Judgement

SIKRI, J.: This appeal by special leave is directed against the judgment of the High Court of Andhra Pradesh answering the question referred to it under S. 66 of the Income-tax Act, 1922, against the appellant. The question referred to was "whether on the facts and in the circumstances of the case a sum of Rs.79,494 is assessable as capital gains in the assessment year 1948-49."

2. 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 Venkataramaiah, 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 the 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 on July 5, 1947, before the date of the agreement. Since the answer to the question turns in part on the construction of the agreement it would be convenient to set out the relevant clauses which are as follows:

"1. The vendor shall sell and the company shall purchase:

First the Goodwill of the said business (with the exclusive right to represent the company as carrying on such business in continuation of the Vendor or in succession thereto);

Secondly all the immovable properties specified in Schedule hereto.

Thirdly all the plant, machinery, offices, furniture, licences, live-stocks, carts, implements and utensils to which the vendor is entitled in connection with the said business specified in the Second Schedule hereto;

Fourthy all materials and semi-processed materials in stock described in the third schedule.

2. The consideration for the said sale shall be the sum of Rs.2,00,000 which shall be paid and satisfied by payment in cash soon after the capital Rs.3,00,000 has been raised or in any other manner agreed upon between the Directors of the Co. and Vendor.

6. The purchase shall be completed by Seventeenth day of March, 1948 at Tenali when possession of the premises shall as far as practicable be given to the company and the consideration aforesaid shall be paid and satisfied subject to the provisions of the agreement and thereupon the Vendor and all other necessary parties if any, shall at the expenses of the company execute and do all the assurances and things for vesting the said premises in the company and giving to it the full benefit of this Agreement as shall be reasonably required.

7. If from any cause whatever other than the wilful default of the vendor the purchase shall not be completed by the said 17th day of March, 1948 the company shall pay interest on the said sum of Rs.2,00,000 (Two lakhs) cash at the rate of .........p.c. per annum.

8. Upon the adoption of this agreement by the company in such manner as to render the same binding on the company the said Manthena shall be discharged from all liabilities in the respect thereof.

9. Unless before the day the company shall have become entitled to commence business either of the parties hereto may by notice in writing to the other determine this agreement and after adopting this agreement the company shall stand in the place of the said (sic - Manthena?) for the purpose of this clause.

10. If this agreement shall not