TMI Blog1961 (12) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of case in R.C. No. 20/1960 is considered sufficient for the other reference (R.C. No. 21/1960) also. The assessee who was the proprietor of Mohan Tile Works, Tenali, was engaged in the manufacture of tiles and bricks. He had for that purpose plant and machinery and factory buildings and he was one of the promoters of a limited company known as the Mohan Industries Ltd., Tenali (hereinafter called the company), and in bringing into existence that company the assessee entered into an agreement dated March 17, 1948, with one Manthena Venkatraju agreeing to sell to the company, after it was duly incorporated, the aforesaid factory, plant and machinery, furniture, stocks and goodwill for a sum of rupees two lakhs. This pre-incorporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was of no avail. The Appellate Tribunal, however, held that there was no sale, much less a legal transfer, of the lands, buildings, machinery, etc., to the limited liability company which was promoted to take over the tiles business and that the assessee did not receive a single pie during the year of account or even during the period when the capital gains tax was in force. The Commissioner of Income-tax filed an application for reference and during the hearing of that application, a petition was filed by the department under section 35 of the Income-tax Act bringing to the notice of the Tribunal certain further materials which were already on record to sustain the departmental action in taxing the amount of ₹ 79,494. On a consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ju, a director of the company on March 17, 1948, so that the agreement is not a pre-incorporation agreement but is one entered into by the company and the vendee. The board of directors of the company seems to have approved of this agreement by resolution No. 22 on March 16, 1949. The vendor was paid only a lakh of rupees in several instalments beginning from March 25, 1949, which is beyond the year of account and for this reason the learned advocate for the assessee contends that the sale only took place after the assessment year, when there was no tax liability. He relies on the wording of section 12B- arising from the sale, exchange, relinquishment or transfer of a capital asset effected before April 1, 1948-and according to him since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted on that very day and possession of the assets was to be handed over to the company and if the amount was not in fact received, the vendor would be entitled to interest. It is not disputed that possession of the entire factory was immediately handed over to the company which also made entries in its account books on March 28, 1948, by debiting the two lakhs and crediting the various assets accounts as specified therein including buildings, machinery, electrical fittings, goodwill, etc., all amounting to two lakhs of rupees. In the first annual report of the company, which is dated March 22, 1949, it is stated as follows: The company was registered on July 5, 1947. The memorandum of association and the articles of association along wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... together with their value and the grant of loan by Government. We are thankful for the aid and in obedience to your orders I am herewith submitting a detailed list as required by you. In these circumstances, it is immaterial as to when the money was actually paid, because the transfer had already been made by. putting the company in possession. The words used in section 12B are sale, exchange, relinquishment or transfer. If transfer is equivalent to sale, in that it should only be by a registered instrument, the legislature would not have used two different words for that purpose. All that is required for the purposes of the section is that the assessee should have a right to receive the profits and not that he should have in fact recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be subject to tax only after the gains have been received and that in that case no profits were received because in 1947 the assessee agreed to accept paid up shares in the Southern Roadways Ltd., equivalent only to the written down or book value of the assets transferred. That argument was rejected on the ground that in the Income-tax Act the words accrue and arise are used in contradistinction to the word receive and indicate a right to receive. The analogy of section 8 and the cases decided thereunder were held inapplicable, because they deal with the meaning of the word receivable in that section and the mercantile method of accounting, as far as that section is concerned, is not applicable because interest on securities onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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