SALAY MOHAMAD IBRAHIM SAIT Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) The petitioners in these two writ petitions are brothers. They were the Directors of a company M/s. Indo Marine Agencies (K) P. Ltd. They jointly owned 149.604 cents of land in Sy.Nos. 72 and 1583 of Mattancherry Village, which they had mortgaged, along with others, to the Canara Bank, Mattancherry Branch, by deposit of title deeds, to secure the advances made and to be made by the Bank to the aforesaid company. More than Rs. Sixty lakhs was due to the Bank under the mortgage, at a time when the petitioners entered into an agreement to sell the property to ten persons, under different assignment deeds, for a total consideration of Rs.10,33,966/-. The Bank agreed to release the mortgage on the property, if an amount of Rs.Nine lakhs was paid towards the outstandings. The amount was accordingly deposited by the petitioners on June 21, 1985 through the purchasers, or with funds made available by them, and the Bank released their mortgage right on the property. The deeds of assignment were thereafter executed and the property sold in accordance with the agreement to sell.

(2.) Petitioners filed returns for purposes of assessment under the Income Tax Act, 1961 (the Act) disclosing the capital gains arising out of the transfers as on a total consideration of Rs.10,33,966/-. The returns were accepted and the assessments completed under S.143(1) of the Act by orders dated 27-12-1988 marked Ext. P4 in each of the cases. Petitioners then had second thoughts about the correctness of their returns, and they challenged the orders of assessment in revision Ext. P5 dated August 8, 1989 before the Commissioner of Income Tax, the second respondent. The ground taken was that the consideration for transfers should be taken as the amount of Rs.10,33,986/- less Rs.Nine lakhs paid to the Bank in discharge of the mortgage, in which event, there was no capital gain liable to be assessed. At the hearing, the argument appears to have been ' that the amount paid to the Bank did not reach the petitioners as it had been diverted by overriding title and therefore capital gains, if any, should be computed only with reference to the balance. The Commissioner overruled this plea stating that there was no requirement in law that the seller should directly receive the consideration. When the amount was paid to the Bank in discharge of the mortgage, it was appropriation of the sale proceeds for the petitioner's benefit. He held further that the mortgage debt was not an admissible deduction in computing capital gains as per the decision of this court in Ambat Echukutty Menon v. C.I.T. 1978 KLT 16 = (1978) 111 ITR 880. The Commissioner accordingly dismissed the revision petitions by the order Ext. P6 which is under challenge in these writ petitions.

(3.) The contention of counsel for the petitioners is a very ambitious one. He states that what is transferred is only the equity of redemption for which the consideration is Rs. 10,33,966/- minus Rs.Nine lakhs ie. Rs. 1,33,966/-. According to him the full value of the consideration for the purpose of S.48(1)(a) is only that which is actually received by the vendors, there being a diversion at source of the amount paid for discharging the mortgage. It is therefore contended that the consideration is only that amount that is left after the discharge of the mortgage. According to counsel, Ambat Echukutty Menon has been decided erroneously.