2010 (7) TMI 687 - HC - Income Tax

Interest - Income from other sources or Capital gains - The amount received by way of interest was not on account of transfer of capital asset, but on account of a different transaction under which interest was received - The amount in question, in this writ petition received by the Official Liquidator as per the orders of the Company Court, though repeatedly referred to as interest, for the purpose of assessment of income-tax, it is part of sale consideration and therefore, the same cannot be treated as income from other sources as defined in section 56 of the IT Act - The said amount should be treated only as capital gain under section 45 of the IT Act for the purpose of assessment - Hence, the matter is remitted to the respondent for issuance of appropriate assessment order treating the amount in question as capital gain - No costs.

Summary

Issues Involved:
1. Classification of the amount received by the Official Liquidator: Whether it falls under "Capital gains" or "Income from other sources" for income-tax purposes.
2. Maintainability of the company application filed by the Official Liquidator.

Issue-wise Detailed Analysis:

1. Classification of the Amount Received by the Official Liquidator:

The central question in this case was whether the amount received by the Official Liquidator, termed as "interest," should be classified as part of the sale consideration (capital gains) or as income from other sources for the purpose of income-tax assessment.

The petitioner argued that although the Company Court referred to the amount as interest, it should legally be considered part of the sale consideration. The petitioner contended that since the transfer of title and possession did not occur immediately, any amount received before the transfer should be treated as part of the capital and not as income from other sources. The petitioner relied on Section 48 of the IT Act and the definition of interest in Section 2(28A) to support this argument.

The respondent countered that the Company Court's use of the terms "consideration" and "interest" indicated a clear intention to treat the bid amount as consideration and any delayed payment as interest, thus falling under income from other sources. The respondent also cited a judgment from the Madras High Court in Mount Stuart Tea Estate & Amar Coffee Plantation v. CIT, which held that interest received from the purchaser on the sale consideration is income from other sources.

The Court examined the provisions of the IT Act, particularly Section 45(1) on capital gains and Section 48 on the computation of capital gains. It noted that any profit or gain arising from the transfer of a capital asset is chargeable as capital gain. The Court also referred to Section 2(47) of the Act, which defines "transfer" and includes notional or artificial transfer under Section 53A of the Transfer of Property Act.

The Court concluded that the amount in question, although termed as interest, should be treated as part of the sale consideration. It reasoned that the amount accrued on account of the transfer of the capital asset and should be added to the bid amount to calculate the capital gain. The Court also noted that the transfer of possession to the bidder was by way of lease and not under Section 53A of the Transfer of Property Act, meaning there was no actual or artificial transfer of title until the sale certificate was issued.

2. Maintainability of the Company Application:

The petitioner had filed a company application challenging the assessment order, which was dismissed by the Company Court on the grounds of non-maintainability. The Company Court directed the petitioner to file a writ petition instead. The Court noted that the IT Department should not raise the plea of availability of alternative remedy or delay in challenging the assessment order.

Conclusion:

The Court held that the amount received by the Official Liquidator should be treated as part of the sale consideration and not as income from other sources. The writ petition was allowed, and the impugned order was set aside. The matter was remitted to the first respondent for issuance of an appropriate assessment order treating the amount as capital gain.