Dr. B.P. Saraf, J.
1. By this reference both at the instance of the assessee and the Revenue, the Income-tax Appellate Tribunal has referred to the following questions of law for the opinion of this court. The questions are :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified that the purchase and sale of Fort property in the hands of the assessee-company was a purchase and sale of capital asset and the assessee-company was, therefore, liable to be assessed under the head 'Capital gains' under section 45 of the Income-tax Act, 1961
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income under the head 'Capital gains' is to be assessed on the basis of the financial year as previous year only and, therefore, the assessee was liable to be assessed under the head 'Capital gains' in respect of the transaction of purchase and sale of Fort property in the assessment year 1968-69 and not in the assessment year 1969-70
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Income-tax Officer considered the surplus or deficit in this transaction with a view to tax it also as a capital and in setting aside the order of the Appellate Assistant Commissioner for the assessment year 1968-69 and restoring the appeal to his file for the limited purpose of considering whether he should accept the Income-tax Officer's alternative contention of assessing capital gains for the assessment year 1968-69 and enhance the income of that year
4. Whether the Tribunal was right in holding that the Appellate Assistant Commissioner was not justified in entertaining the ground against the levy of interest under section 217 of the Income-tax Act, 1961 ?'
2. The assessee is a 100 per cent, subsidiary company of one Kilachand Devchand and Co. Ltd. (hereinafter referred to as 'the holding company' or 'KV'). The holding company had purchased an immovable property known as 'Fort property' at Apollo Street, Bombay, for Rs. 2,21,501 in the year 1933, which it held throughout as a capital asset. Some time in the year 1964, the holding company decided to sell this property which is evident from : (1) its getting the property valued by the valuers. Messrs. Dhanji Shah Badhwar and Co., on March 22, 1964; (ii) the resolution of the board of directors of New Great Insurance Co. Ltd. (an associated concern of the holding company) dated December 2, 1964; (iii) the permission obtained by the holding company from the Ministry of Revenue, State of Maharashtra, to sell or let out the property to a scheduled bank, etc. ; (iv) letter from H. Murray and Co. dated June 9, 1966, indicating the holding company's intention to sell the property; and (v) the offer made by the holding company to the Bank of Maharashtra, whose director had inspected the building through a broker known as Delhiwala on August 6, 1965.
3. While the negotiations for sale of this property were in progress, the holding company decided to float the assessee-company as its wholly owned subsidiary and passed a resolution to that effect on September 7, 1966. Accordingly, on September 16, 1966, the assessee-company was incorporated as its wholly owned subsidiary. One of the objects of the assessee-company was to deal in real estate. Soon after the incorporation of the assessee-company, i.e., on September 27, 1966, the holding company resolved to sell the Fort property to the assessee-company for a sum of Rs. 60 lakhs - Rs. 20 lakhs to be paid before the execution of the deed of conveyance and the balance within two years. No interest was payable for the deferred payment facility. On September 28, 1966, the board of directors of the assessee-company also passed a resolution to allot 19,200 shares of Rs. 100 each to its holding company had to purchase the Fort property for Rs. 60 lakhs on the terms and conditions set out above.
4. It may be pertinent to observe that the sum of Rs. 20 lakhs payable to the holding company as part consideration for the sale of Fort property was equivalent to the value of shares allotted to it by the assessee-company. The sale deed was executed on September 30, 1966, and was presented to the Registrar for registration on October 12, 1966.
5. Despite sale of the said property by the holding company to the assessee, the negotiations for the sale to third parties were, however, continued. One Shri Ambalal of the holding company who was earlier negotiating for the sale of the above property with the director of the Bank of Maharashtra, on behalf of the holding company, after its transfer to the assessee-company, continued the negotiations in regard to the sale of same property on behalf of the assessee-company. On December 22, 1966, there was a meeting between said Ambalal and the bank representatives. Ultimately, on December 30, 1966 Shri Rege, a director of the Bank of Maharashtra, and Shri Ambalal of the holding company representing the assessee-company agreed to the sale of the said property for a sum of Rs. 57.50 lakhs to the Bank of Maharashtra. The completion of formalities for execution of requisite documents, however, took some time. The agreement of sale was executed by the assessee-company in favour of the Bank of Maharashtra on April 18, 1967, and the sale deed was executed on October 11, 1967.
6. In course of the assessment proceedings of the holding company for the assessment year relevant to the accounting year, during which the transfer of the property was effected by the holding company to the subsidiary company (the assessee herein), it was claimed by the holding company that it was not liable to capital gains tax on the profits and gains arising from the transfer of the said property to the assessee-company in view of section 47(iv) of the Income-tax Act, 1961, which exempts a transferor-company from capital gains tax in cases where the capital asset is transferred by it to its wholly owned subsidiary if such subsidiary is an Indian company. The Income-tax Officer did not accept the claim of the holding company as he was of the opinion that the sale of the above property to its wholly owned subsidiary was a sham transaction. He, therefore, held that the holding company was liable to capital gains tax on the sale of the property to its subsidiary (the assessee-company). On appeal, the Appellate Assistant Commissioner reversed the finding of the Income-tax Officer and allowed the claim of the holding company for exemption under section 47(iv) of the Act. This decision of the Appellate Assistant Commissioner was confirmed by the Tribunal. The Revenue accepted the decision of the Tribunal and did not pursue the matter further.
