TMI Blog1993 (7) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was liable to be assessed under the head 'Capital gains' in respect of the transaction of purchase and sale of Fort property in the assessment year 1968-69 and not in the assessment year 1969-70 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Income-tax Officer considered the surplus or deficit in this transaction with a view to tax it also as a capital and in setting aside the order of the Appellate Assistant Commissioner for the assessment year 1968-69 and restoring the appeal to his file for the limited purpose of considering whether he should accept the Income-tax Officer's alternative contention of assessing capital gains for the assessment year 1968-69 and enhance the income of that year ? 4. Whether the Tribunal was right in holding that the Appellate Assistant Commissioner was not justified in entertaining the ground against the levy of interest under section 217 of the Income-tax Act, 1961?" The assessee is a 100 per cent. subsidiary company of one Kilachand Devchand and Co. Pvt. Ltd. (hereinafter referred to as "the holding company" or " KV "). The holding company had purchased an immovable pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale to third parties were, however, continued. One Shri Ambalal of the holding company who was earlier negotiating for the sale of the above property with the director of the Bank of Maharashtra, on behalf of the holding company, after its transfer to the assessee-company, continued the negotiations in regard to the sale of same property on behalf of the assessee-company. On December 22, 1966, there was a meeting between said Ambalal and the bank representatives. Ultimately, on December 30, 1966, Shri Rege, a director of the Bank of Maharashtra, and Shri Ambalal of the holding company representing the assessee-company agreed to the sale of the said property for a sum of Rs. 57.50 lakhs to the Bank of Maharashtra. The completion of formalities for execution of requisite documents, however, took some time. The agreement of sale was executed by the assessee-company in favour of the Bank of Maharashtra on April 18, 1967, and the sale deed was executed on October 11, 1967. In course of the assessment proceedings of the holding company for the assessment year relevant to the accounting year, during which the transfer of the property was effected by the holding company to the subsidia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. He took the fair market value of the property in the hands of the holding company as on January 1, 1954, as the cost of the property for the purpose of computation of capital gains and after making allowance for cost of registration, etc., computed the capital gains at Rs. 44,98,375. Though the computation was made in the manner laid down in section 48 read with section 49(1)(iii)(c) of the Act for computation of capital gains, as it was a short-term capital gain, the income was assessed as business income. Aggrieved by the order of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner accepted the contention of the assessee and allowed the appeal. Both the Revenue and the assessee appealed to the Tribunal. The Tribunal rejected the assessee's contention that it had purchased the property in question as "stock-in-trade" and held that the said property had been acquired by the assessee as a capital asset and, therefore, it was liable to be assessed under the head "Capital gains" in respect of profits and gains arising from the sale of the same to the Bank of Maharashtra. The Tribunal, on a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the transaction in question under the head "Capital gains" in the assessment for the assessment year 1968-69 and not for 1969-70. The Tribunal, however, did not itself examine the alternative prayer of the Revenue but set aside the order of the Appellate Assistant Commissioner for the limited purpose of considering whether he should accept the Income-tax Officer's alternative contention that if the income was liable to capital gains tax in the assessment for the assessment year 1968-69, direction should be issued to the Income-tax Officer for modification of the assessment order of that year. The Tribunal modified its original order passed on appeal accordingly. Both the Revenue and the assessee were aggrieved by the order of the Tribunal. The assessee was aggrieved by the finding that the purchase and sale of the property by the assessee-company was liable to be assessed in its hands under the head "Capital gains". The assessee was also aggrieved by the finding of the Tribunal against it regarding the maintainability of the appeals against levy of interest under section 217 of the Act. The Revenue, on the other hand, was aggrieved by the finding of the Tribunal that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head "Capital gains", the financial year will be the previous year and not the accounting year of the assessee in which the income from the transaction had been shown by the assessee treating it as a "business income or loss". In other words, according to the assessee, the previous year will change with the change in the head under which the income is assessed. This contention of the assessee was accepted by the Tribunal and against this decision of the Tribunal, the Revenue is before us in reference. The alternative new submission of the assessee made for the first time before us at the time of hearing of this reference as another facet of the same controversy is that if the income from the transfer of the property is held to be assessable as "capital gains" under section 45 of the Act, it will be assessable neither in the assessment year 1968-69 nor in 1969-70, but in the assessment year relevant to the previous year in which the registration was completed. In the instant case, according to counsel for the assessee, though the deed of sale was executed on October 11, 1967, and presented for registration