1983 (12) TMI 21 - HC - Income Tax

Assessment Year 1968-69 Applies for Capital Gains

The court held that the capital gains from the transfer of lands should be assessed in the assessment year 1968-69, not 1969-70. The court determined that ... Capital Gains, Previous Year Issues Involved:1. Whether the capital gains realized by the assessee on the transfer of lands on July 19, 1967, were assessable in the hands of the assessee for the assessment year 1969-70.2. Whether the surplus from the transfer of lands on July 19, 1967, should be considered for the financial year April 1, 1967, to March 31, 1968, relevant to the assessment year 1968-69.Issue-wise Detailed Analysis:1. Assessability of Capital Gains in the Assessment Year 1969-70:The primary question was whether the capital gains from the transfer of lands on July 19, 1967, should be assessed in the assessment year 1969-70. The assessee argued that the lands sold were agricultural and thus exempt from capital gains tax. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) disagreed, stating that the lands were within the municipal limits of Tirunelveli town and thus not agricultural. The Tribunal did not address whether the lands were agricultural but focused on the timing of the capital gains assessment.The Tribunal allowed the assessee to argue that the capital gains should be assessed in the previous year ending March 31, 1968, relevant to the assessment year 1968-69, not 1969-70. The Tribunal agreed, stating that the relevant previous year for the transfer was the financial year April 1, 1967, to March 31, 1968, and since the assessee did not exercise its option under Section 3(1)(b) of the Income Tax Act, 1961, the capital gains could not be assessed for 1969-70.2. Determining the Relevant Previous Year for Capital Gains:The court examined whether the Tribunal's view on the relevant previous year was correct. The Revenue argued that the assessee had opted for the same previous year for both business and capital gains, i.e., July 1, 1967, to June 30, 1968. The assessee's return for the assessment year 1969-70 included capital gains for the year ending June 30, 1968, indicating that the assessee had chosen this period as the previous year for capital gains.Section 45 of the Act mandates that capital gains are deemed income of the previous year in which the transfer took place. The court noted that the assessee's accounts were made up to June 30, 1968, within the financial year April 1, 1968, to March 31, 1969, making it the previous year under Section 3(1)(b). The assessee's conduct, including disclosing capital gains in the return and profit and loss account for the year ending June 30, 1968, indicated that it had exercised the option to adopt this period as the previous year for capital gains.The court disagreed with the Tribunal's view that the option under Section 3(1)(b) was not available because the accounts were not made up to a date between July 19, 1967, and March 31, 1968. The court clarified that Section 45 requires determining the previous year in which the transfer occurred, not using the transfer date as the starting point for the previous year.The court rejected the argument that the assessee's claim for exemption on capital gains implied it had not offered the income for assessment in the year ending June 30, 1968. The court emphasized that the assessee's consistent conduct indicated it had chosen this period as the previous year for capital gains.Conclusion:The court concluded that the Tribunal erred in holding that the capital gains could not be assessed in the assessment year 1969-70. The court answered both questions in the negative, in favor of the Revenue, and remitted the matter to the Tribunal to decide whether the lands sold were agricultural or non-agricultural.Costs:The assessee was ordered to pay the costs of the Revenue, with counsel's fee set at Rs. 500.