TaxTMI 
TaxTMI 
1999 (4) TMI 4
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....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 represented in the two cement factories. The facts depict further that subsequent to the agreement, the parties did enter into a supplemental agreement on November 2, 1962. We would refer to both the agreements presently but before so doing, to conclude the factual aspects be it noted that the assessee in its return of income for the assessment year 1964-65 on June 30, 1964, recorded the total income as Rs. 24,28,675, but subsequently on a revised return filed on No....
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....old, 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 cement), manufactured cement, firebricks manufactured by Dandot Factory, shall be their value in the books of account of the company upon assessment day, subject to-adjustment at book prices for the above items bought, manufactured in process, damaged, sold or destroyed between assessment day and completion day (d) cash shall be transferred at par ;" "18. The completion of the transaction is subject to the approval of the governmental agencies of both India and Pakista....
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....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 agreement, it is hereby agreed that all the liabilities of the company relating to the period uptill September 30, 1962, which may relate to the properties, assets and premises hereby transferred shall be the sole responsibility of the company and Mr. Maneckji shall be responsible for all such liabilities in respect of the period commencing October 1, 1962." Incidentally, be it noted that though the principal agreement dated July 24, 1962, had a time limit, the same, by consent of the pa....
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.... 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 was there at the earlier point of time, does not arise. The event has taken place and the supplemental agreement dated November 2, 1962, makes the situation clear and categorical. The parties agreed the relevant date to be September 30, 1962, and not the completion of sale. Clause 3 of the agreement to which, the High Court made a special reference and interpreted that by reason of the contingent event which would be subsequent to the accrual of profits, the profit cannot but be treated ....
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....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 v. Jhanzie Tea Association [1989] 179 ITR 295, also seems to be apposite. S. C. Sen J. (as his Lordship then was) in the last noted decision observed : "It is true that the income-tax liability cannot be assigned by any agreement. The Revenue is entitled to proceed against the person who earned the income but where the income has been diverted by an overriding title event before accrual, then the Income-tax Officer cannot proceed to assess the income thus diverted as the income of the tran....
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....r 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 whether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income. 63. 'Transfer' and 'revocable transfer' defined.-For the purposes of sections 60, 61 and 62 of this section,- (a) a transfer shall be deemed to be revocable if - (i) it contains any provision for the re-transfer directly or indirectly....
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....f 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 actually accrued to Maneckji or his nominees whereas for reasons given earlier we are unable to accept this assumption. Moreover, according to our reading of section 60 it relates to an arrangement or settlement according to which both the transfer of income and the retention of the ownership of the assets form parts of one scheme." In view of the above, we do feel it expedient to record that the Tribunal's finding as regards the applicability of section 60 cannot but be ascribed to be otherwise in accordance with the ....