SETH A N Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In this reference, the Income Tax Appellate Tribunal, Delhi Bench ' B ', has referred two questions of law, namely : " t. Was the profit arising from the sale of lands liable to Income Tax on the ground that the transactions in the lands were in the nature of business transactions

(2.) The facts which have given rise to the aforesaid two questions of law may be set out briefly. The assessed, A. N. Seth, is an individual, and the assessment years are 1949-50 and 1950-51, and the corresponding previous years are the years ending with March 31, 1949, and March 31, 1950. Prior to the partition of India, the assessed was a resident of Lahore. In the year 1938, the assessed along with his father-in-law, Shri A. N. Mehra, formed a partnership under the name and style of M/s. Sonepat Electric Supply, hereafter referred to as " the firm ". The firm obtained an electric license from that Government of Punjab to generate electricity and supply it to Sonepat town. For that purpose, the firm obtained a piece of land measuring 20 bighas and 15 bids was on lease from the Sonepat Municipality on April 9, 1938, for a term of 18 years, on a rent of Rs. 100 per annum. The firm constructed a power house on a portion of the leased land and installed electrical equipment for generating electricity.

(3.) On January 18, 1940, a limited company under the name and style of M/s. Sonepat Light, Power and General Mills Limited, hereafter referred to as "the company", was floated, and the assessed became its managing director. On October 24, 1940, the firm took on lease antoher piece of land measuring 27 bighas, 10 biswas, which was adjacent to the previous piece of land from the Sonepat Municipality for a terra of 18 years and on a rent of Rs. 50 per annum. On January 19, 1941, the Registrar of Joint Stock Companies granted a certificate of commencement of business to the company. On January 30, 1941, the firm transferred the entire electric undertaking including the machinery and equipment together with all toher assets to the company. After the said transfer, the firm sought for permission to transfer the electric license also to the company, but the Government of Punjab refused to grant the permission. Thereupon, the entire assets were retransferred by the company to the firm some time in 1943, but with retrospective effect from April 30, 1942, which was apparently the date on which the permission was refused by the Government of Punjab. It appears that after further negtoiations, the Government of Punjab ultimately granted the permission for the transfer of the license, and, Therefore, on March 22, 1944, the assets of the electricity undertaking were transferred again by the firm to the company. It may be stated here that some time in 1942, the company expanded its activities, and an oil mill, a ginning factory and an ice factory began to function as part of the business activities of the limited company.