7. In its return for the assessment year 1969-70, relevant to the previous year ended on August 31, 1968, during which the property was transferred by it to the Bank of Maharashtra, the assessee-company (subsidiary company) disclosed a revenue loss of Rs. 2,64,993 on the sale of the above property to the Bank of Maharashtra and claimed deduction on account of the same in the computation of its income for the said assessment year. The assessee's contention was that it being established with a view to deal in real estate, the aforesaid property was held it as 'stock-in-trade' and the sale thereof was a trading transaction. As such, any profit or loss arising therefrom constitutes business profit or loss. As the assessee had purchased the property from its holding company for Rs. 60 lakhs and incurred some expenditure in the process and resold the same to the Bank of Maharashtra for Rs. 57.50 lakhs, the deficit was claimed to be a revenue loss. This contention of the assessee did not find favour with the Income-tax Officer who was of the opinion that the transfer of the property by the assessee to the Bank of Maharashtra was transfer of a capital asset liable to capital gains tax under section 45 read with section 49(1)(iii)(c) of the Act. He took the fair market value of the property in the hands of the holding company as on January 1, 1954, as the cost of the property for the purpose of computation of capital gains and after making allowance for cost of registration, etc., computed the capital gains at Rs. 44,98,375. Though the computation was made in the manner laid down in section 48 read with section 49(1)(iii)(c) of the Act for computation of capital gains, as it was a short-term capital gain, the income was assessed as business income. Aggrieved by the order of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner accepted the contention of the assessee and allowed the appeal.
8. Both the Revenue and the assessee appealed to the Tribunal. The Tribunal rejected the assessee's contention that it had purchased the property in question as 'stock-in-trade' and held that the said property had been acquired by the assessee as a capital asset and, therefore, it was liable to be assessed under the head 'Capital gains' in respect of the profits and gains arising from the sale of the same to the Bank of Maharashtra. The Tribunal, on a consideration of the totality of the facts and circumstances of the case, reached the conclusion that the property in question was a capital asset in the hands of the holding company; it was sold as such by the holding company and its character remained the same in the hands of the assessee-company. It was, therefore, held that the profits from the sale of the property were liable to be assessed in the hands of the assessee under the head 'Capital gains'. As the property was conveyed by the assessee by a deed of sale executed on October 11, 1967, i.e., in the previous year of the assessee relevant to the assessment year 1969-70, and the profit and loss of the same had been shown by the assessee itself in its accounts for the said year, the Income-tax Officer assessed the profits therefrom to capital gains tax in the said assessment year, viz. 1969-70. This was also confirmed by the Tribunal. The Tribunal also held that the Appellate Assistant Commissioner was not justified in entertaining the appeal of the assessee against levy of interest under section 217 of the Act.
9. However, later, a miscellaneous application was filed by the assessee before the Tribunal on April 12, 1977, for rectification of a mistake in its order passed on appeal. According to the assessee, the previous year for the assessment of capital gains is the financial year only and not the accounting year of the assessee and in that view of the matter, the sale of the property having taken place on October 10, 1967, which falls in the financial year 1967-68, even in terms of the order of the Tribunal the income under the head 'Capital gains' would be assessable in the assessment for the assessment year 1968-69 and not for 1969-70. This application was opposed by the Revenue. Its contention was that the income from the sale of the property had rightly been held to be taxable as capital gains in the assessment year 1969-70. The alternative contention of the Revenue was that in the event it was held to be assessable in the assessment year 1968-69, suitable direction should be issued by the Tribunal for modification of the assessment order for the assessment year 1968-69. The Tribunal accepted the contention of the assessee and observed that the previous year regarding the capital gains had to be the financial year only and in that view of the matter held that the assessee was to be assessed in respect of the transaction in question under the head 'Capital gains' in the assessment for the assessment year 1968-69 and not for 1969-70. The Tribunal, however, did not itself examine the alternative prayer of the Revenue but set aside the order of the Appellate Assistant Commissioner for the limited purpose of considering whether he should accept the Income-tax Officer's alternative contention that if the income was liable to capital gains tax in the assessment for the assessment year 1968-69, direction should be issued to the Income-tax Officer for modification of the assessment order of that year. The Tribunal modified its original order passed on appeal accordingly.
