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Issues Involved:
1. Whether the Tribunal is right in law in allowing the assessee to raise for the first time before the Tribunal a ground pertaining to the correct previous year in so far as the assessment to capital gains was concerned. 2. Whether the Tribunal was right in law in holding that the amount of capital gains of Rs. 5,15,440 was not assessable in the assessment year 1974-75. Issue-wise Detailed Analysis: 1. Allowing the Assessee to Raise a New Ground Before the Tribunal: The Revenue did not urge this issue during the hearing. Therefore, the court did not address this question and focused on the second issue. 2. Assessability of Capital Gains in the Assessment Year 1974-75: The assessee, a registered firm, sold a generator on March 3, 1973, for Rs. 6,00,000, resulting in a capital gain of Rs. 5,15,440. The assessee included this gain in its return for the assessment year 1973-74, while the Income-tax Officer assessed it for 1974-75, treating the sale date as March 1973. The assessee did not include this gain in the return for 1974-75. The definition of "short-term capital asset" changed effective April 1, 1974, impacting the assessment year 1974-75. Before this date, assets held for not more than 24 months were short-term; after the amendment, this period extended to 60 months. Thus, the generator would be a long-term asset if assessed in 1973-74 but short-term if assessed in 1974-75. The Tribunal allowed the assessee to argue that the financial year should be the previous year for capital gains, making the gain assessable in 1973-74. The Tribunal accepted this, stating the assessee had not opted for the calendar year for capital gains, making the financial year 1972-73 the previous year for the gain. Arguments and Findings: - Revenue's Argument: The assessee's return for 1973-74 mentioned the previous year as ending December 31, 1972, including business income and capital gain, implying an option for the calendar year for capital gains. The Revenue argued that different previous years could not be chosen for different heads of income, citing section 3(3) of the Act. - Assessee's Argument: The inclusion of the capital gain in the 1973-74 return and its exclusion in the 1974-75 return indicated no option for the calendar year for capital gains. The assessee cited decisions from the Privy Council and Bombay High Court, equating "sources" and "heads" of income. The court noted that the sale occurred on March 3, 1973, and the assessee included the gain in the 1973-74 return, not in 1974-75. The income from business was for the calendar year 1972, and the capital gain was derived on March 3, 1973. The court found no evidence that the assessee opted for the calendar year for capital gains. The financial year ending March 31, 1973, was the previous year for the capital gains, making it assessable in 1973-74. Additional Considerations: The court addressed the Revenue's argument that different previous years for different heads of income were not permissible. Section 3(1) defines "previous year," and section 3(3) allows different previous years for separate sources of income. Section 14 classifies income heads for tax computation. The court held that heads of income are sources of income, allowing different previous years for different heads. The court cited the Privy Council and Bombay High Court decisions, supporting the view that "sources" and "heads" of income are synonymous. The Andhra Pradesh High Court decision also supported this view. The court rejected the argument that section 41(2) (depreciation recapture) affects the assessment of capital gains, noting no such assessment in this case. Conclusion: Both questions were answered in the affirmative, in favor of the assessee and against the Revenue. The judgment confirmed that the capital gain was assessable in the assessment year 1973-74, not 1974-75. No costs were awarded, and a copy of the judgment was to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.
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