expenditure incurred wholly and exclusively in connection with the transfer?" The factual position, as reflected in the statement of case, is as follows The assessee is a private limited company, which was in liquidation. The liquidator sold a property of 17 cents of land along with the building thereon situated on M. G. Road, Trivandrum, for a sum of Rs. 10 lakhs. The assessee had taken a loan of Rs. 8,58,000 from the Kerala Financial Corporation (in short, the "Corporation") on the security of this property. The assessee had not repaid the said loan. The liquidator discharged the liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loan was in connection with the transfer of property and was covered under section 45(2) of the Act as an expenditure incurred wholly and exclusively in connection with the transfer. Being aggrieved, the Revenue filed an application for reference of three questions to this court under section 256(1) of the Act. As indicated supra, one question has been referred. Learned counsel for the Revenue submitted that the view expressed by the Tribunal is contrary to what has been observed by the Supreme Court in RM. Arunachalam v. CIT [1997] 227 ITR 222 and V. S. M. R. Jagadishchandran (Decd.) v. CIT [1997] 227 ITR 240. Learned counsel for the assessee, on the other hand, referred to the decision of this court in CIT v. Thressiamma Abraham (Smt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned judgment. In that case, the assessee, as one of the heirs, had inherited property from the previous owner who had mortgaged the same during his lifetime and after his death the heirs, including the assessee, had discharged the mortgage created by the deceased. The said property was subsequently acquired under the Land Acquisition Act and for the purpose of capital gains the assessee sought deduction of the amount spent to clear the mortgage. The High Court held that the capital asset had become the property of the assessee by succession or inheritance on the death of the previous owner under section 49(1) of the Act and the cost of acquisition of the asset is to be deemed to be the cost for which the previous owner acquired it, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer of an interest in the property by the mortgagor in favour of the mortgagee and where the previous owner has mortgaged the property during his lifetime, which is subsisting at the time of his death, then after his death his heir only inherits the mortgagor's interest in the property. By discharging the mortgage debt his heir who has inherited the property acquires the interest of the mortgagee in the property. As a result of such payment made for the purpose of clearing off the mortgage the interest of the mortgagee in the property has been acquired by the heir. The said payment has, therefore, to be regarded as "cost of acquisition" under section 48 read with section 55(2) of the Act. The position is, however, different where the mortga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is deductible as cost of acquisition under section 48 of the Act. In the present case, we find that the mortgage was created by the assessee himself. It is 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 of the mortgagee in the said property..." The decisions rendered by this court and the Andhra Pradesh High Court have not taken note of the two decisions of the apex court referred to above. In view of the quoted conclusions of the apex court, the view expressed by this court and the Andhra Pradesh High Court cannot be held to be applicable. We accordingly answer the question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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