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TMI Blog1988 (3) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to the year under consideration ended on 31st Dec., 1966. 3. Electrical control Gear Pvt. Ltd, was a company (henceforth referred to as the 'Company') formed under the Companies' Act, 1956 with the nominal capital of Rs. 30 lakhs. This company was formed mainly with the view to take over the business of the partnership firm as a going concern together with its assets including plant and machinery and buildings and the liabilities. All the 13 partners of the partnership firm were the share holders of this company. 4. On 31st March, 1966, the partners of the partnership firm decided to close the business of the firm and to transfer all its assets (including buildings, plants and machinery) along with all liabilities and the business of a firm as a going concern to the company. An agreement for sale was, therefore, executed between the partnership firm and the company on 31st March, 1966. This agreement deed, inter alia, provided that the business of the partnership firm as a going concern would be transferred along with all assets and liabilities for a consideration of Rs. 8 lakhs to be paid to the partners of the partnership firm by allotting fully paid up 800 equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes, referred to the Hon'ble High Court were as follows: "(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee has earned capital gain, which was liable to tax under the provisions of s. 45 of the IT Act, 1961? (4) Whether, on the facts and in the circumstances of the case, the Tribunal rightly rejected the claim of the assessee that surplus realised by it on sale to the limited company, was not chargeable to tax, being realisation sale?" The Hon'ble High Court answered question No. (3) in the affirmative i.e. in favour of Revenue and against the assessee. Question No. (4) was answered in the negative and the High Court observed that the assessee should be assessed in the status of BOI so far as the question of capital gains arising out of the transaction of 31st March, 1966 was concerned. The Tribunal passed order under s. 260(1) of the Act on 23rd Dec., 1980 in conformity with the opinion of Hon'ble High Court. 8. It appears that in the words of the High Court, which were to the effect that the assessee should be assessed in the status of BOI so far as the question of capital gains arising out of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) r/w s. 148 was justified. He further held that as had been held by the Hon'ble High Court, an amount of Rs. 8 lakhs was required to be subjected to the charge of capital gains tax in the hands of the appellant. He was further of the opinion that the legality of liability to pay interest under s. 139(8) could not be disputed in the present case and, therefore, the levy of interest was clearly justified. The learned CIT(A) thus declined to interfere with the order as passed by the ITO. Now the matter is before us through this appeal. 10. Mr. J.P Shah, the learned counsel for the appellant, has advanced a number of arguments in support of his contention that the very initiation of proceedings under s. 147(a)r/w s. 148 of the Act in the present case was bad in law. At the very outset, Mr. Shah submitted that the notice issued to the appellant by the ITO was bad in law inasmuch as that such notice did not mention that it was being issued to the appellant in its status as BOI. This argument, however, is not viable because from the notice dt. 10th March, 1983 it is well evidence that the same clearly mentioned the status of the appellant as BOI. In fact the very letter of the ITO d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings undertaken on the footing of the sanction accorded by the CBDT would be invalid. We do not thing that this argument too is sound. 14. We find that along with his application in the prescribed form the ITO had submitted an annexure wherein all the relevant information had been submitted to the CBDT. It was on the basis of the information supplied to the CBDT in the said annexure that the CBDT had accorded its permission. It is quite altogether a different thing that the ITO did not mention the fact that the question of taxability of the amount of Rs. 8 lakhs as capital gain had been considered by the Hon'ble High Court taking the taxable event as on 1st April, 1966. The ITO had simply mentioned in the annexure that the capital gains tax had resulted from a transaction which had taken place on 31st March, 1966. In fact he had not mentioned the fact that the same question had been considered by the High Court in the assessment proceedings for asst. yr. 1967-68 wherein the said question was considered with reference to the taxable event as having taken place on 1st April, 1966, On the basis of the material placed before the CBDT, it could have come to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Supreme Court and that too in respect of the status of the partners of the erstwhile partnership firm as that of BOI, the initiation of the present proceedings for asst. yr. 1966-67 was inherently bad and without authority and jurisdiction. 16. Though Mr. Khandelwal tried his best to meet the arguments of Mr. Shah, yet we feel convinced that in the facts and circumstances of the present case there cannot be any escapement from coming to the conclusion that the ITO had no jurisdiction or authority to initiate the present proceedings for subjecting the amount of Rs. 8 lakhs to the charge of capital gains tax for asst. yr. 1966-67. In our opinion the action of the ITO was totally misconceived and the learned CIT(A) had also been misled by the facts placed before him. 17. In the present case the ITO had initiated proceedings under. 147(a) with a view to bring certain income, which according to him, had escaped assessment, into the tax net. The income is stated to be an amount of Rs. 8 lakhs which came to the hands of the appellant by way of capital gains on the transfer of all the assets and liabilities as also the business of the erstwhile partnership firm as a going ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BOI. This admitted position clearly speaks that the status in which the assessable entity was required to be assessed for the purposes of charges of capital gains had been minutely considered and finally declared by the Hon'ble High Court. Reportedly the matter is still pending for the decision of the Supreme Court at the instance of the Revenue. All these facts clearly suggest that the ITO was not at all required to call upon the very same assessable entity to file its return in the status of BOI. It seems to us that the ITO was under the impression that since the appellant had never filed its return in the status of BOI, it was open for him to call upon the assessee to file a return under that status. Such a notion on the part of the ITO was not at all well founded. What the law requires is that an assessee should not be assessed in a status different from that which he had declared in his return. But when the very status of an assessee has been the subject matter of dispute and had been adjudicated upon by the authorities concerned during the course of judicial proceedings then the final verdict on the status of the assessee shall have to be accepted by the assessing authority a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... An agreement for sale, therefore, cannot be treated to be a document of transfer of the capital asset. As had been provided in condition No. 6 of the agreement deed dt. 31st March, 1966, the transfer of capital asset was to take place on 1st April, 1966. Simply because the capital accounts of the partners of the erstwhile partnership firm had been credited with a sum of Rs. 8 lakhs, it cannot be said that there had been any transfer of any capital asset in their favour. The transfer of capital asset would have taken place when the capital asset would have exchanged hands, i.e. it had gone from the hands of the firm/BOI to the hands of the company and that had taken place on 1st April, 1966. That is what had been held by the authorities concerned in the assessment proceedings for asst. yr. 1967-68. With that established position, the ITO could not have assumed jurisdiction to initiate proceedings under s. 147(a) on the wrong assumption that the taxable event had taken place on 31st March, 1966 and, therefore, he could bring the amount of Rs. 8 lakhs to the charge of capital gains tax in the hands of the appellant in the asst. yr. 1966-67. We are, therefore, clearly of the opinion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the present proceedings under s. 147(a) r/w s. 148 of the Act in the present case. Having held thus we must not acquire or assume jurisdiction to decide the question whether the amount of Rs. 8 lakhs can be subjected to the charge of capital gains tax in the hands of the appellant. We are conscious that the matter is still alive before the Supreme Court and such a question may, if so advised, be agitated before their Lordships of the Supreme court by the assessee. For these reasons, therefore, and under the peculiar circumstances of the present case, we would not like to express our opinion on the merits of the rival submissions of the parties. 24. The last dispute relates to the chargeability of interest under s. 139(8) of the act. We agree with Mr. Shah that in the peculiar facts and circumstances of the case, the very legality of charge of interest under s. 139(8) was involved in the present case and such a dispute was appealable and the learned CIT(A) should have considered the same on merits. Since we have quashed the very initiating of the proceedings under s. 147(a)/148 of the Act in the present case, the question of levy of interest under s. 139(8) obviously does no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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