2007 (10) TMI 256 - HC - Income Tax

Assessee did not carry on any business and for several years revenue had treated them as an investment company Revenue not proved that the activities carried on by the assessee were in the nature of trade - hence compensation received on acquisition of land by govt. will be assessable as capital gains in computing period of limitation, once the word from is used, the first in the series of days or any other period of time has to be excluded hence assessment is not time barred

Summary

Issues Involved:
1. Whether the assessment for the assessment year 1979-80 was time-barred.
2. Whether Rs. 82,91,400 were assessable as income from business or as capital gains.

Detailed Analysis:

1. Whether the assessment for the assessment year 1979-80 was time-barred:

Contentions and Legal Provisions:
- The assessee argued that under section 153(1)(a)(iii) of the Income-tax Act, the assessment order must be made within two years from the end of the assessment year, subject to sections 144A and 144B.
- Section 144B details the procedure when the Income-tax Officer proposes a variation in the income or loss returned, including forwarding a draft order to the assessee and receiving directions from the Inspecting Assistant Commissioner (IAC).
- Explanation 1 clause (iv) of section 153 states that the period from the date the draft order is forwarded to the date directions are received from the IAC (not exceeding 180 days) is excluded from the limitation period.

Facts and Calculation:
- The draft order was forwarded on March 24, 1982, and directions were received on September 25, 1982. The final order was passed on September 27, 1982.
- The assessee contended that the order was passed beyond the permissible period, making it time-barred.

Court's Analysis and Conclusion:
- The court referred to section 9 of the General Clauses Act, which mandates excluding the first day in a series of days when calculating time periods.
- Excluding March 24, the period between forwarding the draft order and receiving directions was 185 days, not 186 days as calculated by the assessee.
- Therefore, the assessment order passed on September 27, 1982, was within the limitation period.
- The court answered the question against the assessee and in favor of the Revenue, concluding that the assessment was not time-barred.

2. Whether Rs. 82,91,400 were assessable as income from business or as capital gains:

Facts and Background:
- An agreement dated November 1, 1975, transferred certain movable properties and liabilities from a parent company to a subsidiary company for Rs. 25,94,881, part of which was treated as a loan.
- The properties included cars, investments, and lands. The parent company had previously entered into agreements and received compensation for land acquired by the government.

Assessing Officer's View:
- The Assessing Officer considered the memorandum and articles of association, which included dealing in lands and properties, and treated the compensation as business income.

Tribunal's Findings:
- The Tribunal noted that neither the parent company nor the assessee engaged in business activities and had been treated as an investment company in previous assessments.
- It concluded that the receipts were in the nature of capital gains, not business income, and remanded the matter to the Income-tax Officer for ascertaining capital gains.

Court's Analysis:
- The court reviewed various judgments to determine the nature of the transaction, emphasizing the need for continuous activity to constitute business.
- It noted that the assessee did not engage in business and had been consistently treated as an investment company.
- The court referred to judgments like CIT v. Sutlej Cotton Mills Supply Agency Ltd. and Janki Ram Bahadur Ram v. CIT, which differentiate between business transactions and capital investments.
- The court concluded that the assessee's activities did not constitute an adventure in the nature of trade or business.

Conclusion:
- The court found that the Tribunal's decision was not perverse and that the Revenue failed to prove the activities were business-related.
- The income received was from compensation and sale of land, consistent with capital gains.
- The references at the instance of the Revenue were answered against the Revenue and in favor of the assessee.

Final Disposition:
- The assessment was not time-barred.
- The amount of Rs. 82,91,400 was assessable as capital gains, not business income.