IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 04/12/2002
CORAM
THE HON'BLE MR.JUSTICE N.V.BALASUBRAMANIAN
AND
THE HON'BLE MR.JUSTICE K.RAVIRAJA PANDIAN
TAX CASE NO.307 OF 1998 AND TAX CASE NO. 308 OF 1998
(Reference Nos.276 and 277 of 1998)
M/s. Sathappa Textilers (P) Ltd.,
Coimbatore. ... Applicant
-Vs-
The Commissioner of Income-tax
Coimbatore. ... Respondent
Prayer: Reference made to this Court in the statement of the case
submitted by the Income Tax Appellate Tribunal, Madras 'B' Bench in R.
A.Nos.474 and 475(MDS)/95 (I.T.A.Nos.469 and 470/Mds/87 for the assessment
year 1982-83 and 1983-84.
!For Applicant : Mr.J.Narayanaswamy
for M/s.Subbaraya Aiyar.
For Respondent : Mrs.Pushya Sitharaman
Sr.Standing counsel for
Income-tax.
:JUDGMENT
K.RAVIRAJA PANDIAN,J.
Pursuant to the direction of this Court made in Tax Case Petition
Nos.272 and 273 of 1996, the Income-tax Appellate Tribunal set out a case and
referred the following questions for the opinion of this Court:
“1. Whether on the facts and in the circumstances of the case, the
Tribunal was right in holding that the lands held by the assessee had not been
converted into stock in trade?
2. Whether on the facts and in the circumstances of the case the
Tribunal was right in rejecting the alternate claim of the assessee regarding
the computation of capital gains on transfer of lands?”
The assessment years are 1982-83 and 1983-84.
2. The facts as stated in the statement of case are as follows:
The assessee was a Private Limited Company engaged in textile
business. From the assessment year 1982-83, it claimed that it had started
business in real estate by converting part of its vacant land into
stock-in-trade to carry on the business of real estate. In order to prove the
same, it was contended that a resolution to that effect was passed on 1.1.1981
and entries have been made in the books of account. It was also claimed that
the proceedings of the resolution was recorded in the minutes, duly signed by
the Chairman, that the minutes so recorded was filed with the Registrar of
Companies on 11.1.1983, that as per the entries made in the books of account,
the property alleged to have been converted into stock-in-trade was valued at
the market value of Rs.35,90,000/- and recorded in the books of account. It
was also claimed that during the relevant previous year an extent of 3 .58
acres of land was sold for the gross receipts of Rs.9,15,790/- and claimed a
sum of Rs.10,24,260/- as business loss. Pending the assessment proceedings
before the Assessing Officer, the assessee made an application to the
Inspecting Assistant Commissioner under Section 14 4A for appropriate
direction. The Inspecting Assistant commissioner after hearing the assessee
declined to give any direction as requested for.
3. The Assessing Officer after considering the material on record did
not accept the claim of the assessee of conversion of land into
stock-in-trade. The Assessing Officer found that the property, which was
alleged to have been converted into stock-in-trade as per the resolution dated
1.1.1981 was in fact sold during the relevant previous year as per the
agreements of sales entered into by the assessee in the years 1969 and 1970.
It was further concluded by the Assessing Officer that the higher valuation of
the property in question was made by the assessee in order to avoid capital
gains tax. Thus, the Assessing Officer treated the transactions as sale of
immovable property and computed long term capital gains. Likewise, for the
assessment year, 1 983-84, the assessee claimed for allowances of Rs.56,960/-
on the ground that the said amount was incurred by the assessee towards
improvement of the land. That claim was also negatived by the Assessing
Officer on the ground that the assessee did not sell any land in respect of
which the said expenditure was incurred.
4. The assessee carried the matter in appeal to the Commissioner of
Income-tax (Appeals), who accepted the claim of the assessee that the lands in
question were converted into stock-in-trade by accepting the minutes dated
1.1.1981 and held that the agreements of sales entered by the assessee were
not acted upon. By the said reasoning, the Commissioner of Income-tax
(Appeals) set aside the assessment and remitted the matter back to the
Assessing Officer to determine the business profit or loss of the transaction.
5. The revenue carried the matter on appeal to the Tribunal. The
Tribunal concluded that the finding of the Commissioner of Income-tax (
Appeals) are not based on facts; that the land in question which was alleged
to have been converted into stock-in-trade were not at all in the assessee’s
possession as on the date of resolution on 1.1.1981 to convert the same into
stock-in-trade. The properties were sold under various agreements in the
years 1969 and 1970. Some of the agreement holders filed suits for specific
performance of the agreements. The sale deeds were executed pursuant to the
agreements already entered into and also in discharge of the decree passed
against the assessee. The Tribunal found that when the asse ssee was not in
possession of the property in question, there is no question or possibility
for the assessee converting the same into stock-in-trade. The Tribunal
further found that the alleged conversion of the land into stock-intrade was
not genuine. The Tribunal also rejected the minutes projected by the assessee
in order to prove the conversion on the ground that the minutes so produced
has been entered into a loose sheet of paper and it is only an after thought
to avoid the liability of capital gains.
6. The alternative claim of the assessee that part of the
consideration had gone into discharging the mortgage debt and therefore to
that extent, the consideration paid by the purchaser, which went into in
discharging mortgage debt has to be allowed as a deduction while computing the
capital gain, has also been rejected by the Tribunal on the ground that there
was absolutely no evidence to show that any consideration had gone into
discharging the mortgage debt and on the contrary found that the property sold
under various sale deeds were got released from the mortgage and then the sale
deeds were executed. As against the order of Tribunal, the above reference
was made.
7. It is the contention of the learned counsel for the assessee that
by resolution dated 1.1.1981, it was decided to convert the land belonging to
the Company at Tirupur and Kurichi as stock-in-trade of the business proposed
to be carried on by them. In order to prove the same, the assessee filed copy
of the minutes of the proceedings of the meeting of the Board of Directors
held on 1.1.1981. That aspect of the matter has been totally brushed aside on
the grounds that since the minutes book in original has not been produced
before the authority and the minutes were produced before the authorities in
loose sheets. There is no legal necessity that the minutes must be recorded
in the minutes book.
8. On the other hand, the learned counsel appearing for the revenue
has submitted that there is absolutely no question of law involved in the
present case. The only point to be decided in this case viz., whether there
was any conversion of the land in question as stock-intrade is a pure question
of fact. The fact finding authority has ultimately held that the so called
conversion as claimed by the assessee of the land into stock-in-trade to be
false. The Tribunal by cogent reason held that the assessee has not proved
the conversion of land in question as stock-in-trade in respect of the
relevant assessment years and submitted that there is no materials to
interfere with the finding arrived at by the Tribunal.
9. We heard the arguments of the learned counsel on either side.
10. The only evidence that has been let in in order to prove the
claim of the assessee that the land in question has been converted into
stock-in-trade by the assessee is the resolution dated 1.1.1981. Section 193
of the Companies Act provides for “Minutes of proceedings of General meetings
and of Board and other meetings”, which contemplates that every Company shall
cause minutes of all proceedings of every general meeting and of all
proceedings of every meeting of its Board of directors or of every Committee
of the Board, to be entered in books kept for that purpose within thirty days
of the conclusion of every such meeting with their pages consecutively
numbered. Each page of every such book shall be initialed and signed and
last page of the records of proceedings of each meeting in such books shall be
dated and signed in the case of minutes of proceedings of meeting of Board or
of a Committee thereof by the Chairman of the said meeting or the Chairman of
the next succeeding meeting. In the case of a minutes of the proceedings of
the general meeting by the Chairman of the same meeting within the aforesaid
period of thirty days or in the event of death or inability of that Chairman
within that period by a Director duly authorised by the Board for that
purpose. In no case, the minutes of the proceedings of the meeting shall be
attached to any such book as aforesaid by pasting or otherwise. The minutes
of each meeting shall contain a fair and correct summary of the proceedings.
Hence, the Tribunal has recorded a finding that in view of the express
provision under Section 193 of the Companies Act, the minutes dated 1.1.1981
produced in a loose sheet cannot be accepted. Even the Assessing Officer has
given a finding that in spite of the opportunity given to the assessee, the
minutes book was not produced. When the Inspector visited the business
premises of the assessee on 29.12.1984 on the basis of an authorisation under
Section 133A, the Chairman informed the Inspector that the resolutions were
typed in loose sheets and kept with various other papers and it would take
time to trace and locate the same. Ultimately, the minutes book produced was
found to be totally blank by the assessing authority. Further, in the minutes
in original recorded in loose sheets on 1.1.1981, produced before the
assessing officer, it was found that apart from the Chairman of the assessee
Company, who has signed the minutes, two other Directors were also present at
the meeting, however they did not sign.
11. Further, the Tribunal also taken into consideration of the fact
that as early as the year May, 1969 and December, 1970, the Company entered
into several sale agreements in respect of the properties in question with
several persons which are not consistent with minutes. Ultimately the
Tribunal found on fact with the available material that the assessee’s claim
of conversion was not genuine. The Tribunal has also recorded a clear finding
that the finding of the Commissioner of Income-tax (Appeals) that the
agreements of sale entered into by the assessee with various persons have not
been acted upon was not based on materials and in fact, against the contention
of the assessee who claimed to have sold the properties under agreements at a
lower price than the actual market value as on the date of sale. Further, the
Tribunal has also found that the advertisement given by the counsel for the
assessee on 8.9.1982 inviting purchasers for the sale of land in an extent of
357.74 cents with factory, shed, godown and other machines clearly showed that
the assessee was intending to dispose of the entire business premises and was
not doing any business in real estate. Taking into consideration of totality
of these factual position, the Tribunal has rejected the minutes. The
Certificate given by the Department under Section 230-A, which has also been
shown as a proof on behalf of the assessee, has been negatived on the ground
that in the Certificate, it was only certified that there was no income-tax
arrears on the part of the assessee and apart from that, the certificate
cannot be used to prove that the land in question was converted into
stock-in-trade of the business.
12. That apart, the Tribunal recorded a finding that there is no
material to come to the conclusion as done by the Commissioner of Income-tax
(Appeals) that the lands were divided into plots and thereafter sold. From
the material records, the 31 sale deeds executed by assessee show that the
lands were not sold in terms of plots, but in terms of extent over an extent
of 357.74 cents. It is also found by the Tribunal that the assessee was not
in possession of the land, which was sold during the relevant previous year.
All those lands were sold under various agreements of sale and the purchasers
were given possession in the years 1969 and 1970 itself. This factual
position clinches the issue when the assessee was not in actual possession of
the properties and the properties were given in possession of the agreement
holders in the years 1969 and 1970 itself, there was no question of converting
the land into stock-in-trade by passing a resolution in the year 1981.
13. Learned counsel for the assessee contended that even if the
minutes produced by the assessee is ignored, the account books are sufficient
to show that the land has been converted into stock-in-trade. In so far as
the accounts are concerned for the assessment year ended 31.03.1981 the
Chartered Accountant signed the balance sheet subsequently on 15.01.1982 and
it was filed before the Income Tax Officer in May 1982 and the Tribunal
therefore recorded a finding that the action of the assessee is in conformity
with its action to cover up the liability of capital gain. We therefore hold
that the finding of the appellate Tribunal that the alleged conversion of the
capital into stock-in-trade by the resolution dated 1.1.1981 is not a genuine
one is purely a finding of fact, especially when the said finding has been
arrived at on the basis of materials on record. The Tribunal after
considering of the relevant materials has recorded a finding that the alleged
resolution dated 1.1.1981 was not a genuine one.
14. One other contention was also raised by the learned counsel for
the assessee that for the assessment years 1982-83 and 1983-84 respectively
for the previous year ended 31.03.1982 and 31.03.1983, the Tribunal not have
gone into the question of the correctness of the resolution dated 1.1.1981,
which fall in the previous year ended 31.03.19 81 i.e. for the earlier
assessment year. We are also unable to accept the said submission as the
lands were sold during the previous years and the assessee claimed on the
basis of the resolution dated 1.1.1 981 that the lands were converted into
stock-in-trade and hence it is necessary for the Appellate Tribunal to go into
the question and determine same. Further, it is also relevant to mention here
that the assessee has not produced any material before the authorities to show
during the assessment proceedings for the assessment year 1981-82 that the
assessee had produced the resolution dated 1.1.1981 and claimed the same as
stock-in-trade. Hence, we are of the considered view that the alleged
conversion of the land into stock-in-trade and the resolution dated 1.1.1981
are not true and only make believe documents and thus we answer question No.1
in the affirmative against the assessee and in favour of the revenue.
15. In respect of the alternative contention of the assessee that as
most part of the sale consideration was paid for discharging the mortgage to
the extent of payment made to South India Bank has to be treated as the cost
of the land or expenditure in executing the sale deeds so as to take the said
amount before computing the sale proceedings for capital gain. Here again, we
are not able to accept the contention of the learned counsel for the reason
that the Tribunal has recorded a categoric finding that the assessee did not
produce any evidence to show that the sale consideration was appropriated by
the mortgagee bank and further found that from the material filed by the
assessee in the gift tax appeal that the mortgagee Bank has released 3.71
acres of vacant property in T.S.No.328, Tirupur town from security and thereby
giving a free hand to the assessee for the disposal of the same. When the
final fact finding authority has recorded a finding that there is no material
to prove that the sale consideration has been paid for discharge of the
mortgage amount, we have no material to go against that finding. Hence, the
second question also has to be answered in the affirmative against the
assessee and in favour of the revenue and we are answering as such. However,
there is no order as to costs.
Index:Yes
Website: Yes
usk
To
1. The Assistant Registrar,
Income-tax Appellate Tribunal,
Rajaji Bhavan, Besant Nagar,
Chennai-600 090 (Five copies with records)
2.The Secretary,
Central Board of Direct Taxes,
New Delhi,
3.The Commissioner of Income Tax,
Coimbatore,
4. The Commissioner of Income Tax
(Appeals- V), Coimbatore,
5.The Income-tax Officer,
City Circle, I
Coimbatore.
((SCO LYRIX 6.1
))