10. Both the Revenue and the assessee were aggrieved by the order or the Tribunal. The assessee was aggrieved by the finding that the purchase and sale of the property by the assessee-company was liable to be assessed in its hands under the head 'Capital gains'. The assessee was also aggrieved by the finding of the Tribunal against it regarding the maintainability of the appeals against levy of interest under section 217 of the Act. The Revenue, on the other hand, was aggrieved by the finding of the Tribunal that the previous year for assessment of the income from transfer of a capital asset under the head 'Capital gains' has to be the financial year only and not the accounting year in which profit and loss from the said transaction had been shown by the assessee itself as business income. A number of questions were proposed by both the parties for reference to this court under section 256(1) of the Act. The Tribunal framed the four questions set out above and referred the same to this court for opinion.
11. We have heard Mr. S. E. Dastur, learned counsel for the assessee. The case of the assessee is that the property was purchased by it from its holding company not as a 'capital assets', but as 'stock-in-trade' and, as such, the question of levy of capital gains tax on the transfer of such asset cannot arise. In support of this submission, reliance is placed on the objects clause in the memorandum of the assessee-company wherein one of the objects is 'to purchase for investment or resale and to traffic in land and house property of any tenure...... ' According to the assessee, the purchase and sale of the property in question by it was an adventure in the nature of trade and, as such, the surplus or deficit arising therefrom has to be assessed as business profit or loss and not as capital gain. Our attention was also drawn to the fact that in the books of account of the assessee, the property in question had been shown as 'stock-in-trade'. Reference was made to a number of decisions in support of the contention that the transaction of purchase and sale of the property in question was not a transaction of purchase and sale of a capital asset but an adventure in the nature of trade.
12. The next contention of the assessee relates to the previous year in which the income from this transaction can be assessed if it is held not to be business income but 'capital gain'. Though the income or loss from the transaction of purchase and sale of this property was recorded by the assessee in its books of account for the accounting year corresponding to assessment year 1969-70 and was shown in its return of income for the said assessment year and there was no controversy in regard to the previous year at any stage up to the hearing of the appeal by the Tribunal, in the miscellaneous petition before the Tribunal, it was contended by the assessee that if the income is assessed under the head 'capital gains', the financial year will be the previous year and not the accounting year of the assessee in which the income from the transaction had been shown by the assessee treating it as a 'business income or loss'. In other words, according to the assessee, the previous year will change with the change in the head under which the income is assessed. This contention of the assessee was accepted by the Tribunal and against this decision of the Tribunal, the Revenue is before us in reference. The alternative new submission of the assessee made for the first time before us at the time of hearing of this reference as another facet of the same controversy is that if the income from the transfer of the property is held to be assessable as 'capital gains' under section 45 of the Act. It will be assessable neither in the assessment year 1968-69 nor in 1969-70, but in the assessment year relevant to previous year in which the registration was completed. In the instant case, according to counsel for the assessee, though the deed of sale was executed on October 11, 1967, and presented for registration on that very day, by virtue of sections 60 and 61 of the Registration Act, the transfer was completed only on April 29, 1970, on which date the documents were entered into the records of the Registrar and all other formalities were completed by him. In support of this contention, reliance is placed on the decisions of the Supreme Court in Ram Saran Lall v. Mst. Domini Kuer, : [1962]2SCR474 , and Hiralal Agrawal v. Rampadarath Singh, : [1969]1SCR328 . The submission is that if the above date is taken to be the date of transfer, the income therefrom, even if held to be chargeable to capital gains tax, would be assessable in the assessment year 1971-72 and not in the year under consideration.
13. As regards question No. 4, counsel for the assessee submits that this question will have to be answered only if the income from the sale of the property is held to be 'capital gains' taxable under section 45 of the Act, as otherwise it will become academic. According to counsel for the assessee, in the event of the income being held to be 'capital gains', an appeal will be maintainable in view of the decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT : [1986]160ITR961(SC) , as the real dispute in that case will be the dispute regarding the levy of interest itself, because no advance tax is payable under the Act on 'capital gains'.
14. In reply, counsel for the Revenue submits that the assessee purchased the property in question as a 'capital asset' and sold the same as such. Income/loss from the transfer of such asset was shown by the assessee in its return of income as business loss. This was not correct. As such, the Income-tax Officer and the Tribunal were justified in holding the transfer in question to be a transfer of capital asset chargeable to capital gains tax under section 45 of the Act. The further submission of counsel for the Revenue is that the income from this transaction was shown by the assessee itself in its books of account as well as in its income-tax return as loss of the previous year corresponding to the assessment year 1969-70 and that being so, no dispute in regard to the previous year can be raised by the assessee on the basis of the change of the head of income under which the income from the said transaction would be assessable by the income-tax authorities and the Tribunal. The further submission of counsel for the Revenue is that the transaction of sale and the income therefrom having been recorded by the assessee itself in its books of account for the assessment year corresponding to the assessment year 1969-70, the same having been offered for assessment in the said assessment year, and there being no dispute at any stage regarding the assessment year in which it would be assessable, such a dispute, therefore, could not have been raised by the assessee for the first time after the final order of the Tribunal by way of miscellaneous application for rectification of a mistake. Such highly debatable questions cannot be re-examined by the Tribunal on a miscellaneous application. Counsel, therefore, submits that the Tribunal acted wholly without jurisdiction in holding that the income was assessable in the assessment year 1968-69 and not 1969-70 and modifying its order accordingly. Counsel also submits that the assessee should not be allowed to raise a still new controversy for the first time before this court based on sections 61 and 62 of the Indian Registration Act because it is not a facet of the question referred but a new question altogether sought to be raised for the first time before this court in the course of hearing of this reference. On the merits of the arguments of counsel for the assessee, based on the date of transfer with reference to sections 60 and 61 of the Registration Act, the submission of counsel for the Revenue is that the said sections are relevant for determining the date of registration and not the date when a transfer operates which has to be determined with reference to section 47 of the Registration Act which is the specific provision for that purpose.
