TaxTMI 
TaxTMI 
TaxTMI 
1964 (10) TMI 21
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....s. 10,00,000. The said amount was made up of : (1) Rs. 1,00,000 being the value of the land, (2) Rs. 1,31,732 being the value of the buildings, and (3) Rs. 7,68,268 being the value of plant and machinery. The books of the assessee-company showed that the original cost of the buildings was Rs. 3,46,034, that its written down value was Rs. 1,08,321, that the cost of the machinery was Rs. 3,90,148 and its written down value, Rs. 90,098. The total amount of the depreciation allowed in the past for both the buildings and machinery amounted to Rs. 5,36,034. The sale resulted in the excess realisation of Rs. 23,411 over the written down value of the buildings. In the case of the machinery the sale price exceeded the difference between the cost and the written down value and that excess was Rs. 3,00,050. The relevant assessment year is 1956-57 and the corresponding accounting year is the calendar year 1955. The Income-tax Officer held that the sale was the result of collusion between the vendor and the vendee. He came to the conclusion that the assessee had realised the full original cost of the buildings and machinery and, on that basis, he treated the sum of Rs. 5,36,034 which was allo....
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....iction to set aside the finding of fact arrived at by the Tribunal to the effect that the profit on sale of the buildings was Rs. 1,25,000 ; and (2) that the second proviso to section 10(2)(vii) after its amendment by Act 67 of 1949, brings to charge the said deemed profits irrespective of the fact whether the buildings and the machinery were used for the business in the previous year or not. To appreciate the first contention, it would be necessary to notice the reasons given by the Appellate Tribunal for differing from the findings of the Appellate Assistant Commissioner and coming to the conclusion which it did in respect of the sale price of the buildings. The Appellate Assistant Commissioner accepted the valuation of the buildings given by the chartered engineer. The Tribunal rejected that estimate on the following grounds: (1) the valuation certificate of the buildings and machinery must have been obtained by the vendee-company in connection with its floatation for the purpose of its prospectus or statement in lieu of prospectus; (2) some of the buildings found useless for the vendee's purpose had been left out in the valuation. After rejecting the certificate on the said g....
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....n down value shall be deemed to be profits of the previous year in which the sale took place . . . " It may be noticed that in the second proviso, the words " whether during the continuance of the business or after the cessation thereof " were introduced by Act 67 of 1949. The argument of Mr. Rajagopala Sastri may be summarised as follows : The second proviso to section 10(2)(vii) is a may substantive charging section though couched in the form of a proviso and under the said proviso as amended, whenever a sale takes place after the cessation of the business, the surplus must be deemed to be the profits of the year previous to the year in which the sale took place ; and for the purpose of the proviso, the business must also be deemed to have been conducted by the assessee during the said previous year: By fiction, the argument proceeded, all the necessary conditions to the exigibility of tax are introduced though in fact none exists. For the assessee, Mr. Venkatram contended that the amendment only released one of the conditions of taxability, namely, that the sale shall not have been held after the cessation of the business. The respondent in Special Leave Petition (Civil) Nos....
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....to be read in, nothing is to be implied. One can only look fairly at the language used ". To put it in other words, the subject is not to be taxed unless the charging provision clearly imposes the obligation. Equally important is the rule of construction that if the words of a statute are precise and unambiguous, they must be accepted as declaring the express intentions of the legislature. Giving a close scrutiny to the second proviso, it will be clear that by giving the natural meaning to every word used therein, it clearly fits in within the scheme of the entire section. The key expressions in the proviso are : (1) " such building ", (2) " whether during the continuance of the business or after the cessation thereof " and (3) " deemed to be the profits of the previous year". The words " such building " have already been given an authoritative interpretation by this court in the aforesaid two decisions. In the latter decision (Express Newspapers' case ), at page 254, it is observed thus : " The adjective ' such' refers back to clauses (iv), (v), (vi) and (vii) of section 10(2). Under clause (iv) an allowance is allowed in regard to any premium paid in respect of insurance agai....
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....rd may authorise in this behalf. In the present case, the previous year is the calendar year preceding the assessment year. Deemed profits, must, therefore, relate to the calendar year preceding the assessment year. By giving the natural meaning to every expression used in the proviso, we reach the result, namely, that the surplus mentioned in the said proviso is not exigible to tax unless the assessee did business during the accounting year preceding the assessment year and unless such buildings or machinery yielding surplus were used for the business in the said year or at any rate part of the year, though they were sold after the cessation of the business. To illustrate, an assessee did business during some part of the accounting year 1955, but closed it in October of that year. He used the machinery during some part of the year for the business. He sold it in December. The price realised yielded a surplus within the meaning of the proviso. During the assessment year 1956-57, the said surplus could be brought into charge notwithstanding the fact that the machinery was sold after the cessation of the business. Before the amendment, the said surplus could not be taxed as the sale ....
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.... the same fiction, the buildings must be deemed to have been used in that business during that year. For enlarging the scope of the fiction, reliance is placed upon the decision of this court in Additional Income-tax Officer, Circle I, Salem v. E. Alfred. There, the legal representative of an assessee was assessed to tax after notice under section 24B(2) of the Act. As he made a default in the payment of the tax, penalties were imposed upon him under section 46(1) of the Act. Under section 24B, the Income-tax Officer may proceed to assess the total income of the deceased person as if such legal representative was the assessee. It was argued that after the assessment was made on the legal representative, the fiction came to an end and thereafter he remained a mere debtor to the department, and, therefore, section 46(1) could not be applied to him. Dealing with that argument, Hidayatullah J., speaking for the court, said: " When a thing is deemed to be something else, it is to be treated as if it is that thing, though, in fact, it is not ... It is in this sense that the legal representative becomes an assessee by the fiction, and it is this fiction which has to be fully worked out,....
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....previous year " need not necessarily be an accounting year wedded to the assessment year and it can be given a different meaning if the context demands it. This court in Dhandhania Kedia and Co. v. Commissioner of Income-tax approved of the observations of Mahajan J. in Commissioner of Income-tax v. K. Srinivasan and K. Gopalan. The observations of Mahajan J. are to the following effect : " . . . For purposes of the charging sections of the Act unless otherwise provided for it is co-related to a year of assessment immediately following it, but it is not necessarily wedded to an assessment year in all cases and it cannot be said that the expression 'previous year' has no meaning unless it is used in relation to a financial year. In a certain context, it may well mean a completed accounting year immediately preceding the happening of a contingency. " Be that as it may, in the present case, in the context as we have already indicated, there is no reason to give the expression a meaning different from that it bears under the definition. If the argument advanced on behalf of the revenue were accepted, it would lead to some anomalies. By the fiction, if the business must be deemed ....