1984 (12) TMI 25 - HC - Income Tax

Summary

Issues:
1. Assessment of profits under section 41(2) of the Income-tax Act, 1961 for the assessment years 1963-64 to 1965-66.
2. Assessment of long-term capital gain on the sale of assets of Belvedere jute Mills Co. Ltd.
3. Interpretation of section 49(1)(iii) of the Income-tax Act, 1961 in the context of amalgamation.

Analysis:

1. Assessment of Profits under Section 41(2):
The Income-tax Officer assessed profits under section 41(2) for the assessment years 1963-64 to 1965-66, based on the sale of assets acquired from Belvedere jute Mills Co. Ltd. before being used by the assessee. The Appellate Assistant Commissioner ruled that since the assets were not utilized by the amalgamated company, no profit could be attributed under section 41(2) of the Act. The Tribunal upheld this decision, rejecting the Revenue's contentions.

2. Assessment of Long-term Capital Gain:
The Income-tax Officer computed long-term capital gain on the sale of Belvedere jute Mills Co. Ltd.'s assets in the hands of the assessee. The Appellate Assistant Commissioner directed to recompute the capital gain based on the book value of the assets at the time of amalgamation. The Tribunal held that the assessee succeeded to the assets by succession, applying section 49(1)(iii) of the Act, and remanded the matter for proper determination of the cost of acquisition by the previous owner.

3. Interpretation of Section 49(1)(iii) in Amalgamation:
The Tribunal found that in the case of amalgamation, the assessee succeeded to the assets and business of the amalgamating company, invoking section 49(1)(iii) of the Act. The court referenced a previous case related to amalgamation and held that the principles of devolution by operation of law applied. It was concluded that the capital assets became the property of the assessee by devolution within the meaning of section 49(1)(iii).

In conclusion, the High Court held in favor of the assessee, affirming that no profits could be assessed under section 41(2) due to non-utilization of the acquired assets. The court also determined that the assessee succeeded to the assets by succession, applying the principles of devolution in amalgamation cases. The matter of capital gain assessment was remanded for proper computation based on the book value of the assets at the time of amalgamation.