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2019 Supreme(Mad) 860
IN THE HIGH COURT OF JUDICATURE AT MADRAS
VINEET KOTHARI, C.V. KARTHIKEYAN, JJ.
D. Zeenath - Appellant
Versus
The Income Tax Officer - Respondent
T.C.A. No. 2582 of 2006
Decided on : 03-04-2019
For the Appellant :Subhang Nair Assisted Shobana Krishnan, Advocates.
For the Respondent:M. Swaminathan, (Senior Standing Counsel) Assisted by V. Pushpa, Advocate.
The main legal point established in the judgment is that the payment made to clear the loan did not entitle the assessee to claim deduction under Section 48 of the Income Tax Act, 1961.
Headnote:
Income Tax - Capital Gains - Section 260A of the Income Tax Act, 1961 - 139(1) - 147 - 48 - Summary of Acts and Sections: The court discussed the application of Section 48 of the Income Tax Act, 1961 in relation to the computation of capital gains. The judgment referenced various legal provisions including Section 48 and relevant case laws such as R.M.Arunachalam V. CIT, CIT Vs. N.Vajrapani Naidu, and CIT Vs. Shakuntala Kantilal.
Fact of the Case:
The assessee along with two co-owners had purchased land and offered it as collateral security for a loan. The property was sold to clear the loan, and the entire sale consideration was paid directly to the bank. The assessee claimed no capital gains as she did not receive any consideration.
Finding of the Court:
The court held that the full value of the capital assets was paid directly to the bank to clear the loan, and the assessee cannot claim any part of such application as cost of acquisition for the purpose of computing capital gains as per the provisions of Section 48 of the Act.
Issues: The issues revolved around the application of Section 48 of the Income Tax Act, 1961 and the claim of the assessee that no capital gains arose as she did not receive any consideration from the sale.
Ratio Decidendi: The court held that the payment made to clear the loan did not entitle the assessee to claim deduction under Section 48 of the Act, as she did not acquire any interest in the property subsequent to acquiring the same.
Final Decision: The Tax Case Appeal by the assessee was dismissed, and the substantial questions of law were answered against the assessee and in favor of the Revenue.
C.V. Karthikeyan, J.
(Prayer: The Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 (for brevity 'the Act') against the order of the Income Tax Appellate Tribunal, 'B' Bench, Chennai, in I.T.A.No.659/Mds/2002 for the A.Y.1995-96, dated 16.12.2005.)
1. The assessee has filed the present appeal under Section 260A of the Act, challenging the order of the Income Tax Appellate Tribunal, Chennai, in I.T.A.No.659/Mds/2002 dated 16.12.2005, with respect to Assessment Year 1995-1996 dismissing the appeal of the assessee.
2. This appeal had been admitted on 23.06.2008, on the following two substantial questions of law:
“1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in not appreciating that no part of the consideration for sale was received by the appellant and same was directly paid to the Bank by the purchaser in discharge of the mortgage amount and therefore no capital gains arises in the hands of the appellant?
2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in not holding that there was a diversion of the sale proceeds towards redeeming the interest of the mortgagor and therefore the amount so diverted was not liable to capital gains tax?”
3. The assessee Smt. D.Zeenath along with two other co-owners, namely, Smt. S.A.Kathija Nachial and Smt. Zubaida had originally purchased land measuring 43,596 sq.ft. at Saram Village, Pondicherry, by two sale deeds dated 11.07.1980 and 04.02.1981 for a total consideration of Rs.2,01,000/-.
4. The property had been offered as collateral security in a loan obtained by M/s.M.O.Hassan Kuthoos Maricar Pvt. Ltd., from State Bank of India, Pondicherry, to an extent of Rs.3.75 Crores, and the assessee and the other two co-owners stood as guarantors, for the said loan. Mortgage was by deposit of title deeds. No registered mortgage deed was executed. Since the loan was not repaid, the assessee and the other two co-owners consented for sale of the property by Bank to realize its dues. This was purchased by M/s. Royal Park, Tiruchirapalli, for a total consideration of Rs.1,96,18,200/-. The sale was effected during the Assessment Year 1995-1996. The total sale consideration was paid to the Bank by the purchaser M/s.Royal Park, Tiruchirapalli.
5. The assessee did not file her Returns under section 139(1) of the Act, till 05.03.1998. She filed it belatedly on 06.03.1998 declaring a total income of Rs.55,26,120/-. The assessment was re-opened under Section 147 of the Act and notice was issued under Section 148 on 24.03.1998. The assessee in her reply initially sought to treat the return filed on 06.03.1998 as the one filed in response to the notice under Section 148 of the Act. She then filed a revised return admitting an income of Rs.74,580/-. She claimed that since the entire sale consideration had been paid towards the loan account of M/s.M.O.Hassan Kuthoos Maricar Pvt. Ltd to the State Bank of India, Pondicherry, she had not earned any capital gains on the sale of the property.
6. The Assessing Officer rejected the said contention and the relevant portions of the assessment order are quoted below for ready reference:
“The assessee and the two other co-owners stood as guarantors against the loan of Rs.3.75 crores given by the State Bank of India, Pondicherry to M/s.M.O.Hassan Kothoos Maraicar Ltd., Pondicherry. The mortgage deed had not been registered and it is ascertained that the State Bank of India, Pondicherry has never been vested with the power to alienate the property and appreciate the sale proceeds towards the loan given by it. The three co-owners have themselves come forward voluntarily and sold the property in question and the buyer of the property M/s. Hotel Royal Park have deposited the sale consideration by way of a demand draft in the loan account of the company, M/s.M.O.H.Hassan Kothoos Maraicar Ltd., Pondicherry with the State Bank of India, Pondicherry. Thus,
