1994 (3) TMI 130 - AT - Income Tax

Summary

Issues:
1. Whether the transfer of property to a subsidiary company was a colorable device to avoid tax.
2. Whether the property under transfer was a capital asset or stock-in-trade.
3. Whether the provisions of section 47(iv) of the Income Tax Act, 1961 apply to exempt the difference between sale price and cost price of the property.
4. Whether the interest payment claim is admissible.
5. Whether the income from property should be considered as business income or income assessable under section 22.
6. Whether the charge of interest under section 215 of the Act is justified.

Analysis:
1. The first issue revolved around whether the transfer of property to a subsidiary company was a colorable device to avoid tax. The Assessing Officer and CIT(A) held that the transfer was a colorable device. However, the ITAT found that there was no intention to evade tax, and the transfer was exempt under section 47(iv) of the Act. The ITAT distinguished the case from McDowell & Co. Ltd. and held that no colorable device was adopted, leading to the deletion of the addition of Rs. 15,76,019.

2. The second issue addressed whether the property under transfer was a capital asset or stock-in-trade. The ITAT analyzed the facts and past assessment orders, concluding that the property was a capital asset and not stock-in-trade. The ITAT emphasized that the property had always been treated as a capital asset, with income assessed under section 22 and not as business income.

3. The third issue involved the application of section 47(iv) of the Act to exempt the difference between the sale price and cost price of the property. The ITAT determined that the transfer to the subsidiary company fell within the provisions of section 47(iv), thereby exempting the difference from capital gains tax.

4. Regarding the admissibility of the interest payment claim, the ITAT dismissed the claim as it was not pressed during the hearing.

5. The issue of whether the income from property should be considered as business income or income assessable under section 22 was resolved in favor of treating it as income assessable under section 22, not as business income.

6. Finally, the ITAT addressed the charge of interest under section 215 of the Act. The ITAT directed the Assessing Officer to charge interest, if any, after considering the relief allowed by their order.

Overall, the ITAT allowed the appeal in part, deleted the addition of Rs. 15,76,019, and canceled the additional tax levied under section 104 of the Act, leading to a favorable outcome for the assessee.