TaxTMI 
TaxTMI 
TaxTMI 
2007 (7) TMI 243
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....e was an overriding charge against the sale proceeds of property and the assessee was not liable for capital gains in respect of Rs. 1,50,000 paid to bank in discharge of loan taken by M/s. Shanker Traders?" 2. The reference relates to the assessment year 1984-85. 3. Briefly stated the facts giving rise to the present reference are as follows: 4. The assessee is a partner in M/s. Shanker Traders. M/s. Shank Traders took loan from the Bank of India. The house property No. 89/593, Prem Nagar, Kanpur, belonging to the assessee, was mortgaged to the bank against the loan taken by the firm. The bank enforced the recovery of loan against M/s. Shan....
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...., the office has submitted a report dated September 8, 2006, that neither undelivered cover nor the A.D. card has been received back. 6. Sri A. N. Mahajan has submitted that the view taken by the Tribunal in holding that the bank had an overriding title over the property sold and further real value, to which the assessee was entitled, was only Rs. 45,000 and not the balance amount of Rs. 1,50,000 which was directly paid to the bank is not correct in law. He. further submitted that the reliance placed by the Tribunal on the decisions of the Madras Tribunal also cannot be sustained for the reason that the apex court in the case of Rm. Arunachalam v. CIT [1997] 227 ITR 222 and in the case of V. S. M. R. Jagadishchandran v. CIT reported in [19....
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....ing 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) of the Act. The position is, however, different where the mortgage is created by the owner after he has acquired the property. The clearing off of the mortgage debt by him prior to transfer of the property would not entitle him to claim....
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....t had himself created the charge over the property. In a case of inheritance/acquisition along with the mortgage perfecting his title by getting mortgage discharged, the assessee would be entitled to get the deduction of the mortgage debt but where the charge is created by the assessee himself, it cannot be said that the amount of mortgage debt out of the sale proceeds be deductible while calculating the capital gains. The present one is a case of application of income by the assessee. 9. Further, the apex court dealing with the issue of diversion of income by overriding title in the case of CIT v. Sunil J. Kinariwala [2003] 259 ITR 10 held as follows (page 13): "It may be pointed out that under the scheme of the Act, it is the total inco....
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.... there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is s....