COMMISSIONER OF INCOME TAX vs. KOHINOOR FLOUR MILLS PVT.LTD.

ITR/420/1992HC GujaratGJHC24015760199201 February 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI4 pages
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What were the facts?

The assessee, Kohinoor Flour Mills Pvt. Ltd., is in appeal against the order of the Income Tax Appellate Tribunal (ITAT) for assessment year 1967-68. The Income Tax Officer (ITO) made an addition of Rs. 1,99,000 as capital gains arising from the acquisition of land by the Baroda Municipal Corporation. The assessee contended that while possession of the land was taken on February 8, 1967, the Section 4 notification under the Land Acquisition Act was issued later, on April 9, 1967. The Commissioner of Income Tax (Appeals) deleted the addition, holding that possession taken by private negotiation without a lawful transfer did not trigger capital gains tax in the relevant year. The ITAT confirmed this order, dismissing the revenue's appeal.

What did the High Court hold?

The High Court held that the Tribunal and the CIT(A) were justified in deleting the addition made by the ITO. The Court reasoned that a transfer, for the purpose of capital gains tax under Section 45 of the Act, is effected when possession is taken over pursuant to an award under the Land Acquisition Act. In this case, possession was taken on February 8, 1967, through private negotiation, before the Section 4 notification was issued on April 9, 1967. This did not constitute an effective transfer during the accounting period relevant to the assessment year 1967-68. The Court relied on its own decision in Commissioner of Income-Tax, Gujarat II v. Purshottambhai Maganbhai Hatheesing (HUF), 156 ITR 150. The question referred was answered in favour of the assessee and against the revenue.

What were the issues?

1. Whether the Tribunal is right in law and on facts in deleting the addition made by the ITO in respect of capital gains arising out of acquisition of land when physical possession of the land was given to the Baroda Municipal Corporation on February 8, 1967? (Question of law and fact, concerning Section 45 of the Income Tax Act, 1961). Assessee's Contention (as accepted by CIT(A) and ITAT): Capital gains tax is exigible only in the year of lawful transfer. Possession taken by private negotiation on February 8, 1967, prior to the Section 4 notification under the Land Acquisition Act, 1894, does not constitute a lawful transfer. Therefore, capital gains, if any, would arise in a subsequent assessment year. Revenue's Contention (as presented by the Revenue through CIT): The Tribunal erred in deleting the addition made by the ITO, implying that the transfer was effective in the year under consideration.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 4,Section 11,Section 45

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 420 of 1992

For Approval and Signature:

HON'BLE MR.JUSTICE D.A.MEHTA and HON'BLE MS.JUSTICE H.N.DEVANI

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the concerned : NO

The order continues below.

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