TMI Blog1965 (3) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... 49 ? " The facts relevant to the question are as follows. The assessment year in question is 1948-49, and the accounting year is the official year 1947-48. The appellant, hereinafter referred to as the assessee, Alapati Venkatramaiah, was the proprietor of Mohan Tile Works, engaged in the manufacture of tiles and bricks and owned the factory buildings, plant and machinery. The assessee entered into an agreement dated March 17, 1948, with one Shri Manthena Venkata Raju agreeing to sell to the Mohan Industries Limited, hereinafter called the company, the aforesaid factory, plant, machinery, furniture, stocks and goodwill for a sum of Rs. 2,00,000. The agreement recited that the assessee had been carrying on business under the name and style of Mohan Tile Works at Tenali and that the company to be called the Mohan Industries Limited is to be formed under the Indian Companies Act, having for its object among other things acquisition and the working of the said business. It appears that this agreement was drafted before the company was incorporated and the recital clause was not modified when the agreement was actually executed. It is common ground that the company was incorporated o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the said Manthena Venkata Raju for the purpose of this clause. 10. If this agreement shall not be adopted by the company in manner aforesaid before and the day next (sic), either of the parties may by notice in writing to the other determine the same. " The assessee was appointed managing agents of the company on July 15, 1947, and on March 11, 1948, he wrote a letter on behalf of the company to the Director of Industries and Commerce, Madras, furnishing a detailed list of land, building and machinery comprising the assets of the company together with their value, in connection with the grant of loan by Government. On March 20, 1948, the assessee was credited with the price of Rs. 2,00,000 in the books of the company. On November 22, 1948, sale deed in respect of land was executed in favour of the company. On December 9, 1948, the company mortgaged the land with all its buildings and structures thereon and the machinery, plant and other property for Rs. 1,00,000 to the State of Madras. On March 16, 1949, the board of directors, by resolution No. 22 approved the agreement dated March 17, 1948, and on April 10, 1949, the agreement was approved at the annual general meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the limited liability company which was promoted to take over the tiles business. There was only an agreement to sell. In fact, 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. He received in all Rs. 1 lakh in several instalments beginning from 25th March, 1949, which is beyond the year of account. The point that the assessee himself returned the sum of Rs. 79,494 under the capital gains leads us nowhere. He might have done it under the advice of some ' income-tax expert '. The assessee cannot be tied down to an inadvisably made wrong statement. In the circumstances, we delete the addition. " It appears that the Commissioner of Income-tax filed an application under section 35 of the Act for the correction of the Tribunal's order on the ground that the Tribunal had not mentioned in the order certain documents which, if they had been considered, would perhaps support a conclusion different from the one arrived at by the Tribunal. The Tribunal thereupon came to the conclusion that its earlier decision deleting the amount from taxation was based on non-consideration of various materials on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt immediately and in fact he treated it as having been received ; (3) the entire movable and immovable property was transferred by giving possession to the company in the year of account and in order to perfect the title the only thing that is required was a registered conveyance in respect of land which was done subsequently ; and (4) that it is apparent from the entire transaction and the method of accounting adopted both by the assessee and the company that the income had arisen to the assessee in the year of account and there is no justification even for the contention that at least immovable assets should be deemed to have been transferred only in the year in which the actual sale deed was executed. Accordingly, it answered the question in the affirmative. Mr. A. V. Viswanatba Sastri, the learned counsel for the assessee, contends that under section 12B of the Income-Tax Act, as it stood at the relevant time, profits and gains are deemed to be the income of the previous year in which the sale, exchange or transfer took place. He says that the sale took place when on March 16, 1949, the board of directors ratified the agreement dated March 17, 1948 ; till then there was onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eant to operate if the agreement had been executed before the incorporation of the company. But we are unable to rewrite the agreement. Clauses 8 and 9 are appropriate in an agreement which is made by an agent subject to confirmation by a principal and must be given effect to. When was the agreement adopted by the company ? We are relieved from addressing ourselves to this question because in the statement of the case, which was agreed to by the assessee and the revenue, it is stated that " the said agreement was approved and accepted by a resolution of the board of directors of the company on 16th March, 1949, and in and by the said resolution the company agreed to pay purchase price in instalments commencing from 31st March, 1949. The agreement was subsequently approved by the general body of shareholders at a meeting held on 10th April, 1949, and on such approval, acceptance and adoption, the agreement became binding on the assessee and the company. Even if the agreement was accepted by the company in 1949, the question still remains whether any sale or transfer of assets took place before April, 1948. Sale or transfer of an asset could take place, as it did in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of the case, which was agreed to by the assessee and the revenue, a distinction is drawn thus : " The building and site was valued at Rs. 1,26,470. The machinery and electrical fitting which were permanently embedded in the earth were respectively valued at Rs. 15,989 and Rs. 1,298-10-0. The stocks were valued at Rs. 30,050 and goodwill at Rs. 7,396-6-0. " We are, therefore, unable to prevent the assessee from relying upon the distinction between movable and immovable assets. In the result, we hold that the following assets were not sold or transferred before April 1, 1948 : (i) Machinery valued at Rs. 15,989-0-0. (ii) Electrical fittings valued at Rs. 1,289-10-0. (iii) Buildings and site valued at Rs. 1,26,470-0-0. Therefore, no capital gains in respect of these items arose in the previous year ending March 31, 1948. This brings us to the movable assets. Stocks valued at Rs. 30,050 are expressly exempt from the definition of capital asset, and therefore we hold that no capital gain accrued in respect of their sale or transfer. This leaves furniture valued at Rs. 18,805, and goodwill valued at Rs. 7,396-6-0. There is no doubt that possession of furni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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