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Commissioner of Income-tax Vs. Delta Jute Mills Co. Ltd. (Now Known as Cheviot Mills Ltd.) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 543 of 1975
Judge
Reported in[1986]159ITR220(Cal)
ActsIncome Tax Act, 1961 - Section 41(2)
AppellantCommissioner of Income-tax
RespondentDelta Jute Mills Co. Ltd. (Now Known as Cheviot Mills Ltd.)
Excerpt:
- .....renamed as cheviot mills ltd.2. by an order of this court dated september 26, 1961, belvedere jute mills co. ltd. was amalgamated with the assessee with effect from november 30, 1961.3. in computing the taxable income of the assessee for the assessment year 1966-67 (the corresponding year ending on november 30, 1965), the income-tax officer included a sum of rs. 58,476 as profits under section 41(2) of the income-tax act, 1961, without assigning any reason for the same. the income-tax officer also included a further sum of rs. 67,012 as profits under the said section 41(2) arising out of the sale of the assets of belvedere jute mills co. ltd. which were not used in the business of the assessee.4. on an appeal preferred by the assessee against the assessment, the appellate assistant.....
Judgment:

Dipak Kumar Sen, J.

1. Delta Jute Mills Co. Ltd., the assessee, was first renamed as Budge Budge Amalgamated Mills Ltd. and has been again renamed as Cheviot Mills Ltd.

2. By an order of this court dated September 26, 1961, Belvedere Jute Mills Co. Ltd. was amalgamated with the assessee with effect from November 30, 1961.

3. In computing the taxable income of the assessee for the assessment year 1966-67 (the corresponding year ending on November 30, 1965), the Income-tax Officer included a sum of Rs. 58,476 as profits under Section 41(2) of the Income-tax Act, 1961, without assigning any reason for the same. The Income-tax Officer also included a further sum of Rs. 67,012 as profits under the said Section 41(2) arising out of the sale of the assets of Belvedere Jute Mills Co. Ltd. which were not used in the business of the assessee.

4. On an appeal preferred by the assessee against the assessment, the Appellate Assistant Commissioner found that depreciation had been allowed by the Income-tax Officer in respect of the assets of Belvedere Jute Mills Co. Ltd. at their written down value and not on the basis of their actual cost. Following the decision in the case of the assessee in a subsequentassessment year, the Appellate Assistant Commissioner held that the assessee was entitled to depreciation on the basis of the cost incurred by the assessee and, therefore, the same had to be re-calculated. The Appellate Assistant Commissioner held further that on the sale of the assets of the Belvedere Jute Mills Co. Ltd. not used in the business of the assessee, the surplus arising would not be profit under Section 41(2) of the Act, but would be capital gains as the said assets had been acquired by the assessee at book value. The appeal of the assessee was allowed in respect of the above, the assessment was set aside and a direction was given for fresh assessment.

5. The Revenue went up in appeal before the Income-tax Appellate Tribunal against the order of the Appellate Assistant Commissioner. Following its earlier decision in the case of the assessee in the subsequent assessment year 1967-68, the Tribunal held that the assets and liabilities of Belvedere Jute Mills Co. Ltd. were taken over by the assessee at their book value and that the cost of the assessee was the cost incurred by the Belvedere Jute Mills Co. Ltd.

6. The Tribunal noted the finding of the Income-tax Officer that the assets of the Belvedere Jute Mills Co. Ltd. had not been used by the assessee in its business and that Section 41(2) was not applicable.

7. On an application by the Revenue under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following questions stated to be questions of law arising out of its order for our opinion;

' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for calculating the profits under Section 41(2) of the Income-tax Act, 1961, the written down value arrived at on the basis of book value should be adopted ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 67,012 could be taxed as capital gain and not as profit under Section 41(2) of the Act ?'

At the hearing, a decision of this court in CIT v. Delta Jute Mills Co. Ltd. : [1979]117ITR492(Cal) , was cited at the Bar. In that case, the decision of the Tribunal in the case of the same assessee in the subsequent assessment year 1967-68 (which has been followed by the Tribunal in the instant case) came up for consideration before this court. The question referred in the said case was as follows (at p. 494) :

' Whether, on the facts and in the circumstances of the case, the Tribunalis right in holding that Explanation 7 to Section 43(1) of the Income-tax Act, 1961, will have no effect for the assessment year 1967-68 in the case of the assessee company for the purpose of determination of theactual cost of the capital assets received by the assessee company on transfer from the amalgamated company ?'

The said question was answered in favour of the assessee and it was observed that Explanation 2A to Section 43(6) of the Income-tax Act, 1961, was the appropriate section to be applied to the facts.

8. Explanation 2A to Section 43(6) of the Act came into effect on and from April 1, 1967, Learned advocate for the Revenue contended that the said decision had no application to the facts of the present case as the statute had undergone a change in the subsequent assessment year.

9. Learned advocate for the assessee contended that, in any event, the Tribunal had to consider the effect of the statute as it stood before the introduction of the said Explanation 2A to Section 43(6).

10. This aspect of the matter, it appears, was not considered by the Tribunal which followed its own decision in the case of the assessee for the subsequent assessment year. We, therefore, decline to answer the first question and remand the matter to the Tribunal. The Tribunal is directed to decide the matter afresh in the light of the provisions contained in Section 43 as it stood in the assessment year in question. In deciding the matter, the Tribunal is directed further to keep in view the principles laid down by this court in Riverside (Bhaipara) Electric Supply Co. Ltd. v. CIT : [1977]109ITR399(Cal) , as also the decision of this court in the case of the assessee for the subsequent year referred to hereinabove.

11. So far as the second question is concerned, there is no dispute that the assets of Belvedere Jute Mills Co. Ltd. came to be the assets of the assessee after amalgamation. Some of such assets, in particular, machinery, were sold by the assessee. If the amount received from the sale of such assets exceeded the written down value thereof, the question of assessment of profit under Section 41(2) of the Act would arise. The Tribunal was, therefore, required to find out whether depreciation allowance had been allowed on the said assets of Belvedere Jute Mills Company Ltd., which were sold by the assessee after amalgamation. Without ascertaining the same, it cannot be determined whether the sale proceeds would exceed the written down value after allowing depreciation. If the assessee had claimed and taken the benefit of depreciation allowance in respect of such assets, it could not, thereafter, contend that the assets were not used in the business.

12. The above relevant factors have not been gone into by the Tribunal and, as such, we are also unable to answer the second question on the facts before us. We decline to answer the question and remand the matter to the Tribunal to ascertain whether depreciation was allowed on the assets in question after they were acquired by the assessee and thereafter decide whether the said amount of Rs. 67,012 or any part thereof should be assessed either as profit under Section 41 or as capital gains. The reference is disposed of accordingly. There will be no order as to costs.

Ajit K. Sengupta, J.

13. I agree.


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