1984 (5) TMI 70 - AT - Income Tax

Capital Asset, Capital Gains Tax, Capital Reserve, Commercial Profit, Income Tax, Own Capital, Undistributed Profits

Summary

Issues:
- Whether capital gains arising from the sale of land can be included in the commercial profits for the purpose of determining the distributable income of the assessee-company.

Analysis:
1. The appeals before the Appellate Tribunal ITAT BOMBAY-D involved two assessment years and dealt with the issue of whether the capital gains arising from the sale of land by the assessee-company could be considered as part of the commercial profits for determining the distributable income.

2. The Revenue contended that the capital gains should be included in the commercial profits, leading to additional income-tax liability on the assessee. The Revenue argued that the capital gains were not required for replacement of capital assets and therefore could have been distributed as dividends. Reference was made to legal precedents to support this argument.

3. On the other hand, the assessee's counsel argued that the capital gains were utilized for acquiring other assets and were not part of the commercial profits available for distribution as dividends. The counsel relied on various legal judgments, including the decision of the Hon'ble Bombay High Court and the Hon'ble Calcutta High Court, to support the contention that capital gains should not be equated with commercial profits.

4. The Tribunal carefully considered the submissions of both parties and examined the financial records of the assessee-company. It was noted that the capital gains from the sale of land were not credited to the profit and loss account but were transferred to reserves or utilized for acquiring other assets. The Tribunal found that the capital gains were not part of the commercial profits available for distribution as dividends.

5. Relying on legal precedents and the financial transactions of the assessee-company, the Tribunal concluded that the capital gains arising from the sale of land could not be treated as forming part of the commercial profits. Therefore, the orders of the Income Tax Officer imposing additional income tax on the assessee were deemed unjustified. The Tribunal upheld the decision of the Commissioner (Appeals) to cancel the orders under section 104(1) for both assessment years.

6. Consequently, the appeals filed by the Revenue were dismissed by the Tribunal, affirming that the capital gains were not to be included in the commercial profits for the purpose of determining the distributable income of the assessee-company.