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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – VIII, Chennai, dated 30.10.2012 and pertains to assessment year 2009-10.
The only issue arises for consideration is computation of capital gain on sale of property.
Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that the assessee’s son, who is a non- resident Indian, purchased an immovable property which is a hotel on 07.12.2005 for a total consideration of `1,69,00,000/-. After purchase, the assessee’s son borrowed loan from State Bank of India to the extent of `1,39,00,000/-. Subsequently, on 06.10.2008, the assessee’s son settled the property in favour of the assessee.
According to the Ld. D.R., the assessee sold the property to M/s Sabari Inn Pvt. Ltd. for a total consideration of `6,75,00,000/- From and out of the sale consideration, the assessee has repaid the outstanding loan of `1,28,48,668/- to State Bank of India and got the mortgage released. According to the Ld. D.R., while computing the capital gain, the assessee claimed the same at `1,69,00,000/- being the cost of acquisition to the previous owner and also claimed `1,28,48,668/- as cost of acquisition. According to the Ld. D.R., the assessee received the property as gift from his son and the loan was borrowed subsequent to the purchase of property. Therefore, according to the Ld. D.R., the sale consideration which was utilised for repayment of loan cannot be treated as charge on the property. Hence, according to the Ld. D.R., the repayment of loan to the extent of `1,28,48,668/- cannot be allowed while computing the capital gain.
On the contrary, Shri S. Sridhar, the Ld.counsel for the assessee, submitted that it is not correct to say that the assessee’s son borrowed loan subsequent to the purchase of property. The assessee’s son borrowed loan of `1,39,00,000/- only for the purpose of purchasing the property. Subsequently, the assessee’s son gifted the property to his father and on 06.10.2008, the assessee sold the property. According to the Ld. counsel, since the property was received by the assessee from his son as gift subsequent to the mortgage to State Bank of India, the assessee deducted the outstanding loan amount while computing the capital gain. In fact, according to the Ld. counsel, the sale consideration of `6,75,00,000/- was utilized for repayment of outstanding loan. The Ld.counsel placed his reliance on the judgment of Apex Court in R.M. Arunachalam v. CIT (1997) 227 ITR 222.
We have considered the rival submissions on either side and perused the relevant material available on record. From the order of the assessment it appears the assessee’s son, who is a non- resident Indian, purchased the property on 07.12.2005 for a total consideration of `1,69,00,000/- by obtaining loan of `1,39,00,000/- from State Bank of India, NRI Branch. The assessee’s son executed the mortgage deed in favour of State Bank of India as a collateral security for borrowal of loan. This is obvious from the assessment order, more particularly at para 3.2. Therefore, the contention of the Ld. D.R. that the loan was borrowed subsequent to the purchase of property is not correct. The fact remains that the very loan borrowed by the assessee’s son was for purchase of property. Subsequently the assessee’s son gifted the said property to the assessee by way of registered gift deed.
On 06.10.2008, the assessee sold the property to M/s Sabari Inn Pvt. Ltd. for a total consideration of `6,75,00,000/-. Therefore, it is obvious from the material available on record that the assessee’s son borrowed `1,39,00,000/- for the purpose of purchase of property. Hence, that is a charge on the property itself. The assessee’s son gifted the property to the assessee along with the existing mortgage. Even though there was no reference in the gift deed about the existence of mortgage, the fact is that the property was subjected to mortgage cannot be disputed. Therefore, the payment of `1,28,48,668/- being the outstanding loan amount was the loan borrowed from State Bank of India for purchase of property and it has to be deducted while computing the capital gain.
We have carefully gone through the judgment of Apex Court in R.M. Arunachalam (supra). The Apex Court has observed as follows:-
“While we are affirming the impugned judgment of the High Court, we are unable to endorse the view of the Kerala High Court in Ambat Echukutty Menon v. CIT [1978] 111 ITR 880 to which reference has been made by the High Court in the impugned judgment. In that case, the assessee, as one of the heirs, had inherited property from the previous owner who had mortgaged the same during his lifetime and after his death the heirs, including the assessee, had discharged the mortgage created by the deceased. The said property was subsequently acquired under the Land Acquisition Act and for the purpose of capital gains the assessee sought deduction of the amount spent to clear the mortgage. The High Court held that the capital asset had become the property of the assessee by succession or inheritance on the death of the previous owner under section 49(1) of the Act and the cost of acquisition of the asset is to be deemed to be the cost for which the previous owner acquired it, as increased by the cost of any improvement of the assets incurred or borne either by the previous owner or by the assessee.”
This judgment of Apex Court was rightly followed by the CIT(Appeals). Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on 27th July, 2017 at Chennai.