Transfer date of movable assets fixed by possession and adoption of agreement, excluding capital gain tax and rejecting a new factual plea.

A pre-incorporation agreement followed by adoption, ratification, and delivery of possession was treated as binding on the company for fixing the date of transfer. The registered deed of 17-5-1946 was construed as covering only the immovable properties, while the movable assets in the second part of the schedule were found to have been delivered and taken possession of on 30-3-1946. The resulting gain was therefore outside tax under section 12B of the Income-tax Act, 1922 because the transfer occurred on or before 31-3-1946. The alternative contention that the scheduled items were immovable property could not be entertained in reference jurisdiction because it raised a new factual issue not investigated by the Tribunal.

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Issues: (i) Whether the transfer of the movable assets comprised in the second part of the schedule to the agreement dated 16-3-1946 took place on or before 31-3-1946 so as to exclude the resulting profit from tax under section 12B of the Income-tax Act, 1922; (ii) whether the contention that the scheduled items were immovable property and that title could pass only under the registered deed executed on 17-5-1946 could be entertained at the reference stage.

Issue (i): Whether the transfer of the movable assets comprised in the second part of the schedule to the agreement dated 16-3-1946 took place on or before 31-3-1946 so as to exclude the resulting profit from tax under section 12B of the Income-tax Act, 1922.

Analysis: The registered deed of 17-5-1946 was construed as relating only to the first part of the schedule, namely, the immovable properties. The consideration and stamp duty supported that construction. The binding effect of the pre-incorporation agreement was recognised on the footing that the company had adopted and ratified it and had taken possession in pursuance of it. The Tribunal's finding that the movable assets were delivered and taken possession of on 30-3-1946 was treated as a finding of fact supported by material on record.

Conclusion: The transfer of the movable assets took place on or before 31-3-1946, and the capital gain arising from their sale was not taxable under section 12B of the Income-tax Act, 1922.

Issue (ii): Whether the contention that the scheduled items were immovable property and that title could pass only under the registered deed executed on 17-5-1946 could be entertained at the reference stage.

Analysis: The nature of the items in the second part of the schedule raised a factual issue depending on annexation and the circumstances of each case. No such issue had been investigated before the departmental authorities or the Tribunal, and the High Court in reference jurisdiction could not undertake a fresh factual inquiry. The challenge was therefore not open for consideration.

Conclusion: The argument that the scheduled items were immovable property was rejected as not entertainable on the reference.

Final Conclusion: The reference was answered for the assessee, with the transfer of the movable assets held to have occurred before the statutory cut-off date and the Department's attempt to tax the profit on that basis failing.

Ratio Decidendi: In an income-tax reference, the High Court cannot decide a new factual controversy not investigated by the Tribunal, and a pre-incorporation agreement followed by adoption, ratification, and delivery of possession can bind the company for determining the date of transfer.

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