Ramachandran Nair, J v. C.n.ramachandran Nair

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN MONDAY, THE 19TH OCTOBER 2009 / 27TH ASWINA 1931 ITA.No. 1561 of 2009() ---------------------- ITA.428/COCH/2007 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT/ASSESSEE ------------------------------------------------ SHRI.B.SREEKUMARAN NAIR, REPRESENTED BY POWER OF ATTORNEY HOLDER, B.RAMACHANDRAN NAIR, RAJI NIVAS, MUNDAKKAL, KOLLAM. BY ADV. SRI.T.M.SREEDHARAN SMT.C.K.SHERIN SRI.V.P.NARAYANAN RESPONDENT(S): RESPONDENT/REVENUE --------------------------------- THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. BY ADV. SRI. JOSE JOSEPH, SC FOR IT DEPT. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19/10/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C .N. RAMACHANDRAN NAIR &V.K. MOHANAN, JJ. -------------------------------------------- -------------------------------------------- Dated this the 19th day of October, 2009 JUDGMENT Ramachandran Nair, J. The question raised in the appeal filed by the assessee is whetherthe Tribunal was justified in holding that the amount spent by theassessee to clear the mortgage created by the previous owner fromwhom he inherited property is not an allowable deduction in thecomputation of capital gains on the sale of the property under Section48(2) of the I.T. Act. We have heard Sri. T.M. Sreedharan, counselappearing for the appellant, and standing counsel appearing for therespondent. 2. The property sold is land and a cashew factory previouslyowned by the appellant's father during his life-time and father hadcreated a mortgage over the property in favour of a Bank and availedloan. After his death, the loan amount had accumulated to Rs. 30lakhs. When appellant and other legal heirs proposed to sell the property, the purchasers insisted on clearance of the mortgage debt andtherefore appellant and other legal heirs discharged the mortgage debtand sold the property after perfecting their title. Strangely the saleconsideration accounted is Rs. 20 lakhs as against discharged mortgageamount of Rs. 30 lakhs The assessing officer has accepted the saleconsideration returned, but disallowed the mortgage debt claimed asdeduction under Section 48(2) of the Act on the ground that the samedoes not represent the cost of acquisition. Counsel for the appellanthas relied on the decision of the Supreme Court in V.S.M.R.JAGADISHCHANDRAN (DECD.) V. CIT, 227 I.T.R. 240 (SC)wherein the Supreme Court relying on their earlier decision inRM.ARUNACHALAM CHETTIAR V. CIT, 227 I.T.R. 222 (SC) heldthat discharge of mortgage debt is cost of acquisition and so much so itis an allowable deduction under Section 48(2) of the Act. We findforce in this contention because on death of original owner, all the legalheirs got only right of mortgagor and by discharging the mortgage debt,they have acquired perfect title over the property, and so much so, thecost incurred for releasing the property from the mortgage amounts to acquisition of full title over the property. As held by the SupremeCourt, what the appellant has achieved by discharging the mortgagedebt is to get full title over the property, and so much so, the amountpaid to discharge the liability should be treated as cost of acquisitionfor the purpose of computation of capital gains. We therefore allow the appeal by reversing the assessmentconfirmed in second appeal by the Tribunal with direction to theassessing officer to recompute the liability by granting exemption tomortgage debt discharged by the appellant as part of cost of acquisitioneligible for deduction under Section 48(2) of the Act. (C.N.RAMACHANDRAN NAIR) Judge. (V.K. MOHANAN) Judge. kk