Giju Purapadathil Mathai Vs CIT (Kerala High Court)
The Kerala High Court dismissed the appellant’s challenge against a capital gains assessment arising from the sale of his property. The property had been equitably mortgaged to South Indian Bank under Section 58(f) of the Transfer of Property Act to secure loan facilities obtained by another person. Following default, the Bank sold the property and appropriated the entire sale consideration towards the loan account. The appellant contended that since he received no part of the sale proceeds, he should not be treated as having derived a capital gain or be subjected to income-tax liability.
The Income Tax Department relied on the Supreme Court’s decision in CIT v. Attili N.Rao[2022] 252 ITR 880, which had been noticed by the ITAT. The Department submitted that capital gains liability arises even where property is sold by an authority for recovery of debt.
The High Court noted that the appellant admittedly owned the property and had voluntarily created the mortgage, understanding that the property could be sold if the loan was not repaid. The Court observed that capital gains depend on whether the property was sold for a value higher than its acquisition cost. It stated that the prescribed formula involving the fair market value of the base year and the Cost Inflation Index would apply.
