Law: Income Tax Act, 1961

Section: 48

Income-tax--Capital gains---Sale of mortgaged property---Part of sale consideration paid for discharge of mortgage ---Vendee paying vendor's creditors---Amount paid for discharge of mortgage not deductible in computation of capital gains---Indian Income Tax Act, 1961, S.48. The assessee sold some immovable properties during the previous year ending March 31, 1982, and in the computation of capital gains claimed that the sums paid by the vendee to the creditors of the vendor including the mortgagees of the properties which were the subject-matter of sale was deductible in the computation of capital gains. The Income-tax Officer rejected the claim but the Tribunal upheld the claim. On a reference: Held, the burden had been created by the vendor for his own benefit by offering the properties as securities to his lenders. The amounts spent for discharging that burden of the vendor, whether prior to sale or at the time of sale or payment to such creditors including the mortgagees directly by the vendee could not be regarded as expenditure wholly and exclusively in connection with the transfer. Accordingly, the amounts paid for discharging debts due on mortgage of the property in connection with the transfer of property were not deductible in the computation of capital gains. RM. Arunchalam v. CIT (1997) 227 ITR 222 (SC) rel. JUDGMENT R. JAYASIMHA BABU, J.---The question referred to us at the instance of the Revenue is as follows: "Whether, on the facts and in the circumstances of the case, the amount paid for discharging the debts due on mortgage of the property in connection with the transfer of the property should be deducted in computing the capital gains arising from the transfer of the property?" The assessee who is an individual sold the immovable properties belonging to him under 13 sale-deeds in the previous year ended March 31, 1982, for a total consideration of Rs.6,64,000. Rs.3,79,500 out of that sum was paid by the vendee to the creditors of the vendor including the mortgagees of the properties which was the subject-matter of the sale. The assessee claimed that the amount so paid directly to his creditors including the mortgagee was deductible for the…

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