Overriding title to mortgagee prevented capital gains charge where sale proceeds never reached the transferor.

Sale consideration diverted directly to the mortgagee under an overriding title was not received by the transferor, so the transferor was not chargeable to capital gains on those facts. The property was subject to an enforceable mortgage in favour of the Kerala Financial Corporation, which had the right to sell the property and apply the proceeds towards the loan. Because the entire consideration went to discharge the mortgage debt and the assessee received nothing, the ingredients of chargeability under section 45 of the Income-tax Act, 1961 were not satisfied and section 48 computation did not arise on the Revenue's footing.

---

---

Issues: Whether capital gains arose to the assessee when the sale consideration was directly applied towards discharge of the mortgage debt and the assessee received no part of the sale proceeds.

Analysis: The property was mortgaged in favour of the Kerala Financial Corporation and the Corporation had an enforceable right to sell the property and appropriate the sale proceeds towards the loan. On the facts found, the entire consideration was paid directly to the mortgagee, the assessee received nothing, and the transaction operated under the mortgagee's overriding title rather than as a receipt by the assessee. In such a situation, the ingredients of chargeability under section 45 of the Income-tax Act, 1961 were not satisfied, and the computation provisions under section 48 did not arise on the footing adopted by the Revenue.

Conclusion: No capital gains arose in the assessee's hands on the facts found, and the Tribunal was justified in interfering with the assessment.

Ratio Decidendi: Where sale consideration is diverted at source to a mortgagee under an overriding title and nothing is received by the transferor, the amount cannot be treated as the transferor's capital gains income under section 45 of the Income-tax Act, 1961.

---