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2008] 305 ITR 24 [2008] 169 TAXMAN 67 (ALL.) HIGH COURT OF ALLAHABAD Commissioner of Income-taxï‚ ï-ª v. Sharad Sharma R.K. AGRAWAL AND VIKRAM NATH, JJ. IT REFERENCE NO. 176 OF 1993 JULY 6, 2007 Section 48, read with section 4, of the Income-tax Act, 1961 - Capital gains - Computation of - Assessment year 1984-85 - Whether it is only in a case of inheritance/acquisition along with mortgage where assessee perfects his title by getting mortgage discharged, that assessee would be entitled to get deduction of mortgage debt; where charge is created by assessee himself, it cannot be said that amount of mortgage debt paid out of sale proceeds be deductible while calculating capital gains - Held, yes - Assessee mortgaged his house property to bank against a loan - For discharge of mortgaged debt, assessee sold house property - Out of total sale consideration received, he discharged mortgaged debt and received balance amount - Assessing Officer calculated capital gains on basis of entire sale proceeds and made addition to income of assessee - However, Tribunal deleted addition holding that there was an overriding charge against sale proceeds of property and assessee was not liable for capital gains in respect of amount paid to bank in discharge of loan - Whether since assessee had himself created charge over property, it was a case of application of income received by assessee and not of diversion of income by overriding charge - Held, yes - Whether therefore, assessee was not entitled to deduction of amount paid to bank in discharge of loan in computation of capital gains - Held, yes FACTS The assessee was a partner in a firm which took loan from the bank against mortgage of house property belonging to the assessee. The bank enforced the recovery of loan against the firm by sale of the property mortgaged. The house was auctioned by the assessee and out of the total sale consideration received, he discharged mortgaged debt and received balance amount. The Assessing Officer calculated the capital gain on the basis of the entire sale proceeds and made addition to income of assessee. On appeal, the Commissioner (Appeals) confirmed the addition. On second appeal, the…

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