C. Kondaiah, C.J.
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 :
'Whether, on the facts and in the circumstances of the case, the assessee is liable to tax on capital gains under Section 45 ?'
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. Aggrieved by the decision of the AAC, the assessee preferred an appeal to the Income-tax Appellate Tribunal. The plea of the assessee that there was transfer of assets under Section 45 of the Act even at the time when the mortgages were created, i.e., on May 4, 1934, and March 20, 1935, was not accepted. The Appellate Tribunal held that the transfer of property took place only when the sale was completed in the year 1964 and consequently upheld the levy of capital gains tax. Hence, this reference.
4. The contention of Sri Y.V. Anjaneyulu, learned counsel for the assessee, is two-fold. Firstly, the transfer of the property had in fact taken place on the date of the mortgages in question as, according to him, the definition of 'transfer' under Section 2(47), being an inclusive definition, is wide enough to take in the transaction of mortgage. Secondly, the interest paid or accrued on the principal sum of money borrowed on the two mortgages would also be included in the cost of the asset and, if so calculated, the sale price fetched in the year 1964 for these two items being less than the amount of the value of the capital assets, no capital gains tax could be levied on these transactions. This claim of the assessee is resisted by Sri P. Rama Rao, learned standing counsel for the income-tax department, contending, inter alia, that the definition of 'transfer' under Section 2(47) of the Act would not take in the transaction of a mortgage but only such transactions as are specifically enumerated therein and the question of adding interest said to have been paid by the assessee towards the mortgages to evaluate the price of the two assets on the date of the sales cannot be permitted to be raised under law. The second question does not arise out of the order of the Tribunal and is, therefore, not liable to be agitated upon in this reference.
5. 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 :
'Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 53, 54, 54B,......54D and 54E be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place.'
6. Therefore, under Section 45 any profits or gains that arise from the transfer of a capital asset shall be deemed to be the income of the previous year in which the transfer took place and the same shall be chargeable to income-tax under the head 'Capital gains'. We have to look to the definition of the word 'transfer'. Section 2(47) defines 'transfer' thus :
''Transfer', in relation to capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law.'
7. True, as Mr. Anjaneyulu points out, this definition of 'transfer' is an inclusive one. But, however, the categories of transfer with regard to a capital asset are : (1) sale, (2) exchange, (3) relinquishment of the asset. (4) extinguishment of any rights in the asset, and (5) compulsory acquisition of an asset under any low. In all the five categories of transfer enumerated therein, it is pertinent to notice, there is absolutely no iota of interest left in the hands of the transferor after the transaction of transfer. The entire interest in the capital asset is sought to be transferred and in fact intended to be transferred to the transferee or assignee without retaining any interest with the original owner. If what Mr. Anjaneyulu pleads for is acceded to, it would lead to an anomnlous position.
8. The delinition of 'transfer', in relation to a capital asset under the I.T. Act, is different from the transfer of any interest in specific immovable property. Section 58(a) of the Transfer of Property Act defines 'mortgage' as the 'transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan......' The transfer of an interest in specific immovable property is different from the transfer of the totality of interest in respect of a capital asset. The Sovereign Parliament, in our view, designedly used the expressions 'sale', 'exchange', 'relinquishment of the asset', 'extinguishment of any rights in the asset' and the 'compulsory acquisition of an asset under any law 'in the definition of 'transfer' under Section 2(47) of the Act. The definition is so clear as to take in only effective conveyance of the capital asset to the transferee. But, however, mere delivery of immovable property alone cannot be treated to be equivalent to conveyance of immovable property so as to come within the definition of 'transfer'. The definition is clear enough. If any authority is needed, we find it in Alapali Venkataramiah v. CIT : 57ITR185(SC) . Therein the learned judge, Sikri J. (as he then was), speaking for the court, observed at page 192 thus :
'Before Section 12B can be attracted, title must pass to the company by any of the modes mentioned in Section 12B, i.e., sale, exchange or transfer. It is true that the word 'transfer' is used in addition to the word 'sale' but even so, in the context, transfer must mean effective conveyance of the capital asset to the transferee. Delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of the immovable property.'
9. For the reasons stated above, we hold that there was no transfer of capital assets by creating mortgages in the years 1934 and 1935 in respect of the two properties and, therefore, the transfer of the assets had in fact taken place only in August, 1964, as rightly held by the Tribunal.
10. This brings us to examine the second aspect urged by Sri Anjaneyulu. Neither the statement of case submitted to this court nor the order of the Tribunal indicates this point being urged before the Tribunal. Hence, it cannot be said that this question arises out of the order of the Tribunal.
11. Mr. Anjaneyulu points out, in this context, to para. 3 of the Tribunal's order at page 32 of the paper book, which reads thus:
'Mr. Rathi, the learned counsel appearing for the assessee, reiterated the same contentions before us.'
12. Relying on this, he presses to infer that this point was argued before the Tribunal. We express our inability to agree with Mr. Anjaneyulu that this point was urged by his counterpart, Mr. Rathi, before the Tribunal. In para. 2 of the Tribunal's order, the assessee appears to have urged thus:
'There was no capital gains and on the other hand there was capital loss inasmuch as the properties had already been transferred long back by way of mortgage and if at all there was any transfer by court auction, it was only equity of redemption and, according to the assessee, the value of the equity of redemption would be the total mortgage money plus interest due and as such there would be no capital gains in any view of the matter.'
13. We are, therefore, unable to entertain this plea as the same does not arise out of the order of the Tribunal. The assessee, though notice was served on him, did not raise any objection to the statement of case which does not state this aspect. In any event, we are not impressed with this submission of Mr. Anjaneyulu.
14. Judged from any angle, we are satisfied that the view taken by the Tribunal is correct in law and our answer, therefore, to the question is in the affirmative and in favour of the department. The assessee shall pay the costs. Advocate's fee Rs. 350.