Items permanently attached to that which is embedded in the earth are considered immovable properties and not liable to tax as profits or capital gains under the Income Tax Act, 1961.

SYED SHAH MOHAMMED QUADRI, J.

( 1 ) THIS reference is made under s. 256 (1) of the IT Act, 1961 at the instance of the Revenue. The question referred to this Court is as follows :"whether, on the facts and in the circumstances of the case, the items in the agreement dt. 27th Dec. , 1960, except 12 items mentioned in the Tribunal s order, can be considered as immovable properties and as such liable to tax as profits under s. 41 (2) or capital gains under the IT Act, 1961 ?"

( 2 ) IT arose on the following facts : The assessee is a registered firm. It was the owner of a cinema hall, viz. , "minerva Talkies" at Viskhapatnam. The assessee agreed to sell the said talkies to another firm styled as "oriental Theatres". Two agreements were executed between the parties, one covered for movable assets dt. 27th Dec. , 1960, and the other dt. 28th Dec. , 1960, regarding immovable assets. In the assessment year in question, viz. , for 1962-63, the assessee filed a nil return. However, the ITO worked out the difference in value on the basis of the written down value and the consideration mentioned in the agreement and concluded that it made profits under s. 41 (2) in a sum of Rs. 37,066 and capital gain of Rs. 46,363. The assessee went in appeal before the AAC, but was unsuccessful. On appeal before the Tribunal, the Tribunal came to the conclusion that the items mentioned in the agreement dt. 27th Dec. , 1960, though described as movables were in fact immovable properties and as the AAC did not consider this aspect, remanded the matter to the AAC. On remand, the AAC held that there was no profit or gain under s. 41 (2) of the IT Act. This finding of the AAC was confirmed by the Tribunal on further appeal by the Revenue and it was held that there was no transfer of immovable property under a registered document, therefore, there was no sale and no income under s. 41 (2) of the Act or no capital gains accrued to the assessee by the said transaction. On those facts, the above said question is referred to us.

( 3 ) WE have gone through the list of items. The discussion takes us to the question as to when chattels are said to be "immovable properties". The expression "immovable property" is defined in s. 3 of the Transfer of Property Act in the following terms :" immovable property does not include standing timber, growing crops or grass". It is evident that the definition does no more than exclude standing timber, growing crops or grass from the concept of immovable property. Here it would be useful to refer to the definition of that expression in s. 3 (26) of the General Clauses Act, which reads thus :" immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently, fastened to anything attached to earth. "this definition is an inclusive definition. Apart from the general concept of immovable property, the definition includes land, benefits arising out of the land and things "attached to the earth" or permanently fastened to anything attached to earth. The phrase "attached to earth" is defined in s. 3 of the Transfer of Property Act and the definition reads as follows :"attached to earth means, - (a) Rooted in the earth, as in the case of trees and shrubs; (b) Imbedded in the earth, as in the case of walls or buildings; or (c) attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached. "a combined reading of the definitions of the expressions "immovable property" and "attached to earth" in the abovesaid enactments, leads to the conclusion that the benefits arising out of the land and things rooted in the earth as in the case of trees and shrubs or embedded in the earth as in the case of walls and buildings or attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached and also things permanently fastened to earth would fall within the ambit of that expression.

( 4 ) A learned single judge of the Madr

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