Law: Income Tax Act, 1961

Section: 45,48,49,256(2)

Income-tax-----Reference---Capital gains---Computation of capital gains---Cost of acquisition of capital asset---Sales of house property and plots of land subject to mortgage created by assessee---Amount paid by buyer himself to clear mortgage debt out of the sale proceeds---Tribunal justified in holding that amount could not be treated as cost of acquisition or cost of improvement--¬No question of law arose---Indian Income Tax Act, 1961, Ss.45, 48, 49 & 256(2). The assessee sold a house for a sum of Rs. 90,000 subject to incum¬brance in the assessment year 1975-76 and in the same assessment year he sold certain plots for a sum of Rs.12,600. The Income-tax Officer computed the capital gains in respect of the said properties at Rs.68,400 The assessee questioned the computation of capital gains before the Appellate Assistant Commissioner and contended that the debts in respect of which mortgage had been executed were discharged by the buyer himself out of the sale proceeds, that the debts should be considered as an increase in the cost of acquisition of the properties and that in any event the debts may be treated as improvement to the property or as the cost of obtaining clear title to the property. The Appellate Assistant Commissioner rejected the said contentions. He, however; upheld the contention of the assessee that there was an overriding title of the creditors in respect of the sale proceeds and, therefore, there was diversion at source on the basis of such overriding title and the assessee was not liable to charge under the capital gains in respect of the sale of the properties and, therefore, he deleted the capital gains of Rs.68,400 as computed by the Income-tax Officer. The Tribunal held that the clearing off of the mortgage debt could neither be treated as "cost of acquisition" nor as "cost of improvement" made by the assessee. The Tribunal declined to refer the questions whether the computation of the capital gains of Rs. 68,400 was proper and whether the debts discharged by the assessee on the properties could not be said to enhance the cost of acquisition. The assessee filed an application under section 256(2) of the Income Tax Act, 1961,…

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