{"id":183776,"date":"2002-12-04T00:00:00","date_gmt":"2002-12-03T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ms-sathappa-textilers-p-ltd-vs-the-commissioner-of-income-tax-on-4-december-2002"},"modified":"2016-08-08T17:00:35","modified_gmt":"2016-08-08T11:30:35","slug":"ms-sathappa-textilers-p-ltd-vs-the-commissioner-of-income-tax-on-4-december-2002","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ms-sathappa-textilers-p-ltd-vs-the-commissioner-of-income-tax-on-4-december-2002","title":{"rendered":"M\/S. Sathappa Textilers (P) Ltd vs The Commissioner Of Income-Tax on 4 December, 2002"},"content":{"rendered":"
Madras High Court<\/div>\n
M\/S. Sathappa Textilers (P) Ltd vs The Commissioner Of Income-Tax on 4 December, 2002<\/div>\n
       \n\n  \n\n  \n\n \n \n IN THE HIGH COURT OF JUDICATURE AT MADRAS\n\nDATED: 04\/12\/2002\n\nCORAM\n\nTHE HON'BLE MR.JUSTICE N.V.BALASUBRAMANIAN\nAND\nTHE HON'BLE MR.JUSTICE K.RAVIRAJA PANDIAN\n\nTAX CASE NO.307 OF 1998 AND TAX CASE NO. 308 OF 1998\n(Reference Nos.276 and 277 of 1998)\n\nM\/s. Sathappa Textilers (P) Ltd.,\nCoimbatore.                                             ... Applicant\n\n-Vs-\n\nThe Commissioner of Income-tax\nCoimbatore.                                             ... Respondent\n\n\n        Prayer:  Reference made to this Court in the  statement  of  the  case\nsubmitted  by  the  Income  Tax  Appellate  Tribunal,  Madras  'B' Bench in R.\nA.Nos.474 and 475(MDS)\/95 (I.T.A.Nos.469 and  470\/Mds\/87  for  the  assessment\nyear 1982-83 and 1983-84.\n\n!For Applicant          :  Mr.J.Narayanaswamy\n                           for M\/s.Subbaraya Aiyar.\n\nFor Respondent :  Mrs.Pushya Sitharaman\n                Sr.Standing counsel for\n                Income-tax.\n\n:JUDGMENT\n<\/pre>\n
K.RAVIRAJA PANDIAN,J.\n<\/p>\n
        Pursuant  to  the  direction  of  this Court made in Tax Case Petition
\nNos.272 and 273 of 1996, the Income-tax Appellate Tribunal set out a case  and
\nreferred the following questions for the opinion of this Court:\n<\/p>\n
        “1.   Whether  on  the facts and in the circumstances of the case, the
\nTribunal was right in holding that the lands held by the assessee had not been
\nconverted into stock in trade?\n<\/p>\n
        2.  Whether on the facts and in the  circumstances  of  the  case  the
\nTribunal  was right in rejecting the alternate claim of the assessee regarding
\nthe computation of capital gains on transfer of lands?”\n<\/p>\n
        The assessment years are 1982-83 and 1983-84.\n<\/p><\/blockquote>\n
        2.  The facts as stated in the statement of case are as follows:<\/p><\/blockquote>\n
        The  assessee  was  a  Private  Limited  Company  engaged  in  textile
\nbusiness.   From  the  assessment year 1982-83, it claimed that it had started
\nbusiness  in  real  estate  by  converting  part  of  its  vacant  land   into
\nstock-in-trade to carry on the business of real estate.  In order to prove the
\nsame, it was contended that a resolution to that effect was passed on 1.1.1981
\nand entries  have been made in the books of account.  It was also claimed that
\nthe proceedings of the resolution was recorded in the minutes, duly signed  by
\nthe  Chairman,  that  the  minutes so recