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1983 Supreme(Mad) 599
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE RATNAM & THE HONOURABLE MR. JUSTICE RAMANUJAM
Commissioner of Income Tax, Tamil Nadu-I - Appellant
Versus
Nellai Murasu Private Limited - Respondent
Case No : Tax Case No. 134 of 1979
Decided On : 14 December 1983
The assessee's disclosure of income by way of capital gains in the return for the assessment year corresponding to the accounting year ending on the date of accounts constitutes an exercise of the option to adopt the previous year ending on the date of accounts as the previous year for capital gains.
Headnote:
INCOME TAX - Capital gains - Previous year - Determination - Option to adopt previous year ending on date of accounts - Exercise of option - Assessee disclosing income by way of capital gains in return for assessment year - Whether assessee deemed to have exercised option to adopt previous year ending on date of accounts - Whether capital gains chargeable only for period July 1, 1967, to June 30, 1968.
Fact of the Case:
The assessee, a company publishing a Tamil daily newspaper, sold certain lands on July 19, 1967, for a profit of Rs. 51,307. The assessee filed a return for the assessment year 1969-70, showing the previous year as ending on June 30, 1968, and disclosed the profit on sale of lands in the profit and loss account. However, the assessee excluded the profit from the income adjustment statement on the ground that it represented profit on sale of agricultural lands and, therefore, could not be taxed as capital gains. The ITO held that the lands sold were not agricultural lands and assessed the profit as capital gains. The AAC and the Tribunal upheld the ITO's decision on the issue of whether the lands were agricultural lands, but the Tribunal held that the capital gains could not be assessed in the assessment year 1969-70 as the relevant previous year was the financial year April 1, 1967, to March 31, 1968, and the date of transfer fell outside that year.
Finding of the Court:
The court held that the assessee had exercised its option to adopt the previous year ending on June 30, 1968, as the previous year for capital gains as well, by disclosing the income by way of capital gains in the return for the assessment year 1969-70 corresponding to the accounting year ending June 30, 1968. The court further held that the date of transfer, July 19, 1967, fell within the previous year July 1, 1967, to June 30, 1968, specifically adopted by the assessee while submitting the return for the assessment year 1969-70. Therefore, the capital gains were chargeable only for the period July 1, 1967, to June 30, 1968.
Issues: 1. Whether the assessee exercised its option to adopt the previous year ending on June 30, 1968, as the previous year for capital gains as well? 2. Whether the date of transfer, July 19, 1967, fell within the previous year July 1, 1967, to June 30, 1968, specifically adopted by the assessee while submitting the return for the assessment year 1969-70?
Ratio Decidendi: The court held that the assessee had exercised its option to adopt the previous year ending on June 30, 1968, as the previous year for capital gains as well, by disclosing the income by way of capital gains in the return for the assessment year 1969-70 corresponding to the accounting year ending June 30, 1968. The court further held that the date of transfer, July 19, 1967, fell within the previous year July 1, 1967, to June 30, 1968, specifically adopted by the assessee while submitting the return for the assessment year 1969-70. Therefore, the capital gains were chargeable only for the period July 1, 1967, to June 30, 1968.
Final Decision: The court answered the questions raised in the negative and in favor of the Revenue. The assessee was directed to pay the costs of the Revenue, including counsel's fee of Rs. 500. The matter was remitted to the Tribunal for rendering a decision on the question of whether the lands sold were agricultural lands.
RAMANUJAM J.
At the instance of the Revenue, the following two questions have been referred to this court by the Tribunal for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the capital gains realised by the assessee on the transfer of lands on July 19, 1967, in favour of M/s. Educational Trust Company Private Ltd. was not assessable in the hands of the assessee for the assessment year 1969-70 ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the only previous year in which the surplus from the transfer of lands which took place on July 19, 1967, will had to be considered would be the financial year April 1, 1967, to March 31, 1968, relevant to the assessment year 1968-69 ?" *
The assessee, in this case, is a company which publishes a Tamil daily newspaper known as "Nellai Murasu". For the assessment year 1969-70, the assessee filed a return of income on July 1, 1969, showing the previous year as ending on June 30, 1968. In the profit and loss account panting the return, the assessee had shown for the year ended June 30, 1968, not only the income from the newspaper business, but also the profit on sale of lands of Rs. 51, 307. The balance-sheet accampaigning the return also showed the value of the fixed asset at Rs. 2, 68, 443. The schedule of fixed assets showed that as on July 1, 1967, there were lands of the value of Rs. 45, 192.98 and the amount of Rs. 36, 192.98 was shown as the value of the lands sold during the year. The value of the balance lands was shown in the balance-sheet as Rs. 9, 000 as on June 30, 1968. The lands of which the cost was Rs. 36, 192.98 were sold on June 30, 1967, for Rs. 87, 500. After deducting the cost was Rs. 36, 192.98 from the sale price of 87, 500, balance of Rs. 51, 307 was shown as the profit on sale of lands. However, in the income adjustment statement, the assessee excluded the profit of 51, 307 on the ground that it represented profit on sale of agricultural lands and, therefore, it cannot be taxed as capital gains.The ITO, however, held that since the lands sold were situated with in the municipal limits of Tirunelveli town, the lands sold cannot be agricultural lands so as to enable the assessee to claim exemption from capital gains. Aggrieved by the decision of the ITO holding that the lands sold are not agricultural lands, the assessee filed an appeal before the AAC contending that the lands sold were agricultural lands and, therefore, the profit arising on the sole of such a land cannot be assessed as capital gains. The AAC agreed with the ITO and held that the lands sold by the assessee were not agricultural lands.
The assessee, thereafter, went before the Tribunal contending that the lands sold are only agricultural lands. The assessee also put forward a new plea at that stage that since the sale of lands had taken place on July 19, 1967, the capital gains, if any, could be considered for assessment only in the previous year ended March 31, 1968, relevant to to the assessment year 1968-69, and, therefore, even if the profits arising out of the sale of the lands could be taken to be a capital gain, it could be assessed only in the assessment year 1968-69 and not in the assessment year 1969-70, which was the subject-matter before the Tribunal. The Tribunal allowed the assessee to raise the said new point on the ground that it goes to the root of the assessment and that it did not involve ascertainment of any fresh facts. The Tribunal then went into the fresh point raised by the assessee that even if the profits arising out of the sale of the lands are held taxable, it could be assessed only in the previous year ended March 31, 1968, and not for the assessment year 1969-70, and agreeing with the contention of the assessee, held that the relevant previous year in with the transfer of the capital asset took place is the previous year en
