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TMI Blog1954 (10) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... ristian Mica Company for ₹ 1,27,500. There were 120 mica mines in the portion of the zamindari thus acquired by the assessee. By an indenture dated 7th December, 1946, the assessee company granted a 99 year lease of the surface right together with the mica mines situate in and under the lands comprising the area of the 9 mines mentioned in Schedule A of the indenture to Babu Kedarnath Singh who was a shareholder of the assessee company. The lease was granted in consideration of payment of a premium of ₹ 92,000 and of the annual rents reserved by the indenture. The payment of the premium of ₹ 92,000 was effected by a set-off of the amount against a like sum due from the assessee company to Babu Kedarnath Singh. A copy of the indenture dated 7th December, 1946, is annexure 'A' and forms part of the case. The Income-tax Officer determined the cost of the rights in the 9 mines so transferred to the assessee company at ₹ 12,562 on a proportionate basis, as the assessee did not furnish the actual cost of these mines. Deducting this amount from the salami of ₹ 92,000 received by the assessee company the Income-tax Officer determined the capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred property as on 1st January, 1939, does not give rise to any question of law. The finding of the Tribunal that the market value of the assessee's interest in the transferred property on 1st January, 1939, was ₹ 20,000 is a finding of fact and no question of law arises out of this finding. The question whether the Income-tax and Excess Profits Tax (Amendment) Act, 1947, had been applied to Chotanagpur is a question of fact and the finding of the Tribunal that the Income-tax and Excess Profits Tax (Amendment) Act, 1947, was applied to Chotanagpur by the Governor of Bihar, by Notification No. 5298 dated 1st May, 1947, is a finding of fact and does not give rise to any question of law. Out of the facts stated above the following questions of law arise:- (1) Whether the indenture dated 7th December, 1946, effected a sale or transfer of a capital asset within the meaning of section 12B(1) of the Income-tax Act? (2) Whether section 12B of the Income-tax Act imposing income- tax on capital gains was ultra vires? The parties agree that all the material facts have been correctly stated. S. N. Dutt and R. P. Katrian, for the assessee R. J. Bahadur, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the transaction of lease dated the 7th of December, 1946, was a transfer of a capital asset within the meaning of section 12B of the Income-tax Act. The argument put forward by Mr. Dutt on behalf of the assessee is that a transaction in the nature of a lease would not amount to a transfer of a capital asset and the amount of the salami received by the assessee company was not taxable under the provisions of section 12B of the Act. The question at issue depends on the proper interpretation of section 12B(1) which is in the following terms: The tax shall be payable by an assessee under the head 'Capital gains' in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after the 31st day of March, 1946, and before the 1st day of April, 1948, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place.................... . The expression capital asset is defined in section 2(4A) of the Act as property of any kind held by an assessee, whether or not connected with his business, profession or vocation, but does not include (i) any stock-intrade, consumable st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 4 of the Payment of Taxes Act of 1949 must be given a restricted interpretation in the context of section 3 of Ordinance III of 1948 where the same expression has been used but in a restricted sense. Section 3 of the Ordinance expressly referred to transactions which required to be registered under section 17(a), (b), (c) and (e) of the Registration Act. Section 17(d) which deals with lease of immovable property from year to year or for any term exceeding one year was expressly omitted from section 3 of the Ordinance. For this reason it was held by Das Gupta, J., that section 4 of the Payment of Taxes Act of 1949 did not apply to lease of immovable property. It is manifest that the ratio of this case has no application to the present case and the first question referred to the High Court must be answered in favour of the Income-tax Department and against the assessee. The second question relates to the constitutional validity of section 12B of the Act. The argument of Mr. Dutt is that the Central Legislature was not competent to enact such a legislation by virtue of any authority conferred by item 55 of List I, 7th Schedule, of the Government of India Act. Item 55 reads as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st give deduction for the actual cost of the asset to the assessee and also the expenditure on the transaction incurred by the assessee. In other words, the Legislature did not intend to tax the full value of the capital asset as represented by the sale proceeds or the consideration for the transfer or exchange ; but the Central Legislature permitted the assessee to deduct from the sale proceeds or consideration the actual cost of the capital asset and also the expenditure incurred by the assessee upon the transaction. If the transaction was a lease and not an outright sale the amount of consideration would be less and the Income-tax Department would impose tax on the smaller amount realised by the transfer for the capital asset. But that does not mean that the tax is not a tax on value of the capital asset. The quality of the tax is the same though there may be quantitative difference. If the transaction is by way of lease, only the computation of profit would be affected. The difference is only a difference in computation. The quality of the tax is not affected and, in our opinion, the tax contemplated by section 12B of the Act falls within the ambit of item 55 of List I of the 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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