TMI Blog1992 (2) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 29,125 on the sale of the said land. Apart from other deductions with which we are not concerned, the assessee claimed deduction of Rs. 25,000 paid by her to the mortgagee, as the land, which was gifted to her, was subject to a mortgage. The Income-tax Officer rejected the assessee's claim for deduction of that amount, as he was of the view that it was not a liability which increased the cost of the land. The appeal filed by the assessee to the Appellate Assistant Commissioner of Income-tax was dismissed, as the Appellate Assistant Commissioner agreed with the view of the Income-tax Officer that the assessee's claim for deduction of Rs. 25,000 paid to the mortgagee was not valid. The assessee then approached the Tribunal by pre erring an appeal. The Tribunal held that the assessee did not sell the capital asset that she had received by way of gift ; what she had sold was something more than that, viz., the interest which the donor had transferred to the mortgagee. As she was required to redeem the mortgage and, for that purpose, she had to pay Rs. 25,000 to the mortgagee, being the mortgage amount, the said cost of acquisition was also required to be taken into account while c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion mentioned therein, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. Section 55 defines the expressions " cost of improvement " and " cost of acquisition " for the purposes of sections 48 and 49. Sub-section (2) of that section, so far as it is material for the purpose of this case, reads as under "55. (2) For the purposes of sections 48 and 49, 'cost of acquisition', in relation to a capital asset, (i) where the capital asset became the property of the assessee before January 1, 1954, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on January 1, 1954, at the option of the assessee ; (ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before January 1, 1954, means the cost of the capital asset to the previous owner or the fair market value of the asset on January 1, 1954, at the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner. On a reference made to the High Court, the High Court held that the case was governed by section 49 and the cost of acquisition of the asset was deemed to be the cost at which the previous owner of the property had acquired it. As regards the claim for deduction under the head "cost of improvement", the High Court held that, in order to entitle the assessee to claim a deduction in respect of the cost of any improvement, the expenditure should have been incurred in making any additions or alterations to the capital asset that was originally purchased by the previous owner. If, subsequent to the purchase of the property by the previous owner, it was mortgaged by him and that mortgage was later discharged either by himself or by his successor-in-interest, that would not constitute an improvement to the capital asset which originally became the property of the previous owner. Thus, that was a case where the only question which arose for consideration was whether the amount spent by the assessee in order to discharge the mortgage created by the previous owner could be regarded as the cost of effecting any improvement to the capital asset. Even though we do not find any discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y learned counsel for the Revenue. Reliance was also placed upon the decision of the Full Bench of the Madras High Court in Smt. S. Valliammai v. CIT [1981] 127 ITR 713. The question which had arisen in that case for consideration was whether the amount paid as estate duty in respect of the property sold by the assessee could be deducted while computing the capital gains arising on the sale of such properties. In our opinion, the said decision is not relevant for our purpose, as payment by an assessee for discharging the mortgage is quite different in nature from payment made by way of estate duty. Though the Madras and Kerala High Courts have taken the view that when a capital asset is received by an assessee in one of the modes specified in section 49, what has to be taken into consideration is the cost of acquisition to the previous owner and any sums paid by the assessee for removing any encumbrance thereon cannot be deducted while computing the capital gains on sale of such property. With due respect to them, we cannot agree with that view. In our opinion, what has been overlooked in those cases is that the word 'property' does not mean merely physical property, but also m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainly the cost of acquisition of the interest of the mortgagee and, therefore, that was required to be taken into account for the purpose of computing the total cost of acquisition of the property which the assessee sold and thereby made capital gains. As we are taking this view, it is not necessary to consider the two decisions in Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 (SC) and in CIT v. Bilquis Jahan Begum [1984] 150 ITR 508 (AP), relied upon by learned counsel for the respondent in support of his contention that, in working out the capital gain or loss, the principles that have to be applied are those which are a part of the commercial practice or which an ordinary man of business will resort to when making computation for his business purposes. The view which we have taken also gets support from the decision of the Madras High Court in CIT v. C. V. Soundararajan [1984] 150 ITR 80. In that case, the assessee had paid a certain sum to his mother in order to obtain a relinquishment of her right of residence in the property which the assessee sold. While computing the capital gains arising from the sale of that property, the assessee claimed deduction for the sum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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