Distention between capital receipt and revenue receipt.

Satyanarayana Rao, J.-

Two questions have been referred to this Court for decision by the Income-tax Appellate Tribunal under section 66(1) of the Act. They are:

(1) Whether on the facts and in the circumstances of the case the inclusion and assessment of the sum of Rs. 9,397, re, resenting the sale proceeds of plots of land, by the Appellate Assistant Commissioner after remand and upheld by the Appellate Tribunal, when this amount had not formed the subject matter of the appeal in respect of assessment year 1944-45 either before the Appellate Assistant Commissioner or the Appellate Tribunal in the first instance, is legal?

(2) Whether on the facts and in the circumstances of the case the assessment of the sum of Rs. 13,197 realized by the sale of vacant plots and fruit shop buildings under the head ‘business’ is lawful?

The assessee is Sri Gajalakshmi Ginning Factory, Limited, Palladam, hereinafter called the “company.” The company purchased in 1932 a ginning factory with extensive lands appurtenant to the factory and also a plot which was somewhat removed from the factory and was in the heart of the town of Tirupur. On this plot there were some fruit stalls. The whole lot was purchased for a sum of Rs. 33,000. The extent of the land appurtenant to the building was about n acres 33 cents. The site of the fruit stalls was 9 cents. Before the termination of the accounting year 1942 the building, the machinery and the factory were sold together with some of the land appurtenant to it for a sum of Rs. 40,000. The profit which accrued from out of that transaction was subjected to income-tax without objection during the assessment year 1942-43. Out of the vacant site of 7 acres, two acres were reserved by the assessee for erecting a cinema theatre, and the remaining 5 acres of land was parcelled out into 81 small plots in accordance with the requirements of the town-planning scheme of the municipality and the plots were sold thereafter in public auction; and by January, 1943, 61 plots were sold which fetched a profit of Rs. 2,036. Out of this amount the Income-tax Officer assessed the company to pay income-tax on a sum of Rs. 400. But this decision was reversed by the Appellate Assistant Commissioner on appeal who held that the sum of Rs. 2,036 was a capital receipt.

We are now concerned with the subsequent accounting year ending 31st January, 1944. During this period, by the sale of the remaining plots the assessee realised a sum of Rs. 9,397 and a further sum of Rs. 3,800 from the sale of the fruit shop buildings making a total of Rs. 13,197. During this assessment year now (1944-45), the sum of Rs. 9,397 was treated as a capital receipt by the Income-tax Officer. He assessed the sum of Rs. 3,800 under the head ‘business ‘under the erroneous impression that this amount represented the sale proceeds of the factory building on which depreciation was allowed. Against the order of the Income-tax Officer, the assessee preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner by his order of 31st July, 1945, upheld the order of the Income-tax Officer, but reduced the amount to Rs. 2,800. There was a further appeal by the assessee to the appellate Tribunal, and the Tribunal was not clear about the facts and therefore, remanded the matter to the Appellate Assistant Commissioner for a decision in accordance with law after considering all the facts of the case. Under the law the appellate Tribunal had authority to remand a case, as was decided by this Court in Koduri Pulleswara Rao and another v. Commissioner of Incomg-tax, Madras,1. After remand, the Appellate Assistant Commissioner after considering the facts, came to the conclusion that the sum of Rs. 3,800 and the sum of Rs. 9,397, i.e., in all a sum of Rs.13,197 was assessable to a tax as income of business earned by the assessee. In other words, he enhanced the assessment which was made by the Income-tax Officer.

The second order of the Appellate Ass

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