Taxation

Application or diversion

This case looks pretty simple after the arduous training we have got here in NADT. Still, it took the Allahabad HC to clarify the matter. The case is 305 ITR 24.

Assessee is partner of a firm which has taken a loan and the house property belonging to the ‘a’ was mortgaged to the bank against the loan. After failing to repay the loan, the property was auctioned by the ‘a’ for 1.95 lakh and out of this 1.5 lakh was paid to the bank as settlement. Rs 45 thousand was offered by the ‘a’ as FVC.

Issue is whether the entire 1.95 lakh is to be taken as full value of consideration, as is the claim of Revenue, or only 45K as is the claim of ‘a’. CIT (A) had upheld the claim of Revenue whereas ITAT went against the same. Matter then came to Hon’ble Allahabad HC.

Assessee’s ground is that 1.5 lakh is diverted by an overriding title and therefore it is diversion of income. However, Revenue insisted on the ground that it is a self created mortgage and therefore can’t be said to be overriding title and it is a mere application of income by the ‘a’. The whole case can be understood as ‘a’ getting 1.95 lakh and then giving away 1.5 lakh to the bank for some reason and keeping rest with himself.

In the light of above facts and reasons above, the Allahabad HC held the case in favor of Revenue and against ‘a’.

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