Mortgage is not a transfer of capital asset for capital gains; taxable transfer arises only on effective conveyance.

For capital gains under section 45 of the Income-tax Act, 1961, a transfer requires an effective conveyance of the capital asset within the meaning of section 2(47). A mortgage under section 58(a) of the Transfer of Property Act, 1882 transfers only an interest in specific immovable property, not the totality of ownership rights, and therefore is not a transfer of the capital asset for capital gains purposes. On that basis, the mortgages created in 1934 and 1935 were not transfers; the taxable transfer arose only on the court sale in 1964, and the capital gains charge was upheld in favour of the Revenue.

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Issues: Whether creation of a mortgage amounts to a transfer of a capital asset for the purposes of capital gains under section 45 of the Income-tax Act, 1961.

Analysis: The definition of "transfer" in section 2(47) of the Income-tax Act, 1961, though inclusive, contemplates modes such as sale, exchange, relinquishment, extinguishment of rights, or compulsory acquisition, all of which involve an effective conveyance of the capital asset. A mortgage under section 58(a) of the Transfer of Property Act, 1882, transfers only an interest in specific immovable property and does not amount to a transfer of the totality of rights in the capital asset. A mortgage therefore does not satisfy the statutory concept of transfer for capital gains purposes.

Conclusion: Creation of the mortgages in 1934 and 1935 did not constitute a transfer of the capital assets; the transfer occurred only on the court sale in 1964, and the capital gains charge was upheld in favour of the Revenue.

Ratio Decidendi: For section 45 of the Income-tax Act, 1961, transfer of a capital asset requires an effective conveyance of the asset, and a mortgage, which transfers only an interest in immovable property, is not such a transfer.

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