Law: Income Tax Act, 1961

Section: 45

Law: Transfer of Property Act, 1882

Section: 69(1)(b)

Income-tax---Capital gains ---Deductions---Assessee carrying on Abkari business--�Immovable property mortgaged to State Excise Department as security for amount of Kist due to Government---Government selling property in public auction and realising certain amount---Out of sale proceeds Government deducting amount due to it towards arrears and interest and only balance paid to assessee---Value of property to be reduced to the extent interest was created in favour of Government by mortgage ---Assessee got price minus value of interest of Government---Capital gains to be computed after deducting amount paid to Government---Indian Income Tax Act, 1961, S.45.The assessee carried on Abkari business during the financial years 1970-71 and 1971-72. He mortgaged his immovable property (house site) to the State Excise Department as security for the amounts of Kist due to the Government. The Government under section 69(1)(b) of the Transfer of Property Act, 1882, sold the property in public auction and realised a sum of Rs.5,62,980. Out of the said amount, the Government deducted a sum of Rs.1,29,020 due to it towards arrears and interest and paid the balance to the assessee. The total value of the house site as on January 1, 1964, was taken at Rs.1,87,010 and an amount of Rs.5,000 was deducted from out of the total sale price while arriving at the gross sale price. The Revenue contended that the capital gains should be computed at Rs.3,70,970 (Rs.5,57,980 minus Rs.1,87,010). The assessee contended that the amount of Rs.1,29,020 due to the State Excise Department had also to be deducted from Rs.5,57,980 before computing the capital gains besides allowing deductions. Thus, the net income from the capital gains came to Rs.85,130. The Income-tax Officer and the Appellate Assistant Commissioner did not accept the contention of the assessee. The Tribunal, accepting the contention of the assessee, held that the assessee held the property subject to the mortgage deed or charge due to the Government, which was subsequently sold by public auction, and the amount realised under the charge or mortgage never reached the hands of the assessee but reached the Government by overriding…

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