15. We have considered the rival submissions of counsel for the parties. The first question that fails for determination is whether the purchase and sale of the Fort property by the assessee was a purchase and sale of a capital asset or it was a business transaction or an adventure in the nature of trade. To decide this question, it is necessary to note a few factual findings of the Tribunal. Before the Tribunal, it was contended by the assessee that it had acquired the above property from its holding company as 'stock-in-trade'. Reliance was sought to be placed on the fact that in the books of account of the assessee, it was shown as 'stock-in-trade'. This contention of the assessee was replied by the Tribunal. It was held :
'Our conclusion, therefore, is that the subsidiary company [assessee] acquired the property as a capital asset and sold it as such. No acceptable evidence has been produced to show that the subsidiary company [assessee] by an overt act converted this capital asset into stock-in-trade. Apart from the fact that one can be a dealer in real estate in respect of some properties and may hold some other properties as investment our conclusion in this case is that the subsidiary company [assessee] has not been a dealer in real estate at all. '
16. It was also observed :
'The mere fact that the subsidiary company [assessee] showed it as stock-in-trade in its balance sheet and valued it at Rs. 57,50,000 on August 31, 1967, also does not make any difference as it is only a part of the scheme to avoid capital gains tax. Needless to mention, in matters like this one has to take into account the cumulative effect of all facts and circumstances and not individual facts and circumstances by itself. '
17. The above findings have been arrived at by the Tribunal on a proper consideration of the facts and circumstances of the case and the evidence on record. No fault can be found with the above finding of the Tribunal that in the instant case, the acquisition of the property by the assessee was as a capital asset and it did not form part of the stock-in-trade of the assessee. This court, therefore, has to accept the same and it cannot go behind it.
18. We also do not find any infirmity in the observations of the Tribunal in regard to the effect of the description of the above property in the books of account of the assessee-company as 'stock-in-trade' in the determination of the nature of the asset. It is well-settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the asset was held as a capital asset or stock-in-trade. The assessee may, by making entries which are not in conformity with the facts of the case of proper accountancy principles, counsel the real nature of the asset or the transaction. Entries made by him, therefore, cannot be regarded a conclusive one way of the other. The true nature of the transaction in each case has to be determined on a consideration of the totality of the facts and circumstances of that case.
19. It is, thus, clear that in the instant case the property in question was acquired by the assessee from its holding company as a capital asset and after its acquisition it was not converted by the assessee as its stock-in-trade. In other words, it was retained by the assessee as a capital asset.
20. We now turn to the next limb of the argument of counsel for the assessee that the sale of property by the assessee to the Bank of Maharashtra was in the course of its business or was an adventure in the nature of trade. In support of this contention reliance is placed on the objects clause of the assessee-company. It is submitted that the object of the assessee was to deal in real estate and in that view of the matter, the sale of the property by it should be held to be in the course of its business or an adventure in the nature of trade. The further submission of counsel so that the fact that the sale of the property in question was the sole transaction of sale by the assessee or that the sale took place soon after the purchase is not inconsistent with the theory of adventure in the nature of trade. A number of decisions are referred to in support of this proposition. strong reliance is placed on the observations of the Supreme Court in G. Venkataswami Naidu and Co. v. CIT : [1959]35ITR594(SC) to the effect that even an isolated transaction can be an adventure in the nature of trade.
