TMI Blog1999 (4) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... For the assessment year 1964-65, the question reads as below : "Whether, on the facts and in -the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the profit arising from the working of the two cement factories situated in Pakistan for the year October 1, 1962, to September 30, 1963, was taxable in the hands of the applicant-company ?" And for the assessment year 1965-66, the question was : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the profit arising from the working of the two cement factories situated in Pakistan for the year October 1, 1963, to September 30, 1964, was taxable in the hands of the applicant-company ?" The High Court, however, answered the questions in the affirmative for both the assessment years and hence these appeals. At this juncture, it would he convenient to advert to the contextual facts briefly. The assessee, Dalmia Cement Limited, the owner of two cement factories situated in Pakistan, by an agreement in writing dated July 24, 1962, agreed to sell and transfer to one Maneckji its properties and assets in Pakistan represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and the total sum thereby ascertained (less the deduction of Rs. 20,00,000 (rupees twenty lakhs therefrom) is hereinafter called 'the purchase price'. (a) the price to be paid by Mr. Maneckji for all the fixed assets to be more fully described in the Schedule hereinbefore mentioned shall be their value in the books of account of the company on September 30, 1962, hereinafter called 'assessment day' subject to adjustments at book prices for fixed assets bought, sold, damaged or destroyed between assessment day and the date on which the transaction is completed hereinafter called completion day' (normal wear and tear excepted) ; (b) the price to be paid by Mr. Maneckji for all stores including firebricks, grinding media, gunny bags, spare parts, general stores, coal and miscellaneous items to be transferred to Mr. Maneckji shall be their value in the books of account of the company upon assessment day, subject to the adjustment at book prices for the above items bought, manufactured, in process damaged sold or destroyed between assessment day and completion day ; (c) the price to be paid by Mr. Maneckji for all goods in transit, raw materials in process slinker (half made cem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n September 30, 1962. (f) The price to be paid by Mr. Maneckji for all the company's loans, advances outstandings and other debts standing to the credit of the company shall be their value in the books of the company on assessment day. The interest payable by Mr. Maneckji at six per cent. per annum on the purchase price shall be calculated with effect from October 1, 1962, and paid in the manner provided in para. 3(b) of the said agreement. The profits and loss arising from the operations of the company during the period subsequent to September 30, 1962, shall, in the event of the completion of the sale transaction in accordance with the said agreement, be to the account of Mr. Maneckji. The operations of the company's factories and business in Pakistan shall, however, continue to remain under the full and undisturbed control, and direction of the company as hitherto, and nothing stated herein shall be construed as permitting in any manner interference on the part of Mr. Maneckji with the conduct of the business and operations of the factories until the same are transferred to Mr. Maneckji on the completion of the transaction. In supersession of para. 5 of the said agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no stoppage of accrual of profits to the assessee-company. It is true that cash in hand as well as in the bank, and all bills and notes of the bank would also stand transferred but that will take place on a future date when the sale deed is executed. In respect of an event which is yet to take place overriding title does not come into existence, accrual of profit can only be stopped if an overriding title is created before the accrual of the profits...." While at the first blush the reasoning seems to be rather attractive, on consideration of the issue in a wider perspective, the High Court cannot but be said to be in clear error. For the year 1965-66, when the order of assessment was made, the profits were ascertained on September 30, 1964, and the property was itself transferred ; as such, the question of accrual of profit, on account of the transferred assets, does not and cannot arise. Be it noted that completion of the sale transaction ought to be attributed its normal meaning and in this regard the contextual facts should also be looked into and considered in the proper perspective. The sale transaction in fact has taken place and as such there being any contingency, as wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is diverted before it reaches the assessee, it is deductible ; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable." In Travancore Sugars and Chemicals' case [1973] 88 ITR 1, this court reiterated the same test and observed : "It is thus clear that where by the obligation income is diverted before it reaches the assessee, it is deductible. But, where the income is required to be applied to discharge an obligation after such income reaches the assessee it is merely a case of application of income to satisfy an obligation of payment and is therefore not deductible." In this context, reference to a Bench decision of the Calcutta High Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of income by overriding title, the question of the income being assessed in the hands of the assessee does not and cannot arise. Be it noted here, that at no stage of the proceeding up to the High Court, was there any dispute as regards the assessee's contention of diversion by overriding title. The finding of the High Court that the issue of overriding title on the basis of an event which is yet to take place, being not available in the facts of the matter under consideration, cannot in our view be said to be a correct appreciation of law, since on the date of assessment, the event has already taken place and an overriding title has in fact been created by operation of law and there is no escape from it and as such we are unable to record our concurrence therewith. Mr. Vellapally, on the next count contended that the High Court's finding as regards the applicability of section 60 of the Act is also totally unwarranted having due regard to the language of section 60 and section 63. For convenience sake sections 60 and 63 are set out hereunder : "60. Transfer of income where there is no transfer of assets.-All income arising to any person by virtue of a transfer whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... language used by the legislation. Section 60 of the Act, has its application only to a case where income accrues to the transferee but the income earning asset or source of income remains with the transferor. As a matter of fact this finding of the High Court that income accrued to the transferor stands contradicted by the finding that section 60 has its due application in the facts of the matter under consideration. Incidentally, section 63 contains a rather special definition of "transfer" for the purposes of sections 60 to 62 and, inter alia, includes an "agreement", and in this case the very existence of the agreement to transfer dated July 24, 1962, rules out and totally excludes the application of section 60 of the Act. The Tribunal, however, recorded a finding different from that of the High Court as regards the issue of applicability of section 60 of the Act. The Tribunal recorded : "Nor are we inclined to accept the contention of the Departmental Representative that even under section 60 the profits accruing after September 30, 1962, were chargeable in the hands of the company. For one thing the underlying assumption of this argument would be that income had actual ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
