Decided on September 04,1967



- (1.) THIS is a reference made by the Income-tax Appellate Tribunal, Madrai Bench, under Section 66 (2) of the Indian Income-tax Act. 1922 (hereinafter referred to as the Act) in compliance with the direction of this Court in O. P. No. 296 of 1964. The year of assessment is 1960-61, and the accounting period is from 1-4-1958 to 25-8-1959. The question referred is: "whether on the facts and circumstances of the case, the Income-tax appellate Tribunal was correct in holding that no capital Rains taxable under the Indian Income-tax Act, 1922, arose to the assessee?"
(2.) THE assessee was carrying on business of manufacture and sale of packing cases. Pursuant to a sub-contract which he entered into with a firm called M/s. Moothadath and Sons, he supplied railway sleepers and timber to the firm during the period between 1-4-1958 and 25-8-1959. The business resulted in heavy loss, which, as computed by the assessee, amounted to Rupees 84,747. This was accepted by the Income-tax Officer, subject to some adjustments for inadmissible expenditure and depreciation.
(3.) THE assessee had taken large advances for the purposes of his business from one Sri P. R. Moothadath, one of the partners of the firm Apparently, the assessee's business had completely broken: and he was unable to repay the amounts due to Sri P R. Moothadath. Consequently, by a deed dated 19-8-1959, the assessee transferred his business together with the factory, factory premises and all plant, machinery, etc. , to M/s. M. P. Moothadath and Sons for a sum of Rs. 1,70,791-61. This was satisfied to the assessee as follows: 1. Amount due to Kerala finance Corporation from the assessee, to be discharged by the purchasers. Rs. 31,813. 66 1. Amount due from the assessee to Sri P. R. Moothadath, to be discharged by the purchasers Rs. 1,37,363. 19 3. Amount due to the purchasers from the assessee. Rs. 1,620. 76 rs. 1,70,797. 61 the written down value of the assets sold by the assessee excluding the stores and spares, was Rs 89,090. The stores and spares were valued at Rs. 5,300. Thus, there was a difference of Rs. 76,407. The Income-tax Officer found that this involved a profit of Rs. 15,887 under Section 10 (2) (vii) of the Act, and a capital gain of Rs 60,520. After adjusting this profit against the business loss of Rs. 23,090 for the year the net loss was determined as Rs. 7,203 under the head 'business" This amount was deducted from the aforesaid sum of RP 60,520 to arrive at the capital gain taxable under Section 12-B of the Act. Accordingly the amount of capital gain was fixed at Rs. 59,317 and taxed by the Income-tax officer by an order dated 30-3-1961.;

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