Assessee was Director in Pvt. Ltd. Company namely “A”. He was not holding any shares in the said company. He mortgaged his immovable property and gave guarantee in respect of loan taken by the said “A” Company. The said “A” company failed to make repayment of loan, therefore, the bank sold all mortgaged property of the assessee in auction.  A. O. invoked section 45 on the ground that the transfer had taken place in respect of the property owner by the assessee, which was liable to tax under long – term capital gain. In this case, assessee received no consideration and at the time of mortgage of property he was not any beneficial interest in “A” company please clarify whether assessee shall be liable for capital gain or not ? If there is any decision please let me know.

Reply

In case of CIT Vs. Roshanbabu Mohammed Hussein Merchant, Bombay High Court rejected the contention of the assessee that there will be no capital gain tax liability where no consideration is received.  

It was held that, though, the assessee has not received any portion of the sale consideration, the Capital Gains is liable to be assessed in the hands of the assessee treating the auction amount as the sale consideration.

According to the above case law, assessee is liable to pay tax on capital gain.