SHRI.B.SREEKUMARAN NAIR, REP.BY P/A HOLD V. THE COMMISSIONER OF INCOME TAX, TVPM

ITA/1561/2009

AI Insights

The case revolves around an appeal by Shri B. Sreekumaran Nair, represented by his power of attorney holder, B. Ramachandran Nair, against the decision of the Income Tax Appellate Tribunal, Cochin Bench. The primary issue was whether the amount spent by the appellant to clear a mortgage on inherited property was an allowable deduction in the computation of capital gains under Section 48(2) of the Income Tax Act. The property in question, which included land and a cashew factory, was previously owned by the appellant's father who had mortgaged it to a bank. Upon the father's death, the mortgage debt had accumulated to Rs. 30 lakhs. The appellant and other heirs cleared this debt to sell the property, which was sold for Rs. 20 lakhs. The assessing officer accepted the sale consideration but disallowed the deduction for the mortgage discharge, treating it not as a cost of acquisition. The court, referencing Supreme Court decisions, found in favor of the appellant, recognizing the discharge of the mortgage as a cost of acquisition.

• Counselvise Citation: [2009] 140 COUNSELVISE.COM (IT) 768858 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 19-10-2009
• Assessment Year: misc
• Other Referred Cases: V.S.M.R. Jagadishchandran (Decd.) v. CIT, RM. Arunachalam Chettiar v. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: T M SREEDHARAN; C K SHERIN; V P NARAYANAN
• Keywords: Capital Gains; Cost of acquisition; Deduction; Mortgage discharge
• Section: 48(2)

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN MONDAY, THE 19TH OCTOBER 2009 / 27TH ASWINA 1931 ITA.No. 1561 of 2009() ---------------------- ITA.428/COCH/2007 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT/ASSESSEE ------------------------------------------------ SHRI.B.SREEKUMARAN NAIR, REPRESENTED BY POWER OF ATTORNEY HOLDER, B.RAMACHANDRAN NAIR, RAJI NIVAS, MUNDAKKAL, KOLLAM. BY ADV. SRI.T.M.SREEDHARAN SMT.C.K.SHERIN SRI.V.P.NARAYANAN RESPONDENT(S): RESPONDENT/REVENUE --------------------------------- THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. BY ADV. SRI. JOSE JOSEPH, SC FOR IT DEPT. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19/10/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C .N. RAMACHANDRAN NAIR & V.K. MOHANAN, JJ. -------------------------------------------- I.T.A. No. 1561 OF 2009 -------------------------------------------- Dated this the 19th day of October, 2009 JUDGMENT Ramachandran Nair, J. The question raised in the appeal filed by the assessee is whether the Tribunal was justified in holding that the amount spent by the assessee to clear the mortgage created by the previous owner from whom he inherited property is not an allowable deduction in the computation of capital gains on the sale of the property under Section 48(2) of the I.T. Act. We have heard Sri. T.M. Sreedharan, counsel appearing for the appellant, and standing counsel appearing for the respondent. 2. The property sold is land and a cashew factory previously owned by the appellant's father during his life-time and father had created a mortgage over the property in favour of a Bank and availed loan. After his death, the loan amount had accumulated to Rs. 30 lakhs. When appellant and other legal heirs proposed to sell the 2 property, the purchasers insisted on clearance of the mortgage debt and therefore appellant and other legal heirs discharged the mortgage debt and sold the property after perfecting their title. Strangely the sale consideration accounted is Rs. 20 lakhs as against discharged mortgage amount of Rs. 30 lakhs The assessing officer has accepted the sale consideration returned, but disallowed the mortgage debt claimed as deduction under Section 48(2) of the Act on the ground that the same does not represent the cost of acquisition. Counsel for the appellant has relied on the decision of the Supreme Court in V.S.M.R. JAGADISHCHANDRAN (DECD.) V. CIT, 227 I.T.R. 240 (SC) wherein the Supreme Court relying on their earlier decision in RM.ARUNACHALAM CHETTIAR V. CIT, 227 I.T.R. 222 (SC) held that discharge of mortgage debt is cost of acquisition and so much so it is an allowable deduction under Section 48(2) of the Act. We find force in this contention because on death of original owner, all the legal heirs got only right of mortgagor and by discharging the mortgage debt, they have acquired perfect title over the property, and so much so, the cost incurred for releasing the property from the mortgage amounts to 3 acquisition of full title over the property. As held by the Supreme Court, what the appellant has achieved by discharging the mortgage debt is to get full title over the property, and so much so, the amount paid to discharge the liability should be treated as cost of acquisition for the purpose of computation of capital gains. We therefore allow the appeal by reversing the assessment confirmed in second appeal by the Tribunal with direction to the assessing officer to recompute the liability by granting exemption to mortgage debt discharged by the appellant as part of cost of acquisition eligible for deduction under Section 48(2) of the Act. (C.N.RAMACHANDRAN NAIR) Judge. (V.K. MOHANAN) Judge. kk 4 "