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TMI Blog2003 (9) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... e(s) : RAJESH BALIA., SUNIL KUMAR GARG. JUDGMENT This income-tax appeal has been admitted by this court on January 19, 2000, and the following substantial questions of law have been framed by this court arising out of this appeal: "(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the provisions of section 43B of the Act are not applicable to the outstanding liability on account of land tax and thereby deleting the disallowance of Rs. 8,21,088 made under section 43B of the Act? (2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that receipt of Rs. 1,00,000 from M/s. J. K. White Cement Works is a capital receipt and not taxable in the hands of assessee, either as capital gain or as casual income under section 10(3) of the Act?" About question No. 1, it is now common ground that the Rajasthan Land Tax Act, under which liability was created has been held to be ultra vires the legislative competence of the State Legislature and, therefore, invalid. However, the declaration of levy of tax to be invalid was to oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent also as per the ratio of Gorelal's case [2001] 248 ITR 3 (SC), section 43B shall apply to the claim of the assessee. Accordingly, we set aside the order of the Tribunal as far as it relates to allowing deduction of Rs. 8,21,088 is concerned, by holding it to be beyond the scope of section 43B and direct to verify the facts about actual payment of Rs. 41,388 out of the aforesaid claim. On verification deduction to the extent of Rs. 41,388 may be sustained. The second question is whether the receipt of Rs. 1,00,000 by the assessee-respondent from M/s. J. K. White Cement Works as compensation for the assessee agreeing to surrender part of its limestone lease area so that the same F may be allotted to M/s. J. K. White Cement Works for its white cement plant, is a casual receipt liable to be taxed as income or is a capital receipt subject to capital gain. The facts which are not in dispute in this regard are that the assessee was holding a large area measuring 15 sq. kms. under mining lease for limestone. A request was made by M/s. J. K. White Cement Works that the assessee should surrender 4 sq. kms., part of the total lease area, to enable M/s. J. K. White Cement Works to ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 10(3) are correct. Therefore, we dismiss the plea of the Department that this is a casual income and taxable in the hands of the assessee. However, we do not agree with the findings of the Commissioner of Income-tax (Appeals) that this is capital asset and capital gains tax is chargeable. The provisions of the law were amended with effect from April 1, 1995, wherein it was held the cost of tenancy right, stage carriage permits, or loom hours will not be taken to be nil for the purposes of sections 48 and 49. If these provisions are applicable then they are applicable from April 1, 1993, i.e., for the assessment year 1994-95. Here before us the issue is for the assessment year 1988-89. Therefore, the amended provisions are not applicable in the case of the assessee. In the case of Kettlewell Bullen and Co. Ltd. v. CIT [1964] 53 ITR 261 (SC), the hon'ble Supreme Court has held that the arrangement was not in the nature of trading transaction, but was one in which the appellants parted with an asset of enduring a value. What the assessee was paid was to compensate it for loss of a capital asset and was not, therefore, in the nature of a revenue receipt. In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to press its pre-emptory right over the area allotted to M/s. J. K. White Cement Works. To avoid litigation that may arise on account of asserting of such pre-emptory right M/s. J. K. White Cement Works have paid a sum of Rs. 1 lakh to the assessee. Therefore, this amount of Rs. 1 lakh received by the assessee was not against the transfer of any capital asset, but only for preventing the assessee from exercise of its pre-emptory right for acquiring lease in respect of 4 sq. kms. of land in question. With the apparent discrepancies in the two findings, the assessee-respondent was required to clarify the position from the material on record or otherwise. We had been taken through the letter dated August 26, 1988, which is a part of the record and to which reference was made in the order of the Assessing Officer. According to the learned Assessing Officer, it was a letter indic0ating adjustment of certain amount only. However, contrary to the inference drawn by the Assessing Officer, this letter clearly indicated that this was written with reference to transfer of mining lease dated February 10, 1987, between the partners who are carrying on the business in the name and style o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction was viewed by the Supreme Court as under: "In truth the amount of Rs. 3,50,000 was received by the appellant from M/s. Mugneeram Bangur and Co. in consideration of the former agreeing to forgo the agency which it held and which M/s. Mugneeram Bangur and Co. were anxious to obtain. It was in a business sense a sale of such rights as the appellant possessed in the