TMI Blog1996 (9) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... le ?' 3. Whether, on the facts and in the circumstances of the case, the assessee is entitled to the deduction of the amount paid to the Kerala Financial Corporation for discharge of mortgage as deduction under section 48(1)(a)(i) from the sale consideration and is not the finding wrong and the deduction impermissible in the light of the Kerala High Court decision in the case of Ambat Echukutty Menon [1978] 111 ITR 880 and the Supreme Court decision in the case of CIT v. George Henderson and Co. Ltd. [1967] 66 ITR 622 ? " The assessee is before us in her capacity as a guarantor. It appears that she was assessed to wealth-tax, which was the basis of information of the Income-tax Officer to the effect that land admeasuring 1.74 acres in Palarivattom within the limits of the Cochin Corporation became the subject-matter of sale. On this information, a notice was issued and a " nil " return was filed, besides agricultural income. The return was accompanied by a note. The contents of the said note are vital enough and they are as follows : " The Palarivattom property was mortgaged to the Kerala Financial Corporation and the entire consideration was paid to discharge the debts and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , sale proceeds are not liable for assessment. " Reading the contents of the above note it would appear that the property was the subject-matter of a mortgage in favour of the Kerala Financial Corporation. It would also appear that the sale was in exercise of rights of the said financial corporation under the document of mortgage. It is contended that in exercise of this right in the matter of discharge of the debt under the mortgage deed, what was sold was the equity of redemption in view of the undisputed situation that the property had been mortgaged to the Kerala Financial Corporation. The Income-tax Officer did not find any relevance in the process of assessment of capital gains. He has observed that the assessee stood as a guarantor for the loan given by the Kerala Financial Corporation to the National Tyre and Rubber Co. India Ltd. and in pursuance of this position of the assessee as a guarantor, the property was mortgaged under a deed dated September 22, 1969, in favour of the Kerala Financial Corporation for the loan obtained by the National Tyre and Rubber Co. India Ltd. The Income-tax Officer also did not dispute that the entire sale proceeds of this property went in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the Kerala Financial Corporation, the relationship will have to be termed as having been described in the language of a layman. There is a regular document on record and as regards the contents thereof there can hardly be any dispute between the two sides. Still the Commissioner observes that no charge was created on the property by the Kerala Financial Corporation. A contention was raised before the Commissioner that the assessee had no liability to discharge in the context of the situation in regard to which the Commissioner observed that although there was no personal obligation on her to discharge the liability of the National Tyre and Rubber Co. India Ltd., still there was a constructive receipt of the entire money by the assessee. It is on the basis of the above reasoning in a general manner that the first appellate authority confirmed the order of the Income-tax Officer. The assessee carried the proceedings before the Income-tax Appellate Tribunal, Cochin Bench. The Tribunal has considered the position basically with reference to the position and relationship between the parties in the light of the contents of the document dated September 22, 1969. After hearing le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43 of the document. Not content with this position, as per section 69 of the Transfer of Property Act, 1882, as to be found at page 45 of the document, power to sell the mortgaged property without the intervention of the court in default of payment of the mortgage debt also forms part of the document. In addition thereto, the document also provides that the guarantee, as far as the assessee is concerned, is enforceable as if the guarantor is the principal debtor with reference to all the payments and covenants guaranteed by them and further the guarantee is irrevocable in nature. Factually, the Tribunal has also recorded that the Kerala Financial Corporation on various dates released the mortgaged properties; illustratively on December 15, 1981, the Kerala Financial Corporation released 88 cents from the mortgage on receipt of Rs. 7,04,000 from Sri L. K. Prabhu. Another piece of land was released on January 22, 1982, on receipt of Rs. 6,88,000 with an addition that in the accounts of the National Tyre and Rubber Co. India Ltd. this is shown to have been debited to the account of the Kerala Financial Corporation with simultaneous credit having been shown accordingly. The Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the liability to the tune of Rs. 20 lakhs in an activity undertaken by the Kerala Financial Corporation under the rights with reference to the documents in question, only an amount of Rs. 13,12,414 were the sale proceeds. The situation also undisputedly shows that the entire amount went into the process of appropriation of the mortgage debt under the document. We have quoted the factual findings in regard to the crucial situations. The factual situation shows that the Kerala Financial Corporation acted in exercise of the rights arising out of the document against the assessee who was in the position of a guarantor. There is no dispute as regards the legal position that the guarantor and the debtor are in the same position. Additionally, the various peculiarities of the document discussed by us hereinbefore clearly go to show that the Kerala Financial Corporation was in seisin of an absolute right to sell the mortgaged property in the event of failure to repay the loan amount. In our judgment, the factual position with reference to the various aspects appearing from the document in question shows that the Kerala Financial Corporation acted in exercise of overriding title in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of wide import, with a necessary note that the court cannot be oblivious of the proliferation of black money which is under circulation in our country, and any restraint to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business. In fact after going through the decision we are unable to satisfy ourselves as regards its relevance in the context of factual peculiarities. The decision of this court in Vasumathi's case [1980] 123 ITR 94, deals with the position of compulsory acquisition of land and in regard thereto expenditure on litigation for getting enhanced compensation in the context of the contention of it being expenditure wholly or exclusively incurred in connection with the transfer of the capital asset and its deductibility. There is no dispute with regard to the propositions and it will have to be said that the factual matrix determines the consequential situation without any difficulty. Learned senior tax counsel strenuously submitted that the Tribunal in its reasoning has tried to fit the situation in the four corners of section 48(1)(a)(i) and has not considered inevitable situations in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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