The Commissioner Of Income Tax, Patiala v. M/S Sood Harvestors, Patiala

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITR No. 29 of 1997 (O&M)Date of decision: November 9, 2009 The Commissioner of Income Tax, Patiala ...Appellant Versus M/s Sood Harvestors, Patiala ...Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE GURDEV SINGH Present: Ms. Urvashi Dhugga, Advocate, for the revenue. ORDER 1. At the instance of the revenue, following question of law hasbeen referred for the opinion of this Court by the Income-Tax AppellateTribunal, Chandigarh, arising out of its order dated 27.6.1996 in I.T.A. No.1368/Chandi/1990 relating to assessment year 1986-87:- “(i) Whether on the facts and in the circumstances of thecase, the ITAT was right in law in holding that profit on sale ofcombine and capital gains could be at best assessed in the asstt.Year 1985-86 when sale took place on 17.10.1985 and incomefrom running of combine upto 17.10.1985 amounting to Rs.12,000/- was held to be assessable in the hands of the firm inthe asstt. Year 1986-87 and in earlier year also it was held thattransfer before sale was a device to avoid tax on profit on saleu/s 41 (2) and capital gains ?” The assessee firm had three partners and sold its harvestor ITR No. 29 of 1997 combine to one of its partners. The said partner became partner of anotherfirm and she transferred the said combine to that firm. Thereafter, thecombine was further sold by the firm to two individuals. 3.The Assessing Officer held that by transferring the harvestor tothe partner and thereafter to another firm of which the said partner hadbecome partner was just a device and, thus, the harvestor continued to bethat of the assessee firm. Income derived from use of the said harvestorcombine was required to be added to the income of the assessee, apart fromcapital gain to be calculated with reference to ultimate sale price. TheAssessing Officer added income from running of the combine and profit onsale under Section 41 (2). This order was upheld by CIT (A) but theTribunal reversed the addition by holding that the transaction was not adevice but genuine. It was further held that capital gains were required tobe added in the hands of the second firm i.e. M/s S.V. harvestor Co. 4.The findings of the Tribunal are as follows:- “...We, therefore, hold that the income from the said combineshown in the hands of M/s S.V. harvestor Co. was correctlyassessable in the hands of the assessee firm. Since the incomeof Rs. 12,000/- had been taken upto 16.10.1985, the same is inorder. We hold accordingly.shown in the hands of M/s S.V. harvestor Co. was correctlyassessable in the hands of the assessee firm. Since the incomeof Rs. 12,000/- had been taken upto 16.10.1985, the same is inorder. We hold accordingly. 10. As regards the assessability or otherwise of profit u/s 41(2) and capital gains, the facts clearly show that the transfer ofthe third combine to Smt. Santosh Sood partner on its WDV ofRs. 3,847/- took place on 3.4.1984 relevant to assessment year1985-86. She had already become a partner of M/s S.V.harvestor Co. on 1.4.1984. She in turn transferred the combine(2) and capital gains, the facts clearly show that the transfer ofthe third combine to Smt. Santosh Sood partner on its WDV ofRs. 3,847/- took place on 3.4.1984 relevant to assessment year1985-86. She had already become a partner of M/s S.V.harvestor Co. on 1.4.1984. She in turn transferred the combine 10. As regards the assessability or otherwise of profit u/s 41(2) and capital gains, the facts clearly show that the transfer ofthe third combine to Smt. Santosh Sood partner on its WDV ofRs. 3,847/- took place on 3.4.1984 relevant to assessment year1985-86. She had already become a partner of M/s S.V.harvestor Co. on 1.4.1984. She in turn transferred the combine(2) and capital gains, the facts clearly show that the transfer ofthe third combine to Smt. Santosh Sood partner on its WDV ofRs. 3,847/- took place on 3.4.1984 relevant to assessment year1985-86. She had already become a partner of M/s S.V.harvestor Co. on 1.4.1984. She in turn transferred the combine to M/s S.V. harvestor Co. in 1984 relevant to assessment year1985-86. To this extent, there was a device by the assesseefirm. But the transfer by Smt. Santosh Sood to M/s S.V.harvestor Co. had taken place in the year relevant to assessmentyear 1985-86 and, therefore, the assessment of profit u/s 41 (2)and capital gains in the hands of the assessee firm forassessment year 1986-87 was not in order. At best, it could beassessed in the hands of the assessee firm for assessment year1985-86. When the transfer to S/Shri Manjit Singh and RanjitSingh took place on 17.10.1985, it was M/s S.V. harvestor Co.which transferred the combine and not the assessee firm or Smt.Santosh Sood. In that view of the matter, on the sale of Rs.3,50,000/-, profit u/s 41 (2) and capital gains, if any, were to beassessed in hand hands of M/s S.V. harvestor Co. forassessment year 1986-87. In either view of the matter, so far asassessment year 1986-87 in the case of the assessee firm isconcerned, there was no warrant for assessing profit u/s 41 (2)and capital gains in its hands. We, therefor, order the deletionof profit u/s 41 (2) of Rs. 53,817/- and capital gains of Rs.1,40,602/- from the total income of the assessee. This appeal ispartly allowed.” 5.We have heard learned counsel for the parties. 6.Learned counsel for the appellant submits that neitherregistration was done with the competent authority under the provisions ofMotor Vehicle Act, nor the partner to whom sale was made was earlierpartner of the earlier firm. She became partner only two days before the ITR No. 29 of 1997 sale. The price of harvestor in favour of partner was at WDV of Rs. 3,847/-and further sale was for Rs. 3,50,000/-, which shows that there was deviceto avoid tax. The Tribunal itself noticed that device was employed butwrongly observed that transaction in the next year could not affect incomeof assessee for the earlier year. 7.Even though there may be substance in the submissions made,having regard to the fact that the matter relates to period of more than 20years ago and the amount is not substantial nor the issue is of recurringnature, we do not consider it appropriate to take a final view on merits andconsider it proper to return the reference unanswered, leaving the questionopen. 8.Reference is returned unanswered. (ADARSH KUMAR GOEL) JUDGE November 9, 2009 prem (GURDEV SINGH ) JUDGE