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Issues Involved:
1. Assessability of profits under section 41(2) for the assessment years 1963-64 and 1965-66. 2. Inclusion of amounts as long-term capital gains for the assessment years 1963-64 and 1965-66. 3. Deductibility of expenditure incurred in connection with the transfer of assets for the assessment years 1963-64 and 1965-66. Issue-wise Detailed Analysis: 1. Assessability of Profits under Section 41(2): The Tribunal held that the surplus of Rs. 2,32,234 and Rs. 2,30,637 was not chargeable to tax under section 41(2) for the assessment years 1963-64 and 1965-66, respectively. This decision was based on the precedent set by the Delhi High Court in the case of P. C. Gulati, Voluntary Liquidator, Panipat Electric Supply Co. Ltd. v. CIT [1972] 86 ITR 501, and the Bombay High Court in Akola Electricity Supply Co. P. Ltd. v. CIT [1978] 113 ITR 265. The court emphasized that under section 41(2), the moneys payable in respect of the assets must become due, which means the consideration must be quantified and ascertained. In this case, the compensation was still under negotiation and not finalized, and therefore, the moneys payable had not become due in the relevant previous years. The court concluded that the Tribunal was correct in its decision, and the first two questions were answered in the affirmative, favoring the assessee. 2. Inclusion of Amounts as Long-term Capital Gains: The Tribunal held that the amounts of Rs. 2,30,114 and Rs. 2,120 were includible as long-term capital gains for the assessment year 1963-64, and Rs. 1,42,522 for the assessment year 1965-66. This decision was based on the statutory language of section 45, which states that capital gains are deemed to be the income of the previous year in which the transfer took place. The court noted that the Tribunal had proceeded on the footing that the transfers took place during the relevant previous years. The court rejected the assessee's contention that the transfers had not taken place during the relevant years, as this argument did not arise out of the Tribunal's order and was contrary to the basis on which the case had proceeded all along. The third question was answered in the negative, favoring the Revenue. 3. Deductibility of Expenditure: The Tribunal allowed the assessee's claim for the expenditure incurred on valuation of assets, to the extent of Rs. 11,340 for the assessment year 1963-64 and Rs. 12,391 for the assessment year 1965-66. However, the balance of the claims, viz., Rs. 46,600 in 1963-64 and Rs. 20,859 in 1965-66, was not allowed as they did not relate to the previous years in question. The court held that all expenditure incidental to the transfer must be deducted in computing the amount of capital gains, regardless of the year in which it was incurred, as per the language of section 48. Therefore, the Tribunal should have allowed the entire expenditure in relation to the transfers in question. The fourth question was answered in the affirmative, favoring the assessee. Conclusion: The court answered questions (i) and (ii) in the affirmative, favoring the assessee, and question (iii) in the negative, favoring the Revenue. Question (iv) was answered in the affirmative, favoring the assessee. The reference was disposed of accordingly, with no order as to costs.
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