DIXIT, C.J.

In this reference under section 66(1) of 1he Income-tax Act at the instance of the assessee, the questions formulated by the Appellate Tribunal, Bombay, for our opinion are:-

Whether on the facts and circumstances of the case the Income-tax Officer was entitled to re-open the assessment in respect of the escapement of deemed income under the second proviso to section 10(2)(vii) of the Act, when the notice dated 11-11-1952 under section 34(1)(b) mentioned only capital gains ? and

Whether on the facts and circumstances of the case there was a transfer or sale of the colliery on 1-4-1947 so as to attract the provisions of the second proviso to section 10(2)(vii) and section 12-B of the Act for the assessment year 1948-49 ?

On 31st March 1947 the assessee M/s. D.B. Ballabhdas Mannoolal Kanhaiyalal, an unregistered firm which was the owner of a colliery known as 'Hindusthan Lalpeth Colliery of Chanda', entered into an agreement with the Perfect Pottery Co. Ltd., Jabalpur, for the sale of the colliery including machinery, fixtures, land etc. for Rs. 4 lakhs. The agreement provided, inter alia, (1) that the vendors would sell and the purchasers would purchase as from 1st April 1947; (2) that out of the consideration money of Rs. 4 lakhs, Rs. 50,000 would be paid on the execution of the agreement to sell, Rs. 50,000 on the execution of the deed of sale and the remaining a mount in three equal instalments of Rs. 1 lakh each on the dates specified in clause, (2) of the agreement; (3) that the purchase would be completed within three months from the date of the execution of the agreement or within fifteen days of the receipt of the sanction of the Government for the transfer of the mining rights, whichever was earlier, when formal possession of the business and property would be given to the purchasers; and (4) that the possession of the business and property would be retained by the vendors up to the date of the completion of the purchase, who would in the meantime carry on the business as agent for and on behalf of the purchasers in accordance with their instructions and shall account to and be entitled to be indemnified by the purchasers accordingly. The sale-deed was executed and registered on 12th October 1948.

During the assessment year 1948-49 of which the corresponding accounting period was from 1st January 1947 to 31st December 1947, the Perfect Pottery Co. Ltd., claimed to set off losses of the colliery incurred during the period from 1st April 1947 to 31st December 1947 against their other profits. This claim was disallowed by the Income-tax Officer on the ground that the legal title to the colliery passed to the company only on 12th October 1948 and the loss intended to be set off was the loss of the vendor M/s D. B. Ballabhdas Manoolal Kanhaiyalal. Consistent with this view in the assessment proceedings of the assessee for the year 1948-49 of which the previous year was from 15th July 1946 to 3rd July 1947, the income-tax authority allowed to the assessee proportionate loss of Rs. 22,141 incurred in the working of the colliery by the assessee during the period from 1st April 1947 to 3rd July 1947. In Part VII of the return filed for the material year the assessee had shown a loss of Rs. 1,47,308 on account of the sale transaction. The capital gains of the assessee were not determined in the assessment for the year 1948-49.

The contention of the Perfect Pottery Co. Ltd. about the setting off of the losses incurred in the colliery business from 1st April 1947 to 31st December 1947 was, however, accepted in appeal by the Tribunal and also by the Nagpur High Court in Miscellaneous Civil Case No. 47 of 1953 (The Commissioner of Income-tax v. P.P. Co. Ltd.) when the matter went up on a reference to the High Court on an application of the Department under section 66(2) of the Act. The High Court held on 23rd March 1955 that until the completion of the sale on 12th October 1948 the vendor-firm acted only as "agent" of the