TaxTMI 
TaxTMI 
1988 (4) TMI 100
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....63.52 lakhs which have been reproduced in the assessment order and are as under : "Details of re-investment of Sale Proceeds of Rs. 63.52 lakhs : Period (A) 7-4-1981 to 25-5-1982 Loan to Shri Bhagirath Murarka, 7, Lyons Range, Calcutta. Rs. 15,00,000 (B) 31-3-1981 to 31-5-1981 Fixed &nb....
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.... Rs. 20,00,000 1-6-1981 to 29-8-1981 -do- Rs. 5,00,000 1-6-1981 to 8-10-1981 -do- Rs. 4,00,000 ------------- &....
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....e Road, Calcutta : 16-7-1981 Rs. 25,00,000 3-10-1981 Rs. 3,00,000 10-10-1981 Rs. 1,00,000 Rs. 29,00,000 ------------- ------------- ....
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....tax Act, 1961 and as such, the ITO held the capital gain was liable to be included in the total income. He therefore, proposed addition of the amount of Rs. 40,27,099. 3. The assessee submitted certain objections to the ITO dated March 2, 1984. The assessee stated that section 13(1)(d) of the income-tax Act, as it stood at the relevant time, prohibited investment of trust funds in equity or preference shares and accordingly the Trust sold the equite or preference shares held by it and the investments were made of the proceeds thereof in the manner prescribed under section 13(1)(d). Several alternative modes of investment were available which included loans and deposits. Since the surplus was invested in the prescribed manner, the assessee contended that the trust was entitled to exemption under section 11(1A). 4. The IAC gave his direction under section 144B (4) on 24-9-1984. After setting out the background, to which we have adverted, the IAC referred to the argument of the assessee that the expression capital asset as defined in section 2(14) of the Act included property of any kind held by an assessee and went on to hold that section 11(1A) was not dealing with the express....
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....corporated the directions of the IAC and he thereafter brought to tax the amount of capital gain of Rs..40,27,099. 6. The assessee appealed contending that the capital gain was not liable to tax in this assessment year. The CIT (A) found that out of the sale consideration of Rs. 63,52,565, proceeds of cheque worth Rs. 47,32,587 were realised on 31-3-1981 and the balance of Rs. 16,19,700 was realised between 1-4-1981 and 7-4-1981. Thus, though the entire capital gain had accrued in the previous year now under consideration which ended on 31-3-1981, part of the sale proceeds, i.e., Rs. 16,19,700 was received only subsequent to the close of the previous year. The CIT (A) referred to the pattern of investment as found in the assessment order of the net consideration which we have already set out and vis-a-vis the net consideration received of Rs. 64 lakhs, according to him the ITO had drawn the following conclusions : (i) that the re investments were made after the previous year ended 31-3-1981, (ii) not in fixed deposits with Banks, for six months or more, (iii) Were made with private individuals and non banking companies, and (iv) with deferent individuals and bodies f....
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....he present case fixed deposits was made only for two months while the circular of the Board referred to fixed deposits for a period of six months or above, he submitted, would make no difference in deciding whether the net consideration had been utilised for "acquiring another capital asset" or not. Reference was made to the definition of "capital asset" in section 2(14) of the Income-tax Act, 1961 as meaning property of any kind held by an assessee, whether or not connected with his business or profession save certain exceptions. He submitted that the fixed deposits did not fall within any of those exceptions. He went on to state that the term "property of any kind" was a term of the widest import and fixed deposits clearly partook of the nature of "property of any kind". In support of those proposition, reliance was placed on the ratio of the judgment of the Supreme Court in the case of Ahmed G. H. Ariff. v. CWT [1970] 76 ITR 471. He stressed that subject to any limitation the context may require, the term "property" signifies every possible interest which a person could clearly hold and enjoy. Though the legal position of a banker in connection with fixed deposit may be one of a....
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....sp; 25th May, 1981. Calcutta. Dear Sir, F. A. No. 1101-RK-1303 ---------------------- CAL/C-E Re : Option under sub-section (1) of section 11 of the Income-tax Act, 1961 assessment year 1981-82. This is to inform you that a part of the income of the trust of the previous year relevant to the assessment year 1981-82 could not be applied for charitable purposes up to the end of the said previous year. The same has been applied or will be applied for the said purpose within the next financial year ended 31st March, 1982. We hereby exercise the option provided for in the Expla....
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.... what we have to first examine was whether the requirement of section 11(1A) was satisfied or not. He stated that the deeming provisions of section 11(1A) came into play only where a capital asset, being property held under trust was transferred and the whole or part of the net consideration was utilised "for acquiring", "another capital asset", "to be so held". He emphasised that each of the terms in quotation had to be given their full meaning. He proceeded to address arguments with reference to each such term separately. 10. The first contention was that when the capital asset, viz., the shares, were sold by the assessee, the assessee received in consideration money for the sale. The money received was no doubt property. But the money has to be utilised by the assessee for acquiring another capital asset". He stated that if the money was, instead of being kept at home, or instead of allowing the sale proceeds collected in the bank account to be left idle, kept in another form with the bank namely as a fixed deposit, it would not be tantamount to utilisation of the money, which was property, for getting any other property. A reference was made to the decision of the to support....
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....see was at pains to submit that new capital assets were acquired without delay. This by implication showed that the assessee also accepted, reading into section 11(1A), the requirement of a time element. That apart, he stated that under the provisions of section 20 of the Trusts Act, sale proceeds had to be invested immediately or as early as possible and these requirements had to be read into section 11(1A). The provisions of section 20 of the Trusts Act stood violated and were not fulfilled. This was yet another reason why the provisions of section 11(1A) should be held to have been not satisfied in the present case. 14. Coming to the provisions of section 11(1), the learned Standing Counsel proceeded to deal with the aspect as to whether any option was exercised within the meaning of Explanation (2) to section 11(1). He referred to the letter of the assessee dated 25-5-1981. He submitted that this was a letter couched in the most general terms without reference to any amount of income, not utilised, in respect of which the assessee was exercising the option for utilising the money for acquiring another capital asset in the immediately succeeding year. A letter, which was so g....
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....ts fully. It was not necessary to spell out the quantum of the income which was not utilised in the year. The option applied to the entire income which may not have been utilised or deemed to have been utilised in the year. Whatever may have been stated in the subsequent proforma submitted with the return of income or in the return and covering letter such statements could not detract from the validity of the option already exercised within the statutory period. He, therefore, submitted that a valid option had been exercised within the time allowed. 17. The learned counsel stated that the decision of the Supreme Court in the case of India Cements Ltd. was not apposite since all that the Supreme Court stated was that if money was borrowed, no asset would come into being. In the present case, there was no borrowing of any funds. He also submitted that the decision of the Gujarat High Court in Avkash Nidhi's case has no application because in threat case their Lordships were considering the nature of the property rights which remained with a punier when a pledge was made. In the present case, the making of fixed deposit was not on par. 18. It was also submitted that the provisio....
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.... 426). The portion of the "net consideration" which has been used for securing the fixed deposits in the accounting period 1-4-1980 to 31-3-1981 is Rs. 31,75,000. If the amount has been spent for acquiring another capital asset held for charitable purposes, then this amount would have to be considered with reference to the statutory provisions of sec. 11(1A) (computation to be made as prescribed thereunder) as having been applied in this previous year. We are unable to agree with the learned counsel for the assessee that sec. 11(1A) incorporates a self-contained code as we have already pointed out that sec. 11(1A) statutorily incorporates certain provisions to relieve hardships for which there was executive instructions earlier. The income of a trust in a previous year as exceeds the prescribed limits has to be utilised in the same previous year under sec. 11(1) unless option is exercised to carry forward the same to the next year or notice is given under sec. 11(2) sec. 11(1A) only deems that if the net consideration received on the transfer of a capital asset is utilised for "acquiring another capital asset" to be so held, then the capital gain arising from the transfer would be ....
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....sed the option under Explanation (2) to section 11(1) and if so, what waver the details of the amount of income deemed to have been applied to charitable or religious porpoise in the previous year in respect of which a figure of Rs. 2,80,970 was given was at best the opinion of or understanding of the situation by the Auditor which cannot bind the assessee or cannot detract from the validity, or whittle down, the exercise of the option in the letter of the 25th May, 1981. We have, therefore, to hold that there was a valid exercise of option within the meaning of section 11(2) in relation to the income from capital gains to the extent the and consideration was not actually applied or deemed to have been applied for charitable purposes within the previous year ended 31-3-1981. 23. We now proceed to examine whether the making of a fixed deposit results, in terms of section 11(1A), in "acquiring" of "another capital asset" "to be so held". 24. For the aforesaid purpose, we would first examine whether making of a fixed deposit would be "another capital asset". "capital asset" is defined in section 2(14) of the IT Act, 1961 as "property of any kind held by an assessee whether or no....
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.... resulting in a capital gain or loss. All that the sec. 11(1A) lays down is that the new capital asset should be again held wholly for charitable and religious purposes, by the use of the words "to be so held". Even otherwise as we shall presently shown that even fixed deposits can be discounted (i.e.) realised at a loss. But such a restriction that the new capital asset should not be realised at a loss is not discernible from the language of the section. 25. In the abstract, bank deposits may take the form of fixed or time deposits, savings deposits and current deposits. As far as the fixed deposits are concerned, there is a rather elaborate discussion in the Text Book "Banking Law and Practice in India" by M. L. Tannan. In the 1979 Edition (pages 152, 155 to 157), the following appears : Explanation. - The term 'fixed deposits' means deposits repayable after the expiry of a certain period which ordinarily varies from three months to five years. Fixed deposits are also received for shorter periods than three months, but generally for not less than a month. In England, the term 'fixed deposits' is not generally used, as the English banks receive deposits repayable subject to ....
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....omers, bankers occasionally allow them to withdraw their fixed deposits before their due dates. In such cases, either the customer foregoes the interest accrued on the deposit, or he borrows the amount required against the security of his fixed deposit at a rate of interest which is generally two to two and half per cent higher than the rate allowed on the deposit at a rate of interest which is generally two to two and half per cent higher than the rate allowed on the deposit. When doing so the banker requires the customer to discharge the Deposit Receipt. In the latter case, the bankers advance is fully secured, as there can hardly be any security better than the amount due from the banker to the customer. Deposit Receipts. - When depositing his money, the customer receives a deposit receipt which is usually marked 'not negotiable'. It can, of course, be transferred by way of assignment to a third party, but a deposit receipt, not being a 'negotiable instrument', cannot pass to its transferee a better title than that of the transferor, and, therefore, such receipts cannot be treated like cheques. A 'deposit receipt', even if it is expressed to be transferable has never been rec....
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....en or right of set-off, either of which right applies to a deposit account. It appears, however, that even after expiry of the fixed period the depositor is not either to draw cheques against the fixed deposit, unless he has either made such arrangements with the bankers or has given instructions to him to transfer the amount to his current account. Position of the Depositor in case of loss of Deposit Receipt. - Whether the return of the deposit receipt to the banker is a condition precedent for the repayment of the deposit, depends to a great extent upon the terms and conditions of the deposit. If the return of the deposit receipt is made a condition for payment, no cause of action would then arise until its return [1890] 25 QBD 377; In re Tidd v. Overell [1893] 3 Ch. 154. To the same effect see the remarks of Scott. J., in 38 Bom. 618 (628). In case of the loss of the receipt, however, a court would exercise its equitable jurisdiction and would not allow the depositor's failure to produce the receipt to stand in the way of his reclaiming the money [In re Dillion [1890] 44 Ch. D. 76]. The court would not probably require the depositor to give an indemnity bond, as a 'deposit recei....
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....sition of law as exists in England in respect of the theory of advancement, it has been held on the high authority of the Privy Council that no such principle is applicable to India where the social relationships are of an essentially different character.' After noticing the cases of Kerwick v. Kerwick, Guram Ditta v. Ram Ditta, Shambhu Nath v. Pushkar Nath and Nagarajamma v. State Bank of India, it was held by the Bench that, when a deposit is made in the joint names of two persons, payable to either or survivor, there is no presumption of advancement in favour of the other person who made the deposit in the absence of proof of contrary intention; that the doctrine of advancement is inapplicable in India and that the deposit, which was treated as the absolute property of the deceased depositor, should be paid to his heirs." It is clearly from the aforesaid observations that the fixed deposits have been expressly judicial recognised as "property". The following illustration given at page 265 in the commentary on the Three New Taxes by A. C. Sampath Iyengar, 1985 Edition, in respect of what constitutes an "asset" under sec. 2(e) of the Wealth-tax.Act, is also illuminating : "(....
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....osits in banks have been recognised as "property" which can be owned by a person. 27. In the commentary on the "Law of Limitation" by V. G. Ramachandran, Vo1. II, 1983 Edition, referring to the case of Arguendo, In re [1936] LR 63 a broad definition of "deposit" is stated thus : "A deposit as distinct from a loan means a passing of money not for the convenience of the man to whom it is given but for the benefit of the person who hands it over." It is, therefore, clear that when money is placed in a fixed deposit, it is not the same as keeping the money in the till at home because the money is given is given to the bank for making a deposit for the benefit of the person who hands it over which benefit would not accrue to such person if the money is kept idle at home. As seen in the extract taken from the book on "Banking Law And Practice in India" by M. L. Tannan, fixed deposits are considered by the public as investments and, therefore, from a commercial angle also fixed deposits are considered as property, i.e., income-yielding investments. It is so recognised by the statute in sec. 11. itself. Looking to all the aforesaid discussion, we have no hesitation in coming to th....
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....rt in Deshabandhu Gupta & Co. v. Delhi Stock Exchange Association Ltd. [1979] 4 SCC 565; AIR 1979 SC 1049." "The two circulars of the CBDT to which we have just referred are legally binding on the revenue and this binding character attaches to the two circulars even if they be found not in accordance with the correct interpretation of sub-s. (2) and they depart or deviate from such construction. It is now well settled as a result of two decisions of this court, one in Navnit Lal C. Javeri v. K. K. Sen, AAC [1965] 56 ITR 198 and the other that circulars issued by the CBDT under s. 119 of the Act are in Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act." The terminology in which the present circular of the Board is couched, namely, starting with the words "The Board has been advised" would, in our view, indicator that the circular is clearly one in the nature of contemporanea expositio and can even be looked into as a legitimate aid in the construction as to whether a fixed deposit would conclusion that a "fixed deposit" is a "capital asset". Our conclusion is....
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....held which means they were held for charitable or religious purpose wholly. No further requirement is to be satisfied for the assessee to come within the purview of sec. 11(1A). 31. We have already set out the pattern of utilisation of the sale proceeds. As far as the previous year 1-4-1980 to 31-3-1981 is concerned, the utilisation of Rs. 31,75,000 was for "acquiring another capital asset" within the meaning of sec. 11(1A). The assessee, we have held, has validly exercised the option under Explanation (2) to sec. 11(1). Therefore, the assessee has secured the right to utilise the balance of net consideration in the succeeding previous year so as to comply with the requirements of sec. 11(1A). We have already set out in the order the broad pattern of utilisation in the next previous year. We have held the a assessee has acquired the inasmuch as a valid option has been exercised. Therefore, no part of the capital gain of Rs. 40,27,099 can be brought to tax in this year. The findings of the authorities below in their orders relating to this assessment year that there was not such utilisation in this year or the net years are vacated by us. Whether in the utilisation in this succee....