1999 (10) TMI 13 - HC - Income Tax

Interpretation of 'full value of consideration' under Income-tax Act for mortgage debt discharge.

The court interpreted the term 'full value of consideration received or accruing' in Explanation 5 to section 54E of the Income-tax Act, 1961. It held ... Capital Gains, Exemption, Transfer Of Assets Issues: Interpretation of 'full value of consideration received or accruing' in Explanation 5 to section 54E of the Income-tax Act, 1961 for exemption under section 54E.The judgment analyzed the interpretation of the term 'full value of consideration received or accruing' in Explanation 5 to section 54E of the Income-tax Act, 1961. The assessee argued that this term should only include the actual amount received by the transferor and not amounts applied for debt discharge. The court considered the beneficial nature of section 54E, emphasizing liberal construction to advance the assessee's advantage. The factual background involved the transfer of property subject to a mortgage, with the mortgage amount being paid by the vendee from the total consideration. The assessee deposited a portion of the net consideration in a fixed deposit to claim exemption under section 54E. The Income-tax Officer and the Tribunal had differing views on whether the amount paid for debt discharge should be excluded from the net consideration eligible for relief under section 54E.The court delved into the provisions of section 54E, which deals with capital gains on asset transfers not to be taxed under certain conditions. It highlighted that the starting point for calculating 'net consideration' is the full value of consideration received or accruing from the transfer, reduced by expenses solely related to the transfer. The court clarified that no other deductions or reductions are permissible under Explanation 5, emphasizing that the term 'full value of consideration' indicates considering the total consideration received for the transfer. The court explained that the discharge of the transferor's liability could be regarded as a receipt, even if not in cash, and that amounts applied for debt discharge form part of the total consideration.Furthermore, the court rejected the argument that section 54E is concerned with the application of capital gains rather than its computation. It referenced a Supreme Court case to support that clearing mortgage debts before property transfer does not entitle an assessee to deductions under the Act. The judgment ultimately favored the Revenue, stating that amounts paid for mortgage debt discharge should not be excluded from the net consideration eligible for relief under section 54E. The court's decision was against the assessee, with no costs awarded.