on that very day, by virtue of sections 60 and 61 of the Registration Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the assessee itself in its books of account for the accounting year corresponding to the assessment year 1969-70, the same having been offered for assessment in the said assessment year, and there being no dispute at any stage regarding the assessment year in which it would be assessable, such a dispute, therefore, could not have been raised by the assessee for the first time after the final order of the Tribunal by way of miscellaneous application for rectification of a mistake. Such highly debatable questions cannot be re-examined by the Tribunal on a miscellaneous application. Counsel, therefore, submits that the Tribunal acted wholly without jurisdiction in holding that the income was assessable in the assessment year 1968-69 and not 1969-70 and modifying its order accordingly. Counsel also submits that the assessee should not be allowed to raise a still new controversy for the first time before this court based on sections 61 and 62 of the Indian Registration Act because it is not a facet of the question referred but a new question altogether sought to be raised for the first time before this court in the course of hearing of this reference. On the merits of the argumen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition of the property by the assessee was as a capital asset and it did not form part of the stock-in-trade of the assessee. This court, therefore, has to accept the same and it cannot go behind it. We also do not find any infirmity in the observations of the Tribunal in regard to the effect of the description of the above property in the books of account of the assessee-company as "stock-in-trade" in the determination of the nature of the asset. It is well-settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the asset was held as a capital asset or stock-in-trade. The assessee may, by making entries which are not in conformity with the facts of the case or proper accountancy principles, conceal the real nature of the asset or the transaction. Entries made by him, therefore, cannot be regarded as conclusive one way or the other. The true nature of the transaction in each case has to be determined on a consideration of the totality of the facts and circumstances of that case. It is, thus, clear that in the instant case the property in question was acquired by the assessee from its holding company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. " These observations were reiterated by the Supreme Court in Khan Bahadur Ahmed Alladin and Sons v. CIT [1968] 68 ITR 573 in the following words : ". . . . it is not possible to evolve any legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not. The answer to the question must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction. . . ." It is, thus, clear that a decision regarding the character of the impugned transaction will depend on the totality of the facts and circumstances of the case and the cumulative effect thereof. No single fact has decisive significance. No undue emphasis should be placed on a particular observation in any decision as it has to be understood in the light of the totality of the facts of that case. As observed by the Supreme Court in Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 : "No useful purpose would be served by enterin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit. It was observed : "It is correct, as counsel for the assessee submitted, that the transaction was undertaken with the intention to earn profit because the company had suffered losses in the past but that by itself, as held by the Supreme Court, is not enough to give it the character of stock-in-trade or to bring the transaction within the ambit of an adventure in the nature of trade." In view of the above finding, it was held that the profit earned from the sale of the said property was not business income of the assessee. It may be mentioned that an identical view has also been taken by the English courts. We do not propose to deal with the various decisions except to refer to the following observations of the Court of Appeal in Smith Barry v. Cordy [1946] 28 TC 250 : "Unless ex facie the single transaction is obviously commercial, the profit from it is more likely to be an accretion of capital and not a yield of income . . . ." It was also observed in the above decision that this question is almost necessarily one of fact. We may, therefore, turn to the facts of the case and the findings of the Tribunal to decide whether the Tribunal was justified in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-trade" of business. (viii) This was an isolated transaction of purchase and sale of property by the assessee. The purchase of two other open plots of land for small amounts is of no relevance in deciding the nature of activity of the assessee. Those plots had not been sold nor any expenditure incurred for developing the same in the previous year or later years. (ix) The Tribunal recorded a clear finding that the assessee was not a dealer in real estate at all. (x) It was acquired by the assessee as a capital asset and sold as such. (xi) It was not converted by the assessee into stock-in-trade. (xii) The assessee had no intention to trade in it and no trading was in fact done in property and it was sold as a capital asset. (Paragraph 20 of the Tribunal's order). (xiii) The mere fact that the assessee showed it as stock-in-trade in its books of account is not determinative of the nature of the asset. (xiv) The various facts and circumstances of the case clearly go to show that the transaction of sale of the above property was not an adventure in the nature of trade. On a careful consideration of the cumulative effect of the above facts in the light of the tests laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and the Income-tax Officer was in regard to the head under which it was assessable. The