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High Court Of Delhi
COMMISSIONER OF INCOME TAX - Appellant
Versus
MEATTELS LIMITED - Respondent
I.T.R. 22 of 1965
Decided On : 05/11/1971
INCOME TAX - Section 10 (2) (vii) - Sale of Mills - Interpretation of the term sale - Whether the assessee company had sold the Crown Flour Mills to its subsidiary company within the meaning of Section 10 (2) (vii) of the Income Tax Act, 1922, and entitled to the deductions of the loss of Rs. 3,58,783. 00 under that Section.
Fact of the Case:
The assessee company, Meattels Private Limited, had been carrying on two distinct businesses, viz (1) the business of speculation in shares and the other commodities and (2) business of Flour Milling in the factory known as Crown Flour Mills. Since a number of years, the loses in its speculation business were wiping out the profits earned in the milling bussiness. The assessee-company, therefore, decided to transfer the Crown Flour Mills to its subsidiary company, The Hindustan Cold Stores and Refrigeration Limited. The assessee company claimed allowance in respect of the loss of Rs. 3,58,783. 00 under section 10 (2) (vii) of the Act, which was disallowed by the Income Tax Officer on the ground that the business of the Crown Flour Mills was still to be considered the business of the assessee company as before, as no registered sale-deed had been executed.
Finding of the Court:
The Tribunal held that the assessee company was entitled to deduction of the loss of Rs. 3,58,783. 00 under section 10 (2) (vii) of the Act, as the term sale in the said section was to be interpreted in its normal and grammatical sense and the passing of the property was not essential for the completion of sale in the popular and commercial sense of the term.
Issues: Whether the assessee company had sold the Crown Flour Mills to its subsidiary company within the meaning of Section 10 (2) (vii) of the Income Tax Act, 1922, and entitled to the deductions of the loss of Rs. 3,58,783. 00 under that Section?
Ratio Decidendi: The word sale as occuring in Section 10 (2) (vii) of the Act has to be interpreted in the sense it has acquired in law. Sale under Section 54 of the Transfer of Property Act 1882 is a transfer of ownership, in exchange for a price paid or promised or part paid or part promised. Such transfer in the case of tangible immoveable property of the value of one hundred rupees and upward can be made only by a registered instrument. The word sale therefore, had become a word of well recognised legal import at the time when it was introduced in the Act; and in that sense, sale could be made only by a registered instrument, in the case of immovable property of the value of one hundred rupees and upwards. It is, therefore, not possible to give it any other meaning.
Final Decision: The assessee company was not entitled to claim under that section the deduction of the loss of Rs. 3,58,783. 00 from its income.
( 1 ) THE following question of law along with the statement of the case was referred to this Court under Section 66 (1) of the Indian Income Tax Act 1922, herein called the Act, by the Income-Tax Appellate Tribunal Delhi Bench B, at the instance of the Commissioner of income Tax, Delhi, Central and Rajasthan, Delhi
"whether on the facts and in the circumstances of the case the assessee company was entitled to the deductions of the loss of Rs. 3,58,/83. 00 under section 10 (2) (vii) of the Income Tax Act, 1922. The Division Bench, when this matter first came up for hearing, before it, referred the question, in circumstances mentioned hereinafter. The referred question reads as follows: "whether on the facts and the circumstances of the case, the assessee-company nad sold the Crown Flour Mills to Hindustan Cold Stores and Refrigeration Limited within the meaning of Section 10 (2) (vii) of the Income-tax Act 1922, and entitled to the deductions of the loss of Rs. 3,58,783. 00under that Section?"
( 2 ) THE matter relates to the assessment year 1957-58, the relevent accounting year ending on September, 30, 1957. The assessee-company, Meattels Private Limited had been carrying on two distinct businesses, viz (1) the business of speculation in shares and the other commodities and (2) business of Flour Milling in the factory known as Crown Flour Mills. Since a number of years, the loses in its speculation business were wiping out the profits earned in the milling bussiness. The assessee-company, therefore, decided to transfer the Crown Flour Mills to its subsidiary company, The Hindustan Cold Stores and Refrigeration Limited. A resolution was passed by the assessee-company on February 1, 1957, approving two drafts agreements relating to the sale of the Crown Flour Mills and its stock in trade etc. to the said subsidiary company in consideration of Rs. 8,75,000. 00 and Rs. 3,75,063-12-10 respectively. The consideration for the sale of the Mills was received to have been accepted in equity shares of the subsidiary company of the face value of Rs. 8,75,000. 00. Rs. 3,75,063-12-10 the consideration for the sale of stock in trade and other assets and liabilites was to be treated as loan to subsidiary company repayable at interest at the rate of 5 per cent per annum.
( 3 ) THE subsidiary company on its part had passed a resolution dated December, 29, 1956 for the purpose of starting negotiations for acquiring the Crown Flour Mills. Resolution was passed by the subsidiary company on February, 1957 approving the aforesaid draft agreements for the purchase of the Crown Flour Mills and its stock in Trade and other assets and liabilites. In February, 1, 1957 two separate agreements were executed between the two companies in pursuance of the above resolutions. The first agreement related to the sale of Crown Flour Mills for Rs. 8,75,000. 00 on the terms and conditions set out there-in and was executed on a stamp paper of Rs- 1/8. 00. The agreement provided for immediate delivery and possession of Mills to the subsidiary company, allotment of fully paid up equity shares of the suusidiary-company of the value of Rs. 8,75,000. 00 to the assessee company within three months from the date of the agreement and execution of a proper sale deed by the assessee company at the expense of the subsidiary company within three months from the date of the receipt of fully paid up shares. The subsidiary company was made liable to pay all taxes and outgoings relating to the Crown Flour Mills with effect from the date of the agreement. A second agreement was also executed between the two companies relating to the sale of stock in trade and other moveable properties for Rs. 3,75,063-12-10; but the present reference is not concerned with this agreement.
( 4 ) THE subsidiary company actually took possession of the Crown Flour Mills as also the stock in trade and other articles transferred to it under the aforesaid agreements, on February, 1, 1957 and s
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