1968 (10) TMI 8 - HC - Income Tax

Movable properties - profits u/s 10(2)(vii) of the IT Act 1922 on the sale amount for the building machinery or plant - passing ot title of movable properties to the vendee - assessability of the profit

Summary

Issues:
1. Determination of the date of sale of movable properties.
2. Assessment of profits under section 10(2)(vii) from the sale of movable properties for the assessment year 1958-59.

Analysis:
1. The case involved a reference by the Income-tax Appellate Tribunal regarding the sale of a business as a going concern by a private limited company. The main issue was to determine the date on which the title to the movable properties passed to the vendee, either on January 1, 1957, June 1, 1957, or August 30, 1957. The agreement for sale was entered into on March 4, 1957, with partial payment made on that date. The shareholders ratified the agreement on June 1, 1957, and the sale deeds were executed on August 30, 1957. The Tribunal held that the title to both movable and immovable properties passed only on August 30, 1957, and the profits from the sale were not assessable in the accounting period ending on June 30, 1957.

2. The court analyzed the legal principles governing the passing of title in movable properties under the Sale of Goods Act and the Transfer of Property Act. It was highlighted that the contract for sale must be distinguished from the actual sale itself. The court emphasized that in cases involving both movable and immovable properties, the rules applicable to immovable properties prevail. The court referred to the repealed Section 85 of the Contract Act, which stated that in combined sales of immovable and movable properties, the ownership of movable property does not pass before the transfer of immovable property. Despite the repeal, the principle of Section 85 was considered applicable.

3. The court examined the provisions of the agreement for sale in this case, emphasizing that the temporary working arrangements allowing the buyer to participate in the management did not constitute an actual transfer of ownership. The court noted that the agreement did not demonstrate the delivery of any properties to the buyer before the execution of sale deeds. The court concluded that the intention of the parties was to sell all properties together, and the title to the movable properties passed to the buyer only on August 30, 1957. Therefore, the court ruled in favor of the assessee, determining that the profits from the sale were not assessable in the relevant accounting period.

4. In conclusion, the court answered both questions in favor of the assessee, indicating that the title to the movable properties passed on August 30, 1957. The judgment was sent to the Appellate Tribunal as required by the Indian Income-tax Act, 1922.