assessee claimed that it was assessable as business income. According to the Revenue, it was "capital gains" assessable as such. It was only after the order of the Tribunal on appeal wherein the transaction of sale of the property was held to be a transfer of a capital asset and the income therefrom to be capital gains chargeable to tax under section 45 of the Act that such a controversy was raised by the assessee by filing a miscellaneous application before the Tribunal contending that the previous year for assessment of "capital gain" cannot be the accounting year of the assessee-it has to be the financial year only and, as such, the income from the said transaction would be assessable to capital gain only in the assessment year 1968-69 and not in 1969-70. The Tribunal accepted this contention of the assessee. Before this court, in the course of hearing of this reference, a still new contention has been raised by counsel for the assessee that the previous year would not be the year in which the sale deed of the above property was executed but it would be the year during which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (e) of sub-section (1) or has once been assessed, then, he shall not, in respect of that source, or, as the case may be, business or profession, be entitled to vary the meaning of the expression 'previous year' as then applicable to him, except with the consent of the Income-tax Officer and upon such condition as the Income-tax Officer may think fit to impose." (emphasis supplied). It is clear from the above section that the previous year is generally the financial year immediately preceding the assessment year or if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date. In the instant case, the financial year for the assessment year 1969-70 was the year commencing on April 1, 1968, and ending on March 31, 1969. The assessee had maintained its accounts up to August 31, 1968, in the said financial year. The assessee had opted for the 12 months ending on August 31, 1968, to be its previous year. The previous year of the assessee was, therefore, the accounting year comprising the period of 12 months from September 1, 1967, to August 31, 1968. There is no dispute in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a controversy about the head under which income from a particular source would be assessable. Determination of that controversy will affect the charge of tax and the computation of income. It will in no way affect the "previous year" in which income from such source is assessable. In the instant case, the source of income is the transfer of the property. The previous year for this source of income on the admission of the assessee is the accounting year ending on August 31, 1968, the assessment year for which is the assessment year 1969-70. It is, therefore, not correct to say that the previous year in respect of the very same source of income will change to the financial year once it is assessed not under the head "Income from business" as claimed by the assessee but under the head "Capital gains". No such change is visualised by section 3 of the Act. In that view of the matter, we are of the clear opinion that the previous year in relation to the income from the transfer of the property in question in the instant case was the accounting year ended on August 31, 1968, the corresponding assessment year being the assessment year 1969-70. We are now left with the contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it shall operate. Section 47 of the Registration Act is a complete answer to this question-it shall operate from the date of its execution, i.e., October 11, 1967. This conclusion of ours is fully supported by the decision of the Supreme Court in Nanda Ballabh Gururani v. Maqbool Begum [1980] 3 SCC 346. In this case a sale deed was executed on July 27, 1974, and it was offered for registration on July 28, 1974. It was transcribed in the books in which the documents are registered on October 11, 1974. The question for determination was whether the sale will operate from the date of registration or from the date of its execution. The Supreme Court held that in view of the provision contained in section 47 of the Indian Registration Act, it would operate not from the date of its registration but from the date of its execution. This decision of the Supreme Court squarely applies to the facts of the present case and following the same, it is clear that the sale deed will operate from the date of its execution, i.e., October 11, 1967, and not from the date of registration. Learned counsel for the assessee submits that the above decision of the Supreme Court is in conflict with its e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind force in the contention of the assessee that no advance tax being payable on capital gains, the dispute regarding levy of interest under section 217 for non-payment of the same was in fact not a dispute in regard to the quantum of payment but a challenge to the liability of the assessee to the levy of interest under section 217 of the Act. That being so, the decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961 will apply and the appeal will be maintainable. It will be open to the assessee to dispute the levy of interest in appeal subject to the limits laid down by the Supreme Court in the above decision. In that view of the matter, we answer the fourth question referred to us in the negative, that is, in favour of the assessee and against the Revenue. In the result, we answer the questions as follows: 1. Question No. 1 is answered in the affirmative and in favour of the Revenue. 2. Question No. 2 is answered in the negative and in favour of the Revenue. 3. In view of our answer to question No. 2, question No. 3 has become academic. Hence it need not be answered. 4. Question No. 4 is answered in the negative and in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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