21. We have carefully considered the above submission of counsel for the assessee. The question whether a transaction is an adventure in the nature of trade or not has been the subject-matter of several judicial decisions. It appears to be the well-settled legal position that no principle can be evolved which would govern the decision of all cases in which the character of the impugned transactions falls to be considered. As observed by the Supreme Court in G. Venkataswami Naidu and Co. v. CIT : [1959]35ITR594(SC) :
'...... it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the borderline that cause difficulty. '
22. The Supreme Court gave the following illustration (at page 609) :
'If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. '
23. These observations were reiterated by the Supreme Court in Khan Bahadur Ahmed Alladin and Sons v. CIT : [1968]68ITR573(SC) in the following words (at page 581) :
'..... it is not possible to evolve any legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not. The answer to the question must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction...... '
24. It is, thus, clear that a decision regarding the character of the impugned transaction will depend on the totality of the facts and circumstances of the case and the cumulative effect thereof. No single fact has decisive significance. No undue emphasis should be placed on a particular observation in any decision as it has to be understood in the light of the totality of the facts of that case. As observed by the Supreme Court in Janki Ram Bahadur Ram v. CIT : [1965]57ITR21(SC) :
'No useful purpose would be served by entering upon a detailed analysis and review of the observations made in the light of the relevant facts, for no single fact has decisive significance, and the question whether a transaction is an adventure in the nature of trade must depend upon the collective effect of all the relevant materials brought on the record. '
25. It should also be always kept in mid that there is a material distinction between transactions in commercial commodities and transactions of purchase of land. So far as a transaction of purchase of land is concerned, it has been held by the Supreme Court in Janki Ram Bahadur Ram's case : [1965]57ITR21(SC) :
'...... a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade.'
26. It was also made clear (at page 26 of 57 ITR) that :
'.... a profit motive in entering into a transaction is not decisive, for, an accretion to capital does not become taxable income, merely because an asset was acquired in the expectation that it may be sold at a profit.'
27. To the same effect is the decision of the Supreme Court in Raja Bahadur Kamakhya Narain Singh v. CIT : [1970]77ITR253(SC) where it was observed (at page 262) :
'.... where a person in selling his investment realises an enhanced price, the excess over his purchase price is not profit assessable to tax.'
28. It was further observed (at page 263) :
'...... The fact that the original purchase was made with the intention to resell if an enhanced price could be obtained is by itself not enough.... '
29. Reference may also be made to the decision of this court in CIT v. Dhable, Bobde Parose, Kale, Lute and Choudhari : [1993]202ITR98(Bom) , wherein it was held that in the absence of any evidence to the effect that the land formed part of the business assets of the assessee, the presumption will be that the land was held as a capital asset by the assessee and the income from the transfer thereof was not income from business.
30. It may be expedient also to refer to the decision of this court in CIT v. Principal Officer, Laxmi Surgical P. Ltd. : [1993]202ITR601(Bom) [Income-tax Reference No. 234 of 1977, decided on November 25, 1992), where on a consideration of the facts of that case in the light of the various tests laid down by the Supreme Court, it was held that land purchases by the assessee did not constitute stock-in-trade of the assessee though the assessee had decided to purchase the land and sell it to earn some profit. It was observed (at page 611) :
'It is correct, as counsel for the assessee submitted, that the transaction was undertaken with the intention to earn profit because the company had suffered losses in the past but that by itself, as held by the Supreme Court, is not enough to give it the character of stock-in-trade or to bring the transaction within the ambit of an adventure in the nature of trade. '
31. In view of the above finding, it was held that the profit earned from the sale of the said property was not business income of the assessee.
32. It may be mentioned that an identical view has also been taken by the English courts. We do not propose to deal with the various decisions except to refer to the following observations of the Court of Appeal in Smith Barry v. Cordy [1946] 28 TC 250 :
'Unless ex facie the single transaction is obviously commercial, the profit from it is more likely to be an accretion of capital and not a yield of income.....'
33. It was also observed in the above decision that this question is almost necessarily one of fact.
34. We may, therefore, turn to the facts of the case and the findings of the Tribunal to decide whether the Tribunal was justified in holding that the isolated transaction of purchase and sale of landed property by the assessee in the instant case was a transaction of purchase and sale of a capital asset and not a venture in the nature of trade. The relevant facts are :
(i) The assessee-company was incorporated on September 27, 1966, as a wholly owned subsidiary of one Kilachand Devchand and Co. Pvt. Ltd. (holding company).
(ii) The assessee purchased the immovable property known as 'Fort property' from its holding company for a consideration of Rs. 60 lakhs. This property was a capital asset of the holding company acquired by it in the year 1933 for a sum of Rs. 2,21,501.
(iii) The sale consideration of Rs. 60 lakhs was payable as follows : Rs. 20 lakhs before execution of the deed of conveyance and the balance Rs. 40 lakhs within two years thereafter without any interest.
(iv) The sale deed in favour of the assessee was executed on September 30, 1966, and it was presented for registration on October 12, 1966.
(v) The assessee finalised the negotiations for resale of the above property to the Bank of Maharashtra for a sum of Rs. 57.5 lakhs and the sale deed was executed on October 11, 1967, and presented for registration on the same date.
(vi) The objects clause in the memorandum and articles of association of the assessee enumerates 47 objects which includes, inter alia, the following :
'To hold maintain or to alienate, sell, let, mortgage, charge or otherwise deal with or dispose of all or any of such lands, buildings, structures of hereditaments.....;
To let or under-let all or any of such lands, buildings, structures, hereditaments and premises either upon lease or otherwise :
To purchase for investment or resale and to traffic in land and house or other property of any tenure.....; '
The above clause clearly goes to show that the object of the assess-company is not only to purchase for resale but also purchase immovable property, to hold, maintain, sell, let or mortgage the same, to let on lease, etc. Emphasis on the sub-clause which speaks of dealing in real estate is misplaced. On a reading of the objects clause as a whole no special significance can be attached to this sub-clause.
