Law: Income Tax Act, 1961

Section: 45

Income-tax---Capital gains---Computation----Abkari business---Kist amount due to Government---Immovable property of assessee mortgaged to State for payment of Kist---Government selling property and realizing dues--­Dues deduction from sale proceeds and balance paid to assessee----Amount deducted towards dues to Government from sale proceeds not to be deducted in computing capital gains---Indian Income Tax Act, 1961, S.45---[CIT v. Attili Narayana Rao (1998) 233 ITR 10 reversed]. The assessee, who carried on Abkari business, had mortgaged immovable property belonging to him to the Excise Department of the State Government of Andhra Pradesh as security for amounts of "Kist" due to the State. On sale by the State Government of the immovable property by auction, a sum of Rs.5,62,980 was realized, wherefrom the Government deducted the sum of Rs.1,29,020 due towards Kist and paid over the balance to the assessee. In computing the capital gains from the sale of the property, the assessee sought deduction of the sum of Rs.1,29,020. The Appellate Tribunal upheld the claim on the ground that there was a clear charge or mortgage over the property and the amount realized under the charge or mortgage was an amount which never reached the assessee but reached the Government by overriding title. On a reference, the High Court held that by the mortgage an interest was created in favour of the State and when the property was sold by auction its value had to be reduced to the extent of the interest created in favour of the State. On appeal to the Supreme Court. Held, reversing the decision of the High Court, that what was sold at the auction was the immovable properly belonging to the assessee and the price realized, therefore, belonged to the assessee. From that price the State deducted its dues towards Kist. Capital gains had to be computed on the full price (less admissible deductions). CIT v. Attili Narayana Rao (1998) 233 ITR 10 reversed. ORDER The High Court ((1998) 233 ITR 10) answered against the Revenue all the following questions, except Question No.3 which, in the High Court's view, did not arise for consideration (page 11): "(1) Whether, on the facts and in the…

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