Commissioner of Income Tax vs Nanalal Teli

This appeal by the Revenue seeks to challenge the order of the learned Tribunal dt. 7th Feb., 2005, regarding asst. yr. 1993-94. The Tribunal by the impugned order decided two appeals; other being related to the year 1994-95 which involved a different controversy. Before the Tribunal appeal was filed by the Revenue, seeking to challenge deletion of Rs. 1.5 lacs on account of sale of mines at Umaty. The AO had made this addition on the basis of the statement of the assessee recorded during survey proceedings, wherein the assessee stated to have sold the mine, allotted to him in the year 1988-89, in the year under consideration, for a sum of Rs. 1.5 lacs to M/s Kothari Marble Industries, Pasoond, and the Revenue also challenged the deletion of Rs. 50,000, added on account of unexplained investment in the acquisition of mines at Nijarana, which was deleted on the ground that the assessee had Rs. 1.5 lacs with him for such an expenditure, in the absence of any proof on record to show that the assessee had spent this amount anywhere else.

The appeal was admitted by framing two substantial questions of law, on 23rd May, 2006, reading as under:

(i) Whether in the facts and circumstances of the case, the Tribunal was justified in affirming the finding of CIT(A) that amount received by the assessee from the sale of transfer of mining lease at Umti as admitted by him in his statement in proceeding u/s 133A was not liable to be included in the income of assessee from undisclosed sources or as capital gains earned from transfer of mines as a capital asset?

(ii) Whether in the facts and in the circumstance of the case, the Tribunal was justified in challenging (sic) the finding of CIT(A) that the additions made by the AO amounting to Rs. 60,000 as income from undisclosed sources because of the undisclosed investment made in acquisition of mine as admitted by him?

Out of the two questions, so far question No. 2 is concerned, the unexplained investment is said to have been made during the relevant year, and as the Revenue alleges, that the assessee had sold the mine for Rs. 1.5 lacs, obviously, therefore, in absence of anything to show about the amount having been spent anywhere else, the amount was very much available with him, and therefore, it could not be said to be unexplained investment, arising out of the income from undisclosed sources. As such, the question No. 2 is answered against the Revenue and in favour of the assessee.

The crucial question in the case now is, question No. 1, which relates to the liability of inclusion of Rs. 1.5 lacs in the income of assessee, as ''capital gains'' earned from transfer of mine, as a capital asset. The learned Tribunal has held, that the mines are definitely the property of the Government, and allotment is made for mining purposes. The right to leasehold vested in the assessee, and the disputed amount was received by the assessee, on the transfer of the leasehold right of the mining. Then, it has been found, that the provisions of capital gains were not in vogue during the relevant period. It was found, that the receipt is definitely a capital receipt, on capital asset, but in the absence of such provisions at the relevant time, this was not possible to be taxed, because these provisions came into existence only w.e.f. 1st April, 1998, and therefore, the deletion was upheld.

It was contended by the learned Counsel for the Revenue that the provisions of Section 45 did very much exist at the time of the transaction in question, which provides for taxability of the profits or gains, arising from transfer of capital asset, under the head ''Capital gains'', and therefore, the learned Tribunal was wrong in dismissing the appeal of the Revenue.

We have considered the submissions and find that Section 45 does provide for chargeability of the profits and gains arising out of transfer of capital asset, to tax, under the head ''Capital gains'' but then, Section 48 provides the mode of computation, and provides that capital gain shall be computed by deducting from the full value of the consideration received, or accruing, as a result of the transfer of the capital asset, being the amounts of the expenditure incurred wholly and exclusively in connection with such transfer, and the "cost of acquisition" of the asset, and the cost of improvement thereto. Then, Section 55(2) defines the expression "cost of acquisition", for the purposes of Sections 48 and 49, and in this section, the words "or a right to manufacture, produce or process any article or thing" were introduced since 1st April, 1998 only. Thus, the Tribunal, on the basis of it, is right in concluding that at the relevant time the liability of ''capital gains'' to be taxed, could not be attracted, in case of transfer of right of mining lease. May be, that the Tribunal did not give detailed reasons, but the reasonings are decipherable as above. This is one aspect of the matter.

The other aspect of the matter is, as fairly pointed out by the learned Counsel for the Revenue, by showing us the judgment of this Court, in Commissioner of Income Tax Vs. Gotan Lime Stone Khanij Udhyog, which in turn considered all previous judgments of the Hon''ble Supreme Court, so also the Courts of England and Scotland, and held, that the consideration received in the circumstances like the present one, is not includible in the taxable income, as ''capital gains''.

In our view, even without going into the aspect about existence of the provisions of taxability of ''capital gains'' in the year 1993-94, in view of the judgment of this Court in Gotan Lime Stone''s case (supra) the question, as framed, is required to be, and is, answered against the Revenue.

Resultantly, the appeal has no force and is dismissed.