(vii) The facts and circumstances of the case are a clear pointer to the conclusion that the property was purchased by the assessee as a capital asset for investment and not as 'stock-in-trade' of business.
(viii) This was an isolated transaction of purchase and sale of property by the assessee. The purchase of two other open plots of land for small amounts is of no relevance in deciding the nature of activity of the assessee. Those plots had not been sold nor any expenditure incurred for developing the same in the previous year or later years.
(ix) The Tribunal recorded a clear finding that the assessee was not a dealer in real estate at all.
(x) It was acquired by the assessee as a capital asset and sold as such.
(xi) It was not converted by the assessee into stock-in-trade.
(xii) The assessee had no intention to trade in it and no trading was in fact done in property and it was sold as a capital asset. (Paragraph 20 of the Tribunal's order).
(xiii) The mere fact that the assessee showed it as stock-in-trade in its books of account is not determinative of the nature of the asset.
(xiv) The various facts and circumstances of the case clearly go to show that the transaction of sale of the above property was not an adventure in the nature of trade.
35. On a careful consideration of the cumulative effect of the above facts in the light of the tests laid down by the courts, we find ourselves in agreement with the Tribunal that the transaction of sale of the Fort property by the assessee in the instant case is not an adventure in the nature of trade. It is a transaction of transfer of a capital asset.
36. We are, therefore, of the clear opinion that the transaction of the purchase and sale of the property in question by the assessee-company was a transaction of purchase and sale of a capital asset and not an adventure in the nature of trade and, as such, the profits or gains therefrom would be assessable to capital gains tax under section 45 of the Income-tax Act 1961. That being so, in the instant case section 49(1)(iii)(e) will be attracted as the property became assessee under a transfer referred to in clause (iv) of section 47 of the Act. The cost of acquisition of the asset, therefore, shall be deemed to be the cost for which the previous owner of the property had acquired it. In view of the foregoing discussion, the first question referred to us is answered in the affirmative, that is, in favour of the Revenue and against the assessee.
37. We now turn to the second question. The controversy in this question pertains to the assessment year in which the income from the sale of the property in question would be assessable if it is held to be assessable as 'capital gains. ' The admitted position is that the previous year of the assessee for the assessment year 1969-70 was his accounting year comprising a period of 12 months from September 1, 1967, to August 31, 1968. The only income of the assessee during the previous year was the profit/loss from the transaction of sale of the above property which was duly shown by the assessee in its books of account maintained for the above accounting year. It was also shown as income of the assessee of the said previous year in its return submitted with the Income-tax Officer for the assessment year 1969-70 which was the relevant assessment year for the previous year ended on August 31, 1968. The case of the assessee itself throughout was that the income from the transaction of purchase and sale of property in question was the income of the assessee for the previous year ended on August 31, 1968, assessable in the assessment year 1969-70. This factual position was never disputed by the Income-tax Officer or any other authority. The only dispute between the assessee and the Income-tax Officer was in regard to the head under which it was assessable. The assessee claimed that it was assessable as business income. According to the Revenue, if was 'capital gains' assessable as such. It was only after the order of the Tribunal on appeal wherein the transaction of sale of the property was held to be a transfer of a capital asset and the income therefrom to be capital gains chargeable to tax under section 45 of the Act that such a controversy was raised by the assessee by filing a miscellaneous application before the Tribunal contending that the previous year for assessment of 'capital gain' cannot be the accounting year of the assessee-it has to be the financial year only and, as such, the income from the said transaction would be assessable to capital gain only in the assessment year 1968-69 and not in 1969-70. The Tribunal accepted this contention of the assessee. Before this court, in the course of hearing of this reference, a still new contention has been raised by counsel for the assessee that the previous year would not be the year in which the sale deed of the above property was executed but it would be the year during which the registration of the sale deed was completed within the meaning of sections 60 and 61 of the Registration Act. This is opposed by counsel or the Revenue. According to him, the assessee cannot raise such a fresh controversy for the first time in the course of hearing of the reference before this court by branding it as another facet of the same controversy involved in question No. 2. According to counsel for the Revenue, the order of the Tribunal passed on the miscellaneous application which has given rise to the controversy involved in questions Nos. 2 and 3 itself is illegal and without jurisdiction as no such order can be passed on a miscellaneous application deciding a highly debatable question which was never the subject-matter of any controversy before it or any of the authorities below. We have considered the objections of counsel for the Revenue. We, however, do not propose to deal with the same as on a consideration of the facts and circumstances of the case in the light of sections 3 and 4 of the Income-tax Act and the relevant provisions of the Registration Act including section 47 thereof for the reasons set out below, even on the merits we are satisfied that the income from the transfer of this property in question is assessable in the assessment year 1969-70 itself and in no other assessment year.
