1996 (4) TMI 12 - HC - Income Tax

Summary

Issues:
1. Interpretation of whether an amount received as damages is exigible to capital gains tax.
2. Application of section 2(47) of the Income-tax Act, 1961.
3. Consideration of legal precedents in determining tax liability.
4. Request for direction to state the cases and refer the question of law.

Analysis:
The judgment pertains to three applications filed by the Commissioner of Income-tax seeking direction to the Tribunal to refer a common question of law arising from orders rejecting applications under section 256(1) of the Income-tax Act, 1961. The issue revolves around whether an amount of Rs. 7,34,000 received as damages is subject to capital gains tax. The Tribunal held that since no transfer of property was involved, the amount was a capital receipt not exigible to tax, citing Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647 (SC). The Tribunal allowed the appeals, directing the Assessing Officer to modify the assessment orders accordingly.

The primary contention was the interpretation of section 2(47) of the Act, which defines "transfer" concerning a capital asset. The amended provision effective from April 1, 1985, broadened the scope of transfer. The applicant argued that the amount received was exigible to tax as per this provision and relied on legal precedents to support the claim. Conversely, the assessee's counsel cited Vania Silk Mills case to assert that without a transfer as defined under section 2(47), the amount was not subject to capital gains tax.

The court considered the facts, emphasizing that the amount was received based on a compromise in the High Court appeal. It concluded that the question of whether the amount was exigible to tax did arise from the Tribunal's order. The court directed the Tribunal to refer the question for consideration, without expressing an opinion on the merits. The court highlighted the need for a detailed examination of the issue with the assistance of both parties to ensure a lawful resolution.

In the final decision, the court allowed the applications and instructed the Tribunal to state the cases and refer the question of law for consideration. The court refrained from awarding costs but fixed the counsel fees for each side. The order was to be transmitted to the Tribunal promptly and retained in the relevant case records for future reference.