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Commissioner of Income-tax Vs. Delta Jute Mills Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 52 of 1976
Judge
Reported in[1986]159ITR215(Cal)
ActsIncome Tax Act, 1961 - Sections 41(2) and 49(1); ;Indian Income Tax Act, 1922 - Section 12B(3)
AppellantCommissioner of Income-tax
RespondentDelta Jute Mills Co. Ltd.
Excerpt:
- .....budge amalgmated mills limited. by an order of the high court dated september 26, 1961, belvedere jute mills co. ltd.was amalgamated with the assessee with effect from november 30, 1961. the assessee has been again renamed as cheviot mills limited.2. for the assessment years 1963-64, 1964-65 and 1965-66, the corresponding previous years ending on the 30th november of the calendar years 1962, 1963 and 1964, the assessee was assessed to income-tax.3. in computing the taxable income of the assessee, the income-tax officer found that some of the assets of belvedere jute mills co. ltd., taken over by the assessee on amalgamation had been sold before putting them to use. on the basis of the written down value of the said assets, the income-tax officer held that the profits had accrued in the.....
Judgment:

Dipak Kumar Sen, J.

1. Delta Jute Mills Company Limited, the assessee, was renamed as Budge Budge Amalgmated Mills Limited. By an order of the High Court dated September 26, 1961, Belvedere Jute Mills Co. Ltd.was amalgamated with the assessee with effect from November 30, 1961. The assessee has been again renamed as Cheviot Mills Limited.

2. For the assessment years 1963-64, 1964-65 and 1965-66, the corresponding previous years ending on the 30th November of the calendar years 1962, 1963 and 1964, the assessee was assessed to income-tax.

3. In computing the taxable income of the assessee, the Income-tax Officer found that some of the assets of Belvedere Jute Mills Co. Ltd., taken over by the assessee on amalgamation had been sold before putting them to use. On the basis of the written down value of the said assets, the Income-tax Officer held that the profits had accrued in the hands of the assessee under Section 41(2) of the Income-tax Act, 1961. The said profits were computed respectively at Rs. 7,97,878, Rs. 1,00,600 and Rs. 8,270 for. the said three assessment years.

4. The Income-tax Officer further held that on sale of the assets of Belvedere Jute Mills Co. Ltd., long-term capital gain had accrued in the hands of the assessee which was computed respectively at Rs. 34,210, Rs. 146 and Rs. 2,855 for the said assessment years. The claim of the assessee that, in computing such capital gain, fair market value of the assets as on January 1, 1954, and not their actual cost should be taken into account was rejected.

5. Being aggrieved by the said assessments, the assessee preferred appeals before the Appellate Assistant Commissioner, who found that the assessee as the amalgamated company never used the said assets of the amalgamating company which were sold and held that, therefore, no profit could be assessed in the hands of the assessee under Section 41(2) of the Act.

6. So far as capital gain was concerned, the Appellate Assistant Commissioner held that the cost of acquisition of the assets for the purpose of computing the capital gain would not be taken to be either the cost of acquisition of the previous owner or the fair market value as on January 1, 1954, and he held that the cost of acquisition would have to be taken to be the book value at which the assets had been transferred to the assessee. The Income-tax Officer was directed to recompute the capital gain on the basis of the book value of the said assets as on the date of amalgamation. It was found that such assets had not been used by the assessee and that no depreciation had been allowed to the assessee on the said assets.

7. From the said order of the Appellate Assistant Commissioner, both the Revenue and the assessee preferred appeals to the Income-tax Appellate Tribunal.

8. In respect of profits under Section 41(2) of the said Act, the Tribunal, following its earlier order in the case of the assessee for the assessment year 1967-68, rejected the contentions of the Revenue and upheld the order of the Appellate Assistant Commissioner.

9. On capital gain, it was contended by the assessee before the Tribunal that, in view of the amalgamation, the assessee succeeded to the assets of Belvedere Jute Mills Co. Ltd., within the meaning of Section 49(1)(iii) and, therefore, the cost of acquisition of the assets should be taken as the cost at which the previous owner of the property had acquired it. It was contended further that for the purpose of substitution of the fair market value as on January 1, 1954, again the cost of the previous owner had to be taken into account.

10. It was contended on behalf of the Revenue that in the case of an amalgamation, the provisions of Section 49(1)(iii) of the Act would not apply and the Appellate Assistant Commissioner had erred in directing the Income-tax Officer to recompute the capital gain on the basis of the book value of assets of the amalgamating company on the date of amalgamation.

11. The Tribunal found that, in view of the amalgamation, the assessee had succeeded to the assets and business of the amalgamating company and, therefore, the provisions of Section 49(1)(iii) of the Act applied to the case. The expression ' by succession ' in the said section was held to be attracted. The Tribunal, therefore, held that the cost of acquisition of the assets would be deemed to be the cost at which the previous owner of the property had acquired it. The Tribunal also found that the cost incurred by the previous owner in acquiring the said assets had not been determined properly. The Tribunal remanded the matter to the Appellate Assistant Commissioner for consideration of the said aspect and to recompute the capital gain or loss arising out of the sale.

12. At the instance of the Revenue, the following questions, stated to be questions of law, arising out of the order of the Tribunal have been referred under Section 256(1) of the Act for the opinion of this court :

' 1 Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the capital assets became the property of the assessee by succession within the meaning of Section 49(1)(iii) of the Income-tax Act, 1961, for the assessment year 1963-64 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee could not be assessed in respect of any profits arising under Section 41(2) of the Income-tax Act, 1961, for the assessment years 1963-64 to 1965-66 '

13. At the hearing, the decision of this court in CIT v. Budge Budge Amalgamated Mills Limited : [1980]122ITR561(Cal) , was cited at the bar. In this case, the effect of amalgamation of two companies on the assets of the amalgamated company was considered by this court. The following question was referred in that case (p. 563):

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the capital assets became the property of the assessee by succession within the meaning Section 12B(3) of the Indian Income-tax Act, 1922, and that accordingly the assessee was entitled to substitute the fair market value as on the first January, 1954, of the assets sold '

14. After considering the provisions of Section 12B of the Indian Income-tax Act, 1922, it was held by this court as follows (at p. 566);

' In our view, the matter appears to be concluded by the language of Section 12B, which relates to the transfer of a capital asset and not of an entire business by succession, inheritance or devolution. It is not in dispute that the capital assets of Orient Jute Mills Co. Ltd. stood transferred to Cheviot Mills Co. Ltd. The question is whether such transfer took place by way of succession or devolution. Whether the entire business of Orient Jute Mills Co. Ltd. was transferred to Cheviot Mills Co. Ltd. or not is of little relevance. The transfer took place pursuant to an order of this court under the said Section 394 of the Companies Act, 1956, and appears to us to be a clear case of devolution by operation of law. In any event, there is a specific finding in the instant case that the entire business of Orient Jute Mills Co. Ltd. has been succeeded to and continued by the Cheviot Mills Co. Ltd. This finding is not challenged.'

The question was answered in the affirmative and in favour of the assessee.

15. In the instant case, the Tribunal has found, inter alia, that the assets and the business of Belvedere Jute Mills Co. Ltd. were transferred to the assessee on amalgamation, that the identity of the business was preserved and that there was continuity of the business.

16. The above findings have not been challenged. It also appears to us that Section 49(1)(iii) of the Act of 1961 is in pari materia with Section 12B(3) of the Act of 1922. Accordingly, we hold that the principles laid down in Budge Budge Amalgamated Mills Ltd., : [1980]122ITR561(Cal) , would apply to the facts of this case. In both the cases, there was devolution by operation of law. We, therefore, hold that the capital assets became the property of the assessee by devolution within the meaning of Section 49(1)(iii) of the Act of 1961. The first question is, therefore, answered in the affirmative and in favour of the assessee.

17. On the second question, it appears that the Tribunal followed its order for the assessment year 1966-67, in the case of the same assessee. The said order of the Tribunal for the assessment year 1966-67 came up for consideration before us in Income-tax Reference No. 543 of 1975. The judgmentin the said reference has been delivered to-day. Following the said judgment, we decline to answer the second question and remand the matter to the Tribunal to decide the issue in the light of the said judgment. There will be no order as to costs.

Ajit Kumar Sengupta, J.

18. I agree.


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