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TMI Blog2025 (5) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed by Ld. A.O. and was not disputed by the Hon'ble CIT(A) which is bad at law. 3. Under the facts and circumstances of the case, Ld. First Appellate Authority has grossly erred in computing indexed cost of improvement at Rs. 85,61,215/- instead of the correct indexed cost of improvement of Rs. 99,42,844/- by wrongly taking the cost of improvement of Rs. 20,00,000/- incurred by the assessee in the financial year 1989- 1990 thereby understating the cost of improvement by Rs. 13,81,629/- 4. Under the facts and circumstances of the case, Ld. First Appellate Authority has grossly erred in concluding that the relief to the appellant is amounting to Rs. 25,13,894/- which is factually incorrect and not in accordance with the substance of the orders passed by him. 5. Under the facts and circumstances of the case, the ld. CIT(A) has grossly erred in not allowing amount of Rs. 43,75,000- paid by the assessee to release the mortgage on the property as cost of improvement is injudicious, and bad at law. 6. The appellant prays for leave to add, amend, alter or withdraw any grounds of appeal." 3. The relevant facts giving rise to this appeal are that the assessee, engaged in liaisoni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l shape. The valuation of the properties on the basis of the sale deed provided by the Sh. Shyam Gupta S/o Late Smt. Murti Devi. Earlier, Allowable covered area was about 66% of the Plot/Size and the building was two and half storied structure, the covered area has been calculated. The land rate has been provided as per Information provided by the party Rate/Information collected from local enquiry." 3.2 Based on the above note/information, the AO inferred that the said property consisting of two and half floors was not inherited as such by the assessee though the said property was in existence on the date of its sale. As per the assessee, his mother bought a property in the year 1967 and thereafter she made certain improvements in 1982-83 and 1989-90 as per requirement of the family, which also got substantiated by the copy of the Wealth Tax Return of the assessee's mother (late Smt. Murti Devi) for the AY 1992-93. Later on, the old property was demolished and another residential property was built/reconstructed at the cost of Rs. 78,32,000/- in the year 1999-2000. Thereafter, the new property was mortgaged to the Canara Bank in the year 1999-2000 as security for business loan. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the assessee. The old property was remodified/reconstructed/refurbished to new property. Hence, the entire cost of acquisition as on 01.04.1981 and improvement cost of Rs. 1,01,87,096/- mentioned above in para 3.4 have to be allowed as deduction. Besides, the above, the sum of Rs. 43,75,000/- paid to the bank for getting the property released from the mortgage should also be allowed as deduction on the reasoning that had the property not got released from the mortgage, the same would have not been sold. The Ld. AR thus, prayed for allowance of following deductions while computing LTCG: i. Indexed cost of acquisition as on 01.04.1981, ii. Improvement cost of Rs. 1,01,87,096/- and iii, Mortgage charge of Rs. 43,75,000/- 5. On the other hand, the Ld. Sr. DR supported the order of the Ld. CIT(A). 6. We have heard both parties and have perused the material available on the record. There is no dispute on the fact that the property was inherited by the assessee along with his brothers. Further, there is also no dispute on the fact that the property sold out in the relevant year was different than the inherited property. The appellant assessee had not produced any corroborat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 74(1) of the Estate Duty Act cannot, therefore, be construed as creation of an interest in property that is the subject-matter of the charge. The creation of the charge under section 74(1) only means that in the matter of recovery of estate duty from the property which is the subject-matter of the charge the amount recoverable by way of estate duty would have priority over other liabilities of the accountable person. In that sense the claim in respect of estate duty would have precedence over the claim of the mortgagee because a mortgage is also a charge." It was further held by the Apex Court (at page 239) as follows: "...... in a mortgage there is transfer 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards "kist" and interest due from the assessee and paid over the balance to him. The capital gain that the assessee made was on the immovable property that belonged to him. Therefore, it is on the full price realised (less admitted deductions) that the capital gain and the tax thereon has to be computed." 14. From the aforesaid decisions of the Apex Court, it is clear that there is a distinction between the obligation to discharge the mortgage debt created by the previous owner and the obligation to discharge the mortgage debt created by the assessee himself. Where the property acquired by the assessee is subject to the mortgage created by the previous owner, the assessee acquires absolute interest in that property only after the interest created in the property in favour of the mortgage is transferred to the assessee, that is after the discharge of mortgage debt. In such a case, the expenditure incurred by the assessee to discharge the mortgage debt created by the previous owner to acquire absolute interest in the property is treated as 'cost of acquisition' and is deductible from the full value of consideration received by the assessee on transfer of that property. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee transfers the said capital asset with the consent of the bank for Rs. 1 lakh and pays the entire amount of Rs. 1 lakh to the bank to discharge the mortgage created by the assessee, then it is not open to the assessee to contend that the capital gains tax is not leviable on transfer of the property because the assessee has not received a pie on transfer of that capital asset. 17. As regards the decisions of this court in the case of Shakuntala Kantilal (supra) followed in the case of Abrar Alvi (supra) and the decisions of the Kerala High Court in the case of Smt. Thressiamma Abraham (supra) which are strongly relied upon by the counsel for the assessee, we are of the opinion that the said decisions are no longer good law in the light of the subsequent decisions of the Apex Court referred to hereinabove. 18. For all the aforesaid reasons, we answer question set out at para 2 in the negative i.e. in favour of the revenue and against the assessee." 9. Here in the present case, the business concern which kept the above referred property on mortgage is different person that the assessee. This issue of claim of deduction of mortgage charges as deduction while computing the LTCG i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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