HIGH COURT OF BOMBAY
Commissioner
of Income-tax, Bombay City-III, Bombay
v.
Heritage
Estate (P.) Ltd.
F.I.
Rebello and J.P. Devadhar, JJ.
I
T Reference No. 303 of 1987
October 18, 2007
I Section 153 of the Income-tax Act, 1961 – Assessment – Time limit for
completion of – Assessment year 1979-80 – Whether where Assessing Officer
forwarded draft of his proposed order of assessment on 24-3-1982 in respect of
assessment year in question, normal period of limitation of which was 31-3-1982
under section 153(1)(c)(iii), and he received directions of Inspecting
Assistant Commissioner on 25-9-1982, considering language of explanation I(iv)
of section 153(3) and section 9 of General Clauses Act, 1897 assessment order
passed by him on 27-9-1982 was time barred – Held, no
II Section 45 of the Income-tax Act, 1961 – Capital gains – Chargeable as –
Assessment year 1979-80 – Whether where assessee-company did not carry on any
business and for several assessment years Assessing Officer had treated it as
an investment company, amounts received by it as compensation either from
acquisition of land or from sale of land, held by it as an investment, were
assessable as capital gains and not income from business – Held, yes
In the instant reference, the question that arose for consideration before the High Court as to whether the assessment order passed on 27-9-1982 for assessment year in question was time barred.
It was an admitted position that the normal period of limitation under section 153(1)(c)(iii) was 31-3-1982. The Assessing Officer forwarded the draft order on 24-3-1982 and he received the direction of IAC on 25-9-1982 that would be 185 days. Considering the language of explanation 1(iv) which uses the expression ‘commencing from the date’. When the Act is a Central enactment and has, used the expression ‘commencing from’ and considering section 9 of the General Clauses Act, once the word ‘from’ is used, the first in the series of days or any other period of time has to be excluded. From the chart produced by the assessee for the month of March, 8 days had been counted including 24-3-1982. In terms of the section 9 of the General Clauses Act if the first day is excluded then the number of days remaining in March would be 7 and not 8 as calculated by the assessee. Thus the time taken between the Assessing Officer forwarding the draft order and the Assessing Officer receiving the directions from the IAC on 25-9-1982 would be 185 days and not 86 days as calculated by the assessee. If it was so considered then the last day would be 27-9-1982. Therefore, on facts and circumstances of the case, assessment order passed on 27-9-1982 for assessment year in question was not time barred. [Para 5]
The assessee-company received some amounts as compensation from proceedings in land acquisition or from transfer of land effected in its favour by its parent company under various agreements entered into by it from time to time. The Assessing Officer while relying on the assessee’s memorandum and articles of association, proposed to tax said compensation amounts as business income. The assessee took various objections to the same including that that it was an investment company ; that it had taken over investment to earn income thereon which would be liable to be taxed as business income ; that it was that capital asset which was used in its investment business and hence, the income received therefrom was not the business income. The Assessing Officer, however, assessed the same as income from business.
On appeal, the Commissioner (Appeals) upheld the impugned order. On further appeal, the Tribunal finding that neither the parent company nor the assessee had at any time indulged in any business activity either in the past or even during the assessment year in question and that the receipts were in the nature of capital gains ; restored the matter back to the Assessing Officer for ascertaining the capital gains under the head ‘capital gains’.
On reference:
The facts on record indicated that the assessee did not carry on any business and for several assessment years the Assessing Officer had treated it as an investment company. The assessee had only received compensation from the agreements earlier entered into by the parent company and/or from land which was acquired by the company. The Assessing Officer had relied upon the number of articles to arrive at a conclusion that sale of land was one of the activities. Considering the judgment in CIT v. P.K.N. Co. Ltd., [1966] 60 ITR 65 (SC) that could not be a decisive test. Considering the other tests which had to be satisfied before arriving at a conclusion that the company had carried on an activity in the nature of trade, it could not be said that the view taken by the assessee was perverse. At any rate the revenue had been unable to show that the activities carried on by the assessee were in the nature of trade. The income received was either by acquisition of land or from sale of land during the period the parent company was the owner. The assessee would received the compensation on the property being allotted to it. [Para 12]
Therefore, on facts and circumstances of the case, the amounts of compensation received by the assessee from the acquisition of land or from sale of land were assessable as capital gains and not income from business. [Para 13]