1965 (3) TMI 21 - SC - Income Tax

Whether on the facts and in the circumstances of the case a sum of ₹ 79,494 is assessable as capital gains in the assessment year 1948-49 ? Held that - In the facts and circumstances of the case the sum of ₹ 79,494 is not assessable as capital gains in the assessment year 1948-49, but only such part of it, if any, as is attributable to the capital gain made by the transfer of furniture valued at ₹ 18,805 is assessable. Appeal allowed.

Summary

Issues Involved:
1. Whether the sum of Rs. 79,494 is assessable as capital gains in the assessment year 1948-49.
2. Determination of when the sale or transfer of assets took place.
3. Classification and treatment of movable and immovable assets in the context of capital gains.

Issue-wise Detailed Analysis:

1. Assessability of Rs. 79,494 as Capital Gains:
The core issue was whether the sum of Rs. 79,494 was assessable as capital gains for the assessment year 1948-49. The Income-tax Officer initially held that the assessee realized an excess of Rs. 79,494 over the original cost, which was assessable under section 12B of the Income-tax Act, 1922. The Appellate Assistant Commissioner and the Tribunal had differing views on this, with the Tribunal initially deleting the amount from taxation but later reconsidering its decision upon the Commissioner's application under section 35 of the Act.

2. Timing of Sale or Transfer:
The timing of the sale or transfer of assets was crucial. The High Court concluded that the transfer occurred when the company was put in possession of the assets, even if the actual payment was made later. The court noted that the words used in section 12B are "sale, exchange, relinquishment or transfer," indicating that the assessee should have the right to receive the profits, not necessarily that the profits should have been received. The Supreme Court, however, emphasized that title to the assets must pass to the company before April 1, 1948, for the transaction to be considered a sale or transfer under section 12B.

3. Classification and Treatment of Assets:
The assets in question were both movable and immovable. The Supreme Court distinguished between them as follows:
- Immovable Assets (Plant & Machinery, Buildings, and Site): The court held that title to these assets could not pass without a registered conveyance, which was executed only on November 22, 1948. Therefore, no sale or transfer of these assets occurred before April 1, 1948.
- Movable Assets (Furniture and Goodwill): The court found that furniture, valued at Rs. 18,805, was transferred on March 17, 1948, as possession was delivered with the intention of passing title. However, goodwill, being an intangible asset, was not considered transferred before April 1, 1948.
- Stocks: Valued at Rs. 30,050, stocks were expressly exempt from the definition of capital assets under section 12B.

Conclusion:
The Supreme Court concluded that the sum of Rs. 79,494 was not assessable as capital gains in the assessment year 1948-49, except for the portion attributable to the capital gain made by the transfer of furniture valued at Rs. 18,805. The court allowed the appeal and awarded costs to the assessee.

Final Judgment:
"In the facts and circumstances of the case, the sum of Rs. 79,494 is not assessable as capital gains in the assessment year 1948-49, but only such part of it, if any, as is attributable to the capital gain made by the transfer of furniture valued at Rs. 18,805 is assessable." The appeal was allowed, and costs were awarded to the assessee.