agency to M/s. Mugneeram Bangur and Co." In the aforesaid context, the transaction in case at hand can be viewed as under: "In truth the amount of Rs. 1,00,000 was received by the respondent M/s. Gotan Lime Stone Khanij Udhyog, Gotan, from M/s. J. K. White Cement Works in consideration of the former agreeing to surrender leasehold rights which it held in 4 sq. kms. of land, which M/s. J. K. White Cement Works was anxious to acquire. It was in a business sense a sale of such rights as the assessee possessed in the mining lease of 4 sq. kms. to M/s. J. K. White Cement Works." After referring to a large number of decisions from the courts of England and Scotland seemingly taking different views, the court approved the following view by Lord President Cooper in IRC v. Fleming and Co. (Machinery) Ltd. [195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-respondent and M/s. J. K. White Cement Works. Upon this, the State Government vide its order dated January 13, 1987, approved and granted lease in favour of M/s. J. K. White Cement Works on the terms and conditions mentioned in the order. The consideration for such surrender of part of the business apparatus flowed from M/s. J. K. White Cement Works to the respondent assessee. Applying the ratio in Kettlewell Bullen and Co.'s case [1964] 53 ITR 261 (SC), the transaction in terms amounts to transfer of business apparatus (leasehold rights in 4 so kms. of land) by the assessee to M/s. J. K. White Cement Works only. The consideration of Rs. 1,00,000 received for such transfer amounts to a capital receipt. Apparently, the Tribunal has not erred in applying the principle to hold that the amount received from M/s. J. K. White Cement Works by the assessee-respondent for surrendering a part of an enduring trading asset, namely, the leasehold area over 4 sq. kms., is not a revenue receipt but that is a capital receipt and apparently falls outside the purview of section 10(3) to be taxed as a casual receipt of revenue nature. However, we notice that notwithstanding noticing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio that the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. On this premise, the court further viewed that: "What is contemplated is an asset in the acquisition of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class, it may, on the facts of a certain case, be acquired without the payment of money. That kind of case is covered by section 49 and its cost, for the purpose of section 48, is determined in accordance with those provisions. There are other provisions which indicate that section 48 is concerned with an asset capable of acquisition at a cost. Section 50 is one such provision. So also is sub-section (2) of section 55. None of the provisions pertaining to the head 'Capital gains' suggests that they include an asset in the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He transferred his tenancy rights to Associated Batteries and became a licensee in respect of the premises under Associated Batteries. The sum of Rs. 4,50,000 was received in two instalments of Rs. 2,25,000 each, the first on March, 1967 and the second on May, 1967. While the court said that as the question was raised for the first time before the Tribunal and the Tribunal has not allowed that plea, and when a specific question was sought to be raised for making a reference to the High Court, a reference of the said question was declined and thereafter no application was made under section 256(2) to get the said question referred to the High Court and it appeared that before the High Court no such question was raised, the Supreme Court said that: "It would not go into the question as the jurisdiction of the High Court in a reference under the Income-tax Act is in the nature of advisory jurisdiction and only such issues can be and are answered as arise properly on the facts and the questions referred to the High Court." In the circumstances, the Supreme Court expressed its inability to answer the question which was not raised before the High Court. However, significantly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act: (a) in relation to a capital asset, being goodwill of a business or a trade-mark or brand name associated with a business, or a right to manufacture, produce or process any article or thing, or right to carry on any business, tenancy rights, stage carriage permits or loom hours,- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case [not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49], shall be taken to be nil." The aims and objects for this amendment were stated in memorandum explaining the provisions in the Finance Bill, 1994 as under: "In a number of cases, the courts have decided that, in case of self-generated assets like goodwill, or where the cost of asset to an assessee (not covered by situations mentioned in section 49) is nil, no tax on capital gains consequent to transfer of such assets could be charged. They have interpreted that, only if an asset did cost something to the assessee in terms of money, the provisions relating to the levy of tax on any capital gains under section 45(1) read with section 48(i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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