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Issues:
1. Whether a sum of Rs. 79,494 is assessable as capital gains in the assessment year 1948-49? The judgment by the Andhra Pradesh High Court, delivered by Jaganmohan Reddy, J., pertains to a case where the Income-tax Appellate Tribunal referred a question regarding the assessability of a sum of Rs. 79,494 as capital gains in the assessment year 1948-49. The assessee, a proprietor of a tile works, entered into an agreement to sell the factory, plant, machinery, and other assets to a limited company. The agreement was approved by the company's board of directors and shareholders. The Income-tax Officer included the profit of Rs. 79,494 in the assessee's taxable income as capital gains. The Tribunal initially held that there was no legal transfer to the company and no payment was received by the assessee during the relevant period. However, after additional materials were presented, the Tribunal concluded that the capital gains were taxable. The assessee challenged this decision, arguing that the sale occurred after the assessment year, hence no tax liability existed. The Court analyzed the agreement, the company's actions, and the accounting method adopted by the assessee. It held that the assessee had a right to receive the sale amount immediately, even though the full payment was made later, and that the transfer was completed when the company took possession. Referring to a precedent, the Court emphasized that income accrues when a right to receive it arises, not necessarily when it is physically received. Therefore, the Court answered the reference affirmatively, concluding that the capital gains were assessable in the relevant year. The judgment discusses the applicability of the Income-tax Act provisions regarding capital gains and the timing of income accrual. It delves into the specifics of the agreement between the assessee and the company, emphasizing the importance of possession transfer and the right to receive income. The Court highlights the distinction between the accrual of income and its actual receipt, citing a relevant precedent to support its interpretation. The judgment clarifies that under the mercantile system of accounting, income is deemed to have arisen when the right to receive it materializes, even if the physical receipt is delayed. By analyzing the transaction details and accounting practices of the parties involved, the Court concludes that the capital gains were indeed assessable in the relevant assessment year, dismissing the assessee's argument based on the timing of the sale deed execution.
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