- (1.) Special leave granted.
(2.) This appeal by the assessee is directed against the order dated 25/7/19844 passed by the Madras High court in TC No. 145 of 1983 wherein the High court on an application filed under Section 256 (2 of the Act declined to direct the tribunal to state a case and refer the following questions of law to the High court- "1.Whether the tribunal was right in holding that the levy of the capital gains of Rs. 68,400 is proper under the facts and circumstances of the case 2. Whether the tribunal was right in holding that mortgage debts does not constitute diversion at source 3. Whether the debts discharged by the applicant on the properties cannot be said to enhance the cost of acquisition -
(3.) The assessee sold a house property No. 22, Chairman Muthurama Iyer Road, Madurai for a sum of Rs. 90,000. 00 subject to encumbrance in the Assessment Year 1975-76 and for the same assessment year he sold Plots Nos. 1, 3 and half of Plot No. 4 in TS No. 831/1 for a sum of Rs. 12,600. 00. The Income Tax Officer computed the capital gains in respect of the said properties at Rs. 68,400. 00. The assessee questioned the computation of capital gains before the Appellate Assistant Commissioner and contended that the debts in respect of which mortgage had been executed were discharged by the buyer (sic render) himself out of the sale proceeds, that the debts should be considered as increase in cost of acquisition of the properties and that in any event the debts may be treated as improvement to the property or as the cost of obtaining clear title to the property. The Appellate Assistant Commissioner rejected the said contention. He, however, upheld the contention of the assessee that there was an overriding title of the creditors in respect of the sale proceeds and, therefore, there was diversion at source on the basis of such overriding title and the assessee was not liable to charge under the capital gains in respect of the sale of the properties and, therefore,he deleted the capital gains of Rs. 68,400. 00 as computed by the Income Tax Officer. The tribunal, following the decision of the Kerala High court in Ambat Echukutty Menon v. commissioner OF INCOME TAX and the decision of the Madras High court in commissioner OF INCOME TAX v. V. Indira held that clearing of the mortgage debt could neither be treated as "cost of acquisition" nor as "cost of improvement" made by the assessee. The tribunal, therefore, held that the deduction of the capital gains was not justified. Since the tribunal declined to refer to the High court the questions referred to above, the assessee filed an application under Section 256 (2 of the Act before the High court which has been rejected by the impugned order. The High court has relied upon the decision of the full bench of the High court in S. Valliammai v. commissioner OF INCOME TAX and has held that by discharging the mortgage debt subsisting on the property which was the subject-matter of a sale, the assessee was not either improving or perfecting his title or improving the property in any manner and, therefore, the amount paid for discharging the mortgage debt cannot be taken to be for the cost of acquisition as contended by the assessee.;