38. Under section 4 of the Income-tax Act, 1961, income-tax is charged for any assessment year in respect of the total income of the previous year or previous years, as the case may be, of any person.'Previous year' is defined in section 3 of the Act. This section, so far as relevant, as it stood at the material time, reads as under :
'3. 'Previous year' defined. - (1) For the purposes of this Act, 'previous year' means -
(a) the financial year immediately preceding the assessment year; or
(b) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date : or
(c) to (g).....
(3) Subject to the other provisions of this section, an assessee may have different previous years in respect of separate sources of his income.
(4) Where, in respect of a particular source of income or in respect of a business or profession newly set up, an assessee has once exercised the option under clause (b) or sub-clause (ii) of clause (d) or sub-clause (i) of clause (e) of sub-section (1) or has once been assessed, then, he shall not, in respect of that source, or, as the case may be, business or profession, be entitled to very the meaning of the expression 'previous year' as then applicable to him, except with the consent of the Income-tax Officer and upon such condition as the Income-tax Officer may think fit to impose.'
39. It is clear from the above section that the previous year is generally the financial year immediately preceding the assessment year or if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date.
40. In the instant case, the financial year for the assessment year 1969-70 was the year commencing on April 1, 1968, and ending on March 31, 1969. The assessee had maintained its accounts up to August 31, 1968, in the said financial year. The assessee had opted for the 12 months ending on August 31, 1968, to be its previous year. The previous year of the assessee was, therefore, the accounting year comprising the period of 12 months from September 1, 1967, to August 31, 1968. There is no dispute in this regard. It is also not disputed that the income/loss from this transaction was recorded in the books of account of the assessee for the accounting year ended on August 31, 1968, and shown in its return of income for the corresponding assessment year 1969-70. Income from this source was also assessed by the Income-tax Officer as the income of the previous year being the accounting year ended on August 31, 1968. The exercise of option by the assessee under clause (b) of sub-section (1) in respect of his income from the particular source, viz., transfer of the Fort property, is clear and unequivocal. There is no dispute in this regard. The only controversy ins whether the option exercised by the assessee in respect of a particular source of income by treating it as a business income will be applicable if the income was not assessed as business income but assessed as capital gain. In other words, whether the previous yea in respect of a particular source of income will change with the change of 'head of income' under which it is assessable.
41. We do not find any force in the above submission of the assessee. In our opinion, no such controversy can arise as 'previous year' is related to 'source of income' not 'head of income'. these are two independent expressions which have been used in the Income-tax Act in different sections for different purposes. They convey two different ideas. In section 3, dealing with the previous year, the expression used is 'source of income' - not 'head of income'.'Previous year' is determined with reference to the 'source of income'. Once the assessee opts for a previous year different from the financial year for a particular source of income, it will not change with the change of head under which income from the said source is assessed. Section 14 of the Act classifies the income of the assessee under different heads only for the purpose of charge of income-tax and computation of total income. Income falling under the same head may be derived from various sources and even in respect of income from different sources falling under the same head, subject to provisions of section 3, an assessee may have different previous years. It is thus clear that the 'source of income' is different from 'head of income'. 'Source' means the real source of the income. Every income must have a source which cannot change. In a given case, there may be a controversy about the head under which income from a particular source would be assessable. Determination of that controversy will affect the charge of tax and the computation of income. It will in no way affect the 'previous year' in which income from such source is assessable.
42. In the instant case, the source of income is the transfer of the property. The previous year for this source of income on the admission of the assessee is the accounting year ending on August 31, 1968, the assessment year for which is the assessment year 1969-70. It is, therefore, not correct to say that the previous year in respect of the very same source of income will change to the financial year once it is assessed not under the head 'Income from business' as claimed by the assessee but under the head 'Capital gains'. No such change is visualised by section 3 of the Act. In that view of the matter, we are of the clear opinion that the previous year in relation to the income from the transfer of the property in question in the instant case was the accounting year ended on August 31, 1968. the corresponding assessment year being the assessment year 1969-70.
43. We are now left with the contention of the assessee that the transfer of the property in question was complete not on the date of the execution of the sale deed but on completion of registration thereof within the meaning of sections 58 to 61 of the Registration Act. we have carefully considered the above submission. We, however, do not find any merit in the same. The sale deed of the property in question was executed and presented for registration to the Registrar on October 11, 1967. The registration was deemed to be complete under section 61(2) of the Registration Act on April 29, 1970. There is no dispute about these dates. The question is from which date the sale deed shall operate - whether from the date of execution of the sale deed or the date on which the registration is deemed to be complete within the meaning of section 61(2) of the Registration Act on April 29. 1970. There is no dispute about these dates. The question is from which date the sale deed shall operate - whether from the date of execution of the sale deed or the date on which the registration is deemed to be complete within the meaning of section 61(2) of the Registration Act.
44. Sections 58 to 60 of the Registration Act deal with the procedure of registration and certificate of registration. Section 61(2) of the Act provides that the registration of a document shall be deemed to be complete only when it is registered as provided by sections 58 to 61(1) of the Registration Act. Registration in the instant case is deemed to be complete within the meaning of section 61(2) of the Registration Act on April 29, 1970. There is no dispute in this regard. The dispute sought to be raised is about the time from which the registered sale deed will operate. For this purpose, section 47 of the Registration Act is relevant, It reads :
'47. Time from which registered document operates. - A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made and not from the time of its registration.'
45. This section clearly provides that a registered document operates from the time it would have commenced to operate if no registration thereof is required or made and not from the time of its registration. Section 47 is clear. The sale deed in the instant case was executed on October 11, 1967. It would have commenced to operate from that date if no registration thereof was required. However, as it was required to be registered, it was registered. The registration is deemed to be complete within the meaning of section 61(2) of the Registration Act on April 29, 1970. In other words, the sale deed became a registered document on that date. The question is when it shall operate. Section 47 of the Registration Act is a complete answer to this question - it shall operate from the date of its execution, i.e., October 11, 1967.
46. This conclusion of ours is fully supported by the decision of the Supreme Court in Nanda Ballabh Gururani v. Maqbool Begum : (1980)3SCC346 . In this case a sale deed was executed on July 27, 1974, and it was offered for registration on July 28, 1974. It was transcribed in the books in which the documents are registered on October 11, 1974. The question for determination was whether the sale will operate from the date of registration or from the date of its execution. The Supreme Court held that in view of the provision contained in section 47 of the Indian Registration Act, it would operate not from the date of its registration but from the date of its execution. This decision of the Supreme Court squarely applies to the facts of the present case and following the same, it is clear that the sale deed will operate from the date of its execution, i.e., October 11, 1967, and not from the date of registration.
47. Learned counsel for the assessee submits that the above decision of the Supreme Court is in conflict with its earlier decision in Ram Saran Lall v. Domini Kuer (Mst.), : [1962]2SCR474 , which is a judgment of a larger Bench. We have carefully gone through both the decisions. We do not find any inconsistency between the two. The issue involved in the two cases were different. In Ram Saran Lall v. Domini Kuer (Mst.), : [1962]2SCR474 , the Supreme Court was called upon to decide whether a sale can be said to have been complete until the registration of the instrument of sale is completed by virtue of section 47 of the Registration Act. The Supreme Court held that the registration under the Registration Act is not complete till the document to be registered has been copied out in the records of the registration office as provided in section 61 of the Act. It is in this context that it was observed that section 47 of the Registration Act has nothing to do with the completion of the registration and, therefore, nothing to do with the completion of a sale when the instrument is one of sale. We do not find any inconsistency between this decision and the later decision in Nanda Ballabh Gururani v. Maqbool Begum : (1980)3SCC346 . In fact, section 47 applies only to registered documents. The date of registration will be determined with reference to section 61 but the time from which such document operates shall have to be determined with reference to section 47 of the Registration Act. Sections 61 and 47 of the Registration Act. Sections 61 and 47 deal with two different situations-the former with the date of registration or the date of completion of sale and the latter with the time from which a registered document or completed sale commences to operate. This conclusion of ours gets full support from the decision of the Punjab and Haryana High Court in Milkha Singh v. Tara Singh. , and the decision of the Patna High Court in Shankar Prasad v. Muneshwari (Mt.), : AIR1969Pat304 .
48. We, therefore, hold that the previous year in respect of the income from the property in question was the accounting year of the assessee and that being so the relevant assessment year was the assessment year 1969-70. In that view of the matter, we answer the second question in favour of the Revenue and against the assessee.
49. Having regard to our answer to the second question, question No. 3 becomes academic and it need not be answered. We, therefore, decline to answer the same.
50. So far as question No. 4 is concerned, we find force in the contention of the assessee that no advance tax being payable on capital gains, the dispute regarding levy of interest under section 217 for non-payment of the same was in fact not a dispute in regard to the quantum of payment but a challenge to the liability of the assessee to the levy of interest under section 217 of the Act. That being so, the decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT : [1986]160ITR961(SC) will apply and the appeal will be maintainable. It will be open to the assessee to dispute the levy of interest in appeal subject to the limits laid down by the Supreme Court in the above decision. In that view of the matter, we answer the fourth question referred to us in the negative, that is, in favour of the assessee and against the Revenue.
51. In the result, we answer the questions as follows :
1. Question No. 1 is answered in the affirmative and in favour of the Revenue.
2. Question No. 2 is answered in the negative and in favour of the Revenue.
3. In view of our answer to question No. 2, question No. 3 has become academic. Hence it need not be answered.
4. Question No. 4 is answered in the negative and in favour of the assessee.
52. This reference is disposed of accordingly.
53. Under the facts and circumstances of the case, we make no order as to costs.