Commissioner of Income Tax vs Nirmal Kumar Soorana and Others

By this reference application u/s 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following questions for our opinion :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that capital gains accrued to the assessee and was chargeable to tax in the assessment year 1976-77 ?"

"Whether, on the facts and in the circumstances of the case, the decision of the Income Tax Appellate Tribunal that no books of account were maintained by the assessee for such capital gains and that this income from capital gains pertains to the financial year ended on March 31, 1976, being the previous year for the assessment year 1976-77, is perverse ?"

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in excluding such capital gains from the total income of the assessee for the assessment year 1977-78 ?"

Narendra Kumar Soorana (Individual), Mannalal Soorana (Individual) and Nirmal Kumar Soorana (HUF) became partners in the firm and contributed cut and processed stones as follows :

Name Name of the firm Contribution Date

Mannalal Soorana Hazari mal Milapchand Soorana Rs. 20.4 lakhs 8-12-76

Nirmal Kumar Soorana Mannalal Nirmal Kumar Soorana

and Co. Rs. 15.81 lakhs 4-1-76

Narendra Kumar Soorana Mannalal Nirmal Kumar Soorana

and Co. Rs. 15.37 lakhs 4-1-76

The assessee, Nirmal Kumar Soorana, has contributed his capital on January 4, 1976. The Assessing Officer has treated this contribution of the capital as transfer within the meaning of Clause. (47) of Section 2 of the Income- tax Act, 1961, and taxed capital gains on such transfer. That amount was assessed in the assessment year 1977-78.

The assessee claimed that the capital gain should be considered in the assessment year 1976-77, as the assessee has not maintained any books of account, the previous year should be treated as year ended on March 1, 1976. The Income Tax Officer did not accept and taxed this capital gain income in the assessment year 1977-78.

In appeal, the Commissioner of Income Tax (Appeals) upheld the view taken by the Assessing Officer. In appeal before the Tribunal, the Tribunal has confirmed the view taken by the Assessing Officer so far as the capital contribution in the form of assets in the firm is a transfer, within the meaning of Clause (47) of Section 2 of the Income Tax Act, is concerned, however, the Tribunal has taken a view that when the assessee has not maintained the books of account, the previous year should be taken 1975-76, i.e., the previous year ended on March 1, 1976.

Considering these admitted facts that the capital contribution has been treated as transfer within the meaning of Clause (47) of Section 2 of the Income Tax Act and the fact that the assessee has not maintained books of account prior to this transfer, i.e., on January 4, 1976, in our view there is no infirmity in the order of the Tribunal treating the previous year as 1975-76 when the assets were transferred on January 4, 1976.

In the result, we answer questions Nos. 1 and 3 in the affirmative, i.e., in favour of the assessee and against the Revenue. So far as question No. 2 is concerned, we answer that the finding of the Tribunal is not perverse and that is also in favour of the assessee and against the Revenue.

The reference so made stands disposed of accordingly.