1968 (9) TMI 34 - HC - Income Tax

Assessee sold a property and invested the sale consideration in another property after one year from the payment of the sale price but within one year of execution of sale deed - assessee was entitled to the benefit u/s 12B(4)(b)Indian Income Tax Act, 1922

Issues: Entitlement to benefit of section 12B(4)(b) of the Indian Income-tax Act, 1922 in respect of capital gains arising from the sale of property 'Bishops Gardens'.

Analysis:
The judgment delivered by the High Court of Madras addressed the issue of whether the assessee, the Raja of Pudukottai, was entitled to the benefit of section 12B(4)(b) of the Income-tax Act in relation to the capital gains from the sale of the property 'Bishops Gardens' during the assessment year 1961-62. The agreement between the assessee and the purchaser, the Raja of Chettinad, was entered into in February 1960, with a sale price of Rs. 4,35,000. A partial payment of Rs. 1,00,000 was made initially, and the balance was paid in two installments in September and November 1960. Sale deeds in favor of the purchaser's nominees were executed between March 1961 and October 1962. The assessee claimed the benefit of section 12B(4)(b) based on the purchase of another property in November 1961 for Rs. 94,850.

The Income-tax Officer initially disallowed the benefit claimed by the assessee, stating that the sale was finalized before December 1960, and the full payment had been received by November 13, 1960. However, the Appellate Assistant Commissioner held that the sale was not completed by the end of the accounting year, thus no capital gains arose. The Tribunal, on a departmental appeal, sided with the assessee, stating that the property could be considered transferred only upon the execution of sale deeds, and as the purchase of the new property was within the timeframe of sale deed executions, the benefit of section 12B(4)(b) should apply.

The High Court criticized the Tribunal's reasoning as vague and lacking a comprehensive analysis of the implications of the case, particularly regarding the application of section 12B(4)(b) when a property is sold in parts over multiple accounting years. Despite this, the High Court agreed with the Tribunal's ultimate conclusion that the assessee was not liable for capital gains in the accounting year as the sale of the property had not been completed by then. Additionally, the High Court highlighted that the purchase of the new property by the assessee fell within the period prescribed for the benefit under section 12B(4)(b), leading to a ruling against the revenue with costs.

Furthermore, the High Court noted that the issue of the user of the sold premises within two years of the accounting year was not raised or investigated, thus deeming it no longer open for consideration. The judgment provided a detailed analysis of the facts, legal provisions, and the reasoning behind the decision, ultimately upholding the assessee's entitlement to the benefit under section 12B(4)(b) and ruling in favor of the assessee against the revenue.

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