1990 (9) TMI 11 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 11(1A) of the Income-tax Act, 1961 regarding exemption on capital gains.
2. Application of Circular No. F.180/54/72-IT(A1) on investments in fixed deposits as utilization of net consideration for acquiring capital assets.
3. Consideration of loans advanced from income of fixed deposits as acquisition of capital assets.
4. Relevance of previous judgments in similar cases on the interpretation of section 11(1A).

Analysis:

The case involved a reference under section 256(1) of the Income-tax Act, 1961 for the assessment year 1982-83. The primary issue was whether the assessee-trust was entitled to exemption under section 11(1A) in relation to the capital gains arising from the sale of gold. The assessee claimed that the net consideration from the sale was deposited in a fixed deposit with a bank and utilized for acquiring a new capital asset, thus qualifying for the exemption.

The Income-tax Officer did not accept the assessee's contention as the sale proceeds were lent on interest to other concerns and subsequently used for giving a loan to another entity. The Appellate Assistant Commissioner allowed the exemption following a precedent set in a previous case. The Tribunal also upheld this decision, leading to an appeal by the Revenue challenging the exemption granted to the assessee.

During the hearing, the Revenue's counsel highlighted Circular No. F.180/54/72-IT(A1), which stated that investments in fixed deposits for a certain period could be considered as utilization of net consideration for acquiring a capital asset under section 11(1A). The counsel also referred to a previous judgment where advances of loans were not equated with acquisition of capital assets.

In light of the arguments presented and the lack of clarity regarding whether the loans were advanced from the income of fixed deposits or the net consideration was invested in fixed deposits, the High Court declined to answer the questions in the reference. The matter was remanded to the Tribunal for rehearing, with directions to consider the circular and previous judgments in deciding the appeal. The parties were granted an opportunity to provide fresh evidence during the rehearing process.