- (1.) THE following two questions have been referred for the opinion of this Court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the stock left with the assessee was not a capital asset and the profits arising on the sale of such stock could not be taxed as capital gains ? 2. Whether even assuming that the profits on sale of the stock left with the assessee were taxable under s. 176(3A) of the IT Act, 1961, the Tribunal was legally justified in holding that the legal fiction created by the aforesaid sub -section would extend to the allowability of deduction for expenses incurred in relation to the business which had ceased to exist before the commencement of the previous year relevant to asst. yr. 1981 -82 -
(2.) THE Tribunal has held in its order that the plant and machinery of the assessee was sold by the National Small Industries Corporation in satisfaction of its dues. Thereafter, the assessee was left with certain goods and raw materials. The Tribunal held that such raw materials would not constitute a "capital asset". The Department not being satisfied with the decision, sought the reference by way of the first question, quoted above.
(3.) "Capital asset" according to the definition given in s. 2(14) of the IT Act, 1961 excludes stock -in -trade, consumable stores and raw materials. Nothing has been shown to us as to why raw materials in this case should be treated as a capital asset in violation of the aforesaid definition. Sri Shambhu Chopra has argued that what was left with the assessee was not raw material.;