COMMISSIONER OF INCOME TAX Vs. NIRMAL TEXTILES

JUDGEMENT

(1.) RESPONDENT assessee has opted for Samvat Year as his accounting period ending on Diwali every year. The controversy relates to asst. year 1975 76, the previous year relevant to which ended on Diwali of 1974, i.e., the accounting period commencing on next day of Diwali 1973 and ending on Diwali 1974 is the previous year relevant to the assessment year in question for which income tax payable by the assessee was to be assessed. He sold certain plots of land between 26th Dec., 1973 and 25th March, 1974. As on the date of such transfers, the assessee had held the said immovable property for the period of more than 24 months, but less than sixty months. The assessee claimed that as on the date of transfer of the capital assets concerned, the definition of short term capital asset under S. 2(42A) of the IT Act, 1961, it was required that the assessee should have held the capital asset for not more than 24 months immediately preceding the date of transfer, it was a transfer of long term capital assets by the assessee. He, therefore, claimed that income arising out of the said transaction is liable to be assessed to tax as long term capital gains. He claimed deductions as are applicable in the case of capital gains arising out of transfer of long term capital asset under S. 48 of the Act. The claim of the assessee was rejected by the ITO by taking into consideration that the definition of the short term capital asset had been amended by the Finance Act, 1973 w.e.f. 1st April, 1974 extending the period of holding upto which the capital asset would remain a short term capital asset to sixty months instead of 24 months.

(2.) THE ITO rejected the claim of the assessee on the ground that under the IT Act, tax is to be assessed for the assessment year as per law prevailing on the first day of the commencement of the assessment year, though income in respect of which tax is to be assessed is such which has been earned during the previous year ending before commencement of such assessment year. As the asst. year 1975 76, undisputedly for which the capital gains chargeable to tax was to be assessed, commenced as on 1st April, 1975 and any income which accrued, earned or received by an assessee during the previous year relevant to that assessment year had to be computed in the manner prescribed in accordance with the provisions of the IT Act as they were in force on 1st April, 1975, including the various definition clauses under S. 2 of the Act. The assessee failed in appeal before the AAC. However, the contention found favour with the Tribunal. It held that as the provision in question, namely, S. 2(42A) applies to assets and not to income, the principle that it is the law in force in the previous year which has to be applied, does not govern ascertaining the nature of assets when transferred though will be governing the computation of income. In view of this conclusion the Tribunal found that the plots of land cannot be treated as short term capital assets when transferred and the assessment must be for long term capital gains.

(3.) THE controversy raised before us is within a very narrow compass. The question which calls for consideration is whether capital gains arising from a transfer made during the previous year relevant to the assessment year commencing after 1st April, 1974 can be considered to have been arisen as a result of transfer of short term capital asset or transfer of long term capital asset. In other words whether nature of capital asset has to be determined in terms of definition of short term capital asset which was in force w.e.f. 1st April, 1974 or it will have to be determined in accordance with the provisions as standing on the date of transfer. The contention before us by respective parties have been on the lines noticed by us while noticing the facts of the case.