GHANSHYAMDAS KISHAN CHANDER Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Income-tax Appellate Tribunal, Hyderabad Bench, has submitted under Section 256(1) of I.T. Act, 1961 (hereinafter referred to as "the Act"), a statement of case for the opinion of this court on the following question of law :

(2.) THE father of the karta of the assessee-Hindu undivided family suffered a decree for a sum of Rs. 5,40,986-3-0 in favour of one Sri Chand Ratan Dhanda in execution of which decree, through an assignee, the judgment-debtors were arrested on April 6, 1932, by an order of the High Court dated April 3, 1932. One Pannalalji and his father stood as sureties to obtain release of the judgment-debtors. THE sureties obtained mortgages in respect of five properties belonging to the judgment-debtors under five different documents. We are concerned in this case with two mortgages, one dated May 4, 1934, for Rs. 14,000 in respect of property situated in James Street, Secunderabad, and the other dated March 20, 1935, for Rs. 39,000 in respect of property in Prederghast Road, Secunderabad. Subsequently, there was a compromise between another transferee-decree-holder by name Harakchand Raghunathadas and the surety, Pannalalji, whereunder Pannalalji had to pay a sum of Rs. 3,17,000 and the same was accordingly paid by Parinalalji. THE mortgaged properties were sold in execution of the decree for a sum of Rs. 4,75,000 in the month of August, 1964, during the accounting year relevant for the assessment year 1965-66. THE ITO sought to levy tax on the capital gains arising out of the court sale of the two properties belonging to the assessee who contended that there was no capital gains but, instead, there was capital loss. THE contention of the assessee that the value of equity of redemption would be the total mortgage money plus interest due and as such there would be no capital gains, was not acceded to by the ITO as well as the AAC.

(3.) WE shall first take up the plea of the assessee as to whether the transaction of mortgage would come within the purview of the definition of "transfer" of a capital asset for the purpose of determining the capital gains tax under Section 45 of the Act, which reads thus :