TaxTMI 
TaxTMI 
TaxTMI 
2018 (10) TMI 676
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....mi Narayan Bagla, who had bequeathed the capital asset in favour of the assessee appellant. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the tax demand raised against the assessee appellant. 3. The assessee craves her right to add, amend or alter any of the grounds on or before the hearing. 2. The assessee is an Individual and has filed her return of income on 13.03.2012 declaring total income of Rs. 1,66,740/-. During the course of assessment proceedings, the AO noted that the assessee did not disclose capital gain in respect of the sale of Flat No. 126, A-Wing, 7th Floor, Karachi Citizen's Cooperative Housing Society Ltd., Juhu Versova Link Road, Andheri (West), Mumbai, which was sold for a total consideration of Rs. 94,00,000/-. The assessee submitted before the AO that the said flat was purchased by Shri Laxmi Narayan Bagla, the late father of the assessee for a consideration of Rs. 9,50,000/- and further expenditure of Rs. 45,250/- was incurred on transfer of the said flat in his name. The father of the assessee had mortgaged the said flat as collateral security to Punjab National ....
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....(Ker.) as well as in the case of Smt. K. Sarla Devi, 222 ITR 211 (Ker.). 3. Before us, the ld. A/R of the assessee has submitted that the assessee inherited / received the flat in question through Will dated 16.10.1997 along with the charges on the said flat being mortgaged to PNB. Therefore, the flat in question was inherited by the assessee along with encumbrances of the dues of PNB. The flat was sold on the instance of the PNB and the assessee was forced to enter into one time settlement for clearing the outstanding dues for which the flat was mortgaged by the father of the assessee. Thus the PNB has recovered the said amount of Rs. 80,00,000/- at source which was not received by the assessee at all. The ld. A/R has submitted that the assessee relied upon the decision of Hon'ble Gujarat High Court in the case of CIT vs. Daksha Ramanlal, 197 ITR 123 (Guj.) as well as the decision of Hon'ble Supreme Court in the case of R.M. Arunachalam vs. CIT, 227 ITR 222 (SC). However, the ld. CIT (A) preferred to rely some other decisions on the ground that the decisions relied upon by the assessee are distinguishable on facts. The ld. A/R took us to the decisions of Hon'ble Gujarat High Cou....
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....on or cost of acquisition of the property in question. He has further submitted that the ld. CIT (A) has discussed this issue in detail and found that as per the sale agreement between the assessee, M/s. MPL Corporation, PNB and purchasers, the amount of Rs. 80,00,000/- was given by the purchaser to the PNB for discharge of debt liability of M/s. MPL Corporation Ltd. which was not the liability of the assessee and, therefore, the same cannot be considered as the cost of acquisition of the flat. The assessee was not bound to pay the said debt to the bank but only the principal debtor M/s. MPL Corporation Ltd. as well as Shri Shiv Kumar Bagla, the brother of the assessee were liable to discharge the said liability. 5. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the flat in question bearing no. 126, A-Wing, 7th Floor, Karachi Citizen's Co-operative Housing Society Ltd., Juhu Versova Link Road, Andheri (West), Mumbai, was purchased by Shri Laxmi Narayan Bagla, the father of the assessee during his life time and mortgaged the same as a collateral security with the PNB against the loan sanctioned to M/s. MPL Corporation L....
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.... the property, transfers it to another person, what he transfers is only those rights, which he possesses. The transferee would get the property subject to the rights created by the previous owner in favour of others. This aspect does not appear to have been considered while deciding those cases. If we are right in taking this view, then it follows that when the previous owner gifted the mortgaged property to the assessee, what he had transferred to the assessee was the right, title or interest, which he had in that property. When the assessee discharged the mortgage by paying Rs. 25,000 to the mortgagee, what he did was to purchase that right or interest, which the mortgagor did not then possess and which the mortgagee had in the property. When the assessee sold the property, he did not merely sell the right, title or interest, which he had received from the donor, but also the right, title or interest, which he had purchased from the mortgagee. For this reason, the case would not be covered by section 49(1)(ii) nor by section 55(2)(ii) for the purpose of computation of the capital gains. Section 55(2) can have application only in those cases where the capital asset becomes the ....
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....issioner filed an application to the Madras High Court. While dismissing that application, the High Court held that as the assessee did not have the benefit of the sum which, in fact, had been paid to the mother as consideration for relinquishing her life interest in the property, the said sum was required to be excluded for the purpose of computation of capital gains. The High Court observed that when the interest of the mother in the property in question had been purchased by getting a relinquishment for a consideration, the sum paid as consideration could not be taken to be consideration paid in respect of the interest of the assessee. Thus, the sum which the son was required to pay to the mother was held excludible while computing the capital gains." Tough there are decisions of other High Courts having divergent views on this issue, however, this issue was finally settled by the Hon'ble Supreme Court in the case of R.M. Arunachalam vs. CIT (supra) wherein the Apex Court has upheld the view of Hon'ble Gujarat High Court in the case of CIT vs. Daksha Ramanlal (supra) and held in para 27 as under :- "27. While we are affirming the impugned judgment of the High Court, we are un....
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....ransfer of an interest in the property by the mortgagor in favour of 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 in the property has been acquired by the heir. The said payment has, therefore, to be regarded as 'cost of acquisition' under section 48, read with section 55(2). The position is, however, different where the mortgage is created by the owner after he has acquired the property. The clearing off the mortgage debt by him prior to transfer of the property would not entitle him to claim deduction under section 48 because in such a case he did not acquire any interest in the property subsequent to his acquiring the same. In Daksha Ramanlal's case (supra) the Gujarat High Court has rightly held that the payment made by a person for the purpose of clearing of....
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....result of the transfer of the capital asset the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto; Provided that .......... Provided further that where long-term capital gain arises from the transfer of a longterm capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted: Provided also .......... Provided also .......... [Provided also ..........] Explanation - For the purposes of this Section, - (i) and (ii)** ** ** (iii) "indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assesse....