LAXMINARAYAN SAW MILLS Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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B.V. Venkataramaiah, Accountant Member -
(1.) THE AAC's order was served on the assessee on 16-9-1981. THE appeal was due on 15-11-1981. THE appeal memo was despatched by the assessee's counsel on 16-11-1981 and was received in the Tribunal Office on 18-11-1981. THEre was a delay of 3 days. THE assessee's counsel has explained that the delay was due to him, and in the circumstances, the delay in the filing of the appeal is condoned.
(2.) The assessee entered into an agreement for the purchase of a truck with one Mr. Patel for Rs. 17,151. Full payment was made on the same day, but the truck was registered in the assessee's name by the RTO on 30-4-1974. On 16-5-1976, the assessee entered into an agreement to sell the truck to one Altaf Hussain Syed Karim for Rs. 21,500. Rs. 10,000 was received on the day of the agreement and the balance was to be received in instalments of Rs. 1,000 per month. The truck was put in possession of the purchaser on 16-5-1976. The last instalment was paid on 9-4-1977. The truck was, however, registered in the name of Altaf Hussain by the RTO on 1-2-1977. The contention of the assessee is that the agreement stipulated that the sale receipt was to be issued only after the last instalment of purchase price was paid. The sale was completed, therefore, on 9.4.1977 and, thus, the truck was held by the assessee from 1-3-1974 to 9-4-1977, that is, for a period of more than 36 months. Accordingly, it was submitted before the ITO that the capital gain was includible only in the assessment year 1978-79 and not in the year under appeal and further it was long-term capital gains. The ITO held as follows:
As regards the sale of truck the contention of the assessee that the sale was not completed till the last instalment was paid by the purchaser could not be accepted as the firm itself has intimated the RTO that the sale took place on 1-2-1977 and the transfer was also registered on that date. In fact, the truck was sold on 15-5-1976 and the possession was handed over to the purchaser on the very day after receipt of part payment and the balance was agreed to be repaid in monthly instalments. A perusal of the deed and conduct of the parties subsequently show that this was only a sale, part payment of consideration of which was to be received in instalments subsequently. I, therefore, hold that the sale of truck took place on 15-5-1976 when the truck was handed over, as it is a movable property. The sale having taken place in Diwali 1976 and as the asset was not held for more than 60 months, the capital gains was rightly assessed as a short-term capital gain. Since the sale took place in the accounting year the profits under Section 41(2) was also rightly assessed.
The AAC agreed with the ITO. He held that the law as on 1-4-1977 was applicable. The law stipulated that any asset held for less than 60 months was to be treated as a short-term capital asset. Thus, he held that the capital gains received in the sale of the truck was short-term capital gains and no deduction was permissible under Section 80T of the Income-tax Act, 1961 ('the Act'). The assessee is in appeal.
Shri Mhuskey, the learned counsel for the assessee, argued that in construing whether a sale has taken place or not, the agreement between the parties should not be ignored. In a hire-purchase agreement or any system of payment of instalment, the sale will not take place unless the conditions stipulated in the transfer document are fulfilled. In such cases, sales tax was not leviable as the sale had not taken place on the execution of the agreement. In order to bring such transactions within the definition of 'sale', the Constitution was amended by the 46th amendment. By this amendment sales tax became leviable on the delivery of goods in hire-purchase or any system of payment by instalments. There was no corresponding amendment in the Income-tax Act. Accordingly, he submitted that the sale was not completed till 9-4-1977 and capital gains was attracted only for the assessment year 1978-79. Since Section 2(42A) of the Act was amended with effect from 1-4-1978 specifying that short-term capital assets are those held for less than 36 months, the asset sold by the assessee became a long-term capital asset having been held from 1-3-1974 to 9-4-1977, thus entitling the assessee to deduction under Section 80T. He accordingly prayed that the order of the AAC should be reversed.
(3.) THE learned departmental representative, on the other hand, submitted that one need not go into the question of sale at all. Capital gains was attracted in the case of transfer of capital assets THE word 'transfer' is defined in Section 2(47). This includes sale, exchange, relinquishment, etc. It is apparent from the definition that there can be a transfer without there being a sale. In the present case, even if it is assumed that there was no sale of the truck, the truck was transferred to the purchaser on 15-5-1976. THE purchaser was put in possession of the movable property. Transfer was, therefore, completed on 15-5-1976 itself. He relied on the decisions of the Supreme Court in CIT v. Bhurangya Coal Co.  34 ITR 802 and in Alapati Venkataramiah v. CIT  57 ITR 185. He further referred to Section 110 of the Evidence Act that there was a presumption that the possessor is the owner. He then referred to Section 31A of the Motor Vehicles Act, 1939. .Sub-section (1) requires that the registering authority shall make an entry in the certificate of registration regarding the existence of the hire-purchase agreement. THE person who has taken possession of the vehicle will be known as the 'registered owner'. If there is any breach of the provisions of the hire-purchase agreement, the person who has sold the vehicle can apply to the registering authority, and the certificate in the name of the registered owner can be cancelled after observing certain formalities. THE learned departmental representative submitted that these provisions indicated that the hire-purchaser becomes de facto owner and de jure owner of the truck and will lose the ownership of the truck only under certain special circumstances. In any case, the truck being a movable property its transfer has to be considered in the light of the relevant provisions of the Transfer of Property Act. THE title to the movable property passes on the day it was delivered to the purchaser. Since this position is not disputed in law, he argued that the orders of the authorities below should be upheld.;
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