1953 (4) TMI 36 - HC - Income Tax

Summary

Issues Involved:

1. Liability of capital gains tax on the transfer of movable properties.
2. Validity of the contract of sale dated 16-3-1946.
3. Determination of the date of transfer for capital gains tax purposes.
4. Classification of properties as movable or immovable.

Detailed Analysis:

1. Liability of Capital Gains Tax on the Transfer of Movable Properties:

The central issue was whether the transfer of movable properties took place on or before 31-3-1946, thus exempting the assessee from capital gains tax under Section 12B, Income Tax Act. The Income Tax Officer initially held that the sale of both movable and immovable properties occurred after 1-4-1946, making the capital gains taxable. The Appellate Tribunal, however, found that the transfer of movables occurred on 30-3-1946, thus exempting them from tax. The High Court upheld this finding, noting that the Tribunal's decision was based on substantial evidence, including the resolution by the Board of Directors and a letter from the managing agents confirming possession transfer on 30-3-1946.

2. Validity of the Contract of Sale Dated 16-3-1946:

The Standing Counsel argued that the contract dated 16-3-1946 was invalid because the limited company was incorporated only on 18-3-1946, and the promoters had no authority to enter into the contract on its behalf. The High Court rejected this argument, referencing Sections 23 and 27 of the Contract Act. These sections allow specific performance of a contract made by promoters before incorporation if the contract is warranted by the terms of incorporation and subsequently ratified by the company. The Court emphasized that the company had ratified and adopted the contract on 29-3-1946 and had taken possession of the assets based on it, thus binding the company to the contract.

3. Determination of the Date of Transfer for Capital Gains Tax Purposes:

The High Court addressed whether the transfer of movables was effective before 1-4-1946. The Appellate Tribunal had concluded that the transfer occurred on 30-3-1946 based on documentary evidence. The High Court affirmed this finding, noting that the Tribunal's decision was supported by the Board of Directors' resolution and a letter from the managing agents. The Court also dismissed the argument that the sale deed dated 17-5-1946 included movables, clarifying that the deed only pertained to immovable properties.

4. Classification of Properties as Movable or Immovable:

The Standing Counsel contended that items in Schedule 2 were immovable properties and required a registered sale deed for valid transfer. The High Court dismissed this argument, stating that the issue was not raised before the departmental authorities or the Appellate Tribunal. The classification of items as movable or immovable depends on specific facts and circumstances, which were not investigated or established in this case. The Court emphasized that its jurisdiction in income tax references is advisory, and it cannot investigate new facts or arguments not previously considered by the Tribunal.

Conclusion:

The High Court concluded that the transfer of movables occurred on 30-3-1946, exempting the assessee from capital gains tax on these assets. The contract of sale dated 16-3-1946 was valid and binding on the limited company. The Court rejected the arguments regarding the classification of properties as immovable, as this issue was not properly raised or investigated. The question referred by the Income Tax Appellate Tribunal was answered in favor of the assessee, with the Income Tax Department ordered to pay the costs of the reference.