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Issues Involved:
1. Whether there was a transfer of any capital asset by the assessee under the agreements dated June 28, 1963, and November 22, 1963, resulting in capital gains under section 45 of the Income-tax Act, 1961. 2. Whether the Tribunal was right in canceling the order of the Additional Commissioner under section 263 of the Income-tax Act, 1961, and restoring the assessment order of the Income-tax Officer for the assessment year 1964-65. Issue-wise Detailed Analysis: 1. Transfer of Capital Asset and Capital Gains: The Tribunal examined the agreements dated June 28, 1963, and November 22, 1963, and concluded that there was no transfer of any capital asset by the assessee. The Tribunal noted that the contracts were sublet to the Indian company, but the assessee retained full responsibility for the execution of the contracts with Hindusthan Steel Ltd. This arrangement did not constitute a transfer of the right under the contract work but merely amounted to a sub-contract. The Tribunal emphasized that the assessee continued to bear the liability under the contract to the contractee, Hindusthan Steel Ltd., and thus, there was no transfer of any capital asset. The Tribunal also considered whether the provisions of section 52(1) or 52(2) were applicable. It held that there was no evidence to suggest that the transfer was made with the object of avoiding or reducing the assessee's tax liability. Furthermore, the Tribunal found no indication that the consideration declared was less than the actual consideration that passed. Therefore, the Tribunal concluded that neither section 52(1) nor section 52(2) could operate in this case. 2. Cancellation of the Additional Commissioner's Order and Restoration of the Income-tax Officer's Assessment: The Additional Commissioner had reviewed the assessment orders and concluded that they were prejudicial to the Revenue. He argued that the contracts in question were profitable and that the assessee had relinquished its rights to the benefits under the pending contracts without receiving any consideration, resulting in the extinguishment of the assessee's right to obtain the benefits relating to the principal contracts. The Additional Commissioner applied the provisions of section 52(1) and (2) and directed that the assessments for both years be made afresh. The assessee appealed to the Tribunal, arguing that no capital gains arose from the transactions and that the provisions of section 52(1) or 52(2) were not applicable. The Tribunal examined the legal aspects and held that the right to perform a contract might fall within the definition of "capital asset" and its extinguishment could be regarded as a "transfer." However, in this case, the Tribunal found that there was no transfer of any capital asset under the terms of the contract. The Tribunal also considered the applicability of section 52(1) or 52(2) and concluded that there was no evidence to suggest that the transfer was made to avoid or reduce tax liability. The Tribunal noted that the assignment of the contract work to the Indian company did not constitute a transfer of the right under the contract work but was merely a sub-contract, with the assessee retaining liability for the performance of the contract with Hindusthan Steel Ltd. Ultimately, the Tribunal held that there was no transfer of any capital asset by the assessee, and therefore, no capital gains arose. Consequently, the Tribunal canceled the order of the Additional Commissioner under section 263 and restored the assessment order of the Income-tax Officer for the assessment year 1964-65. Conclusion: The High Court agreed with the Tribunal's findings and conclusions. It held that there was no transfer of any capital asset by the assessee, and therefore, no capital gains arose. The Court also concurred with the Tribunal's decision to cancel the order of the Additional Commissioner under section 263 and restore the assessment order of the Income-tax Officer. Both questions were answered in the affirmative and against the Revenue, with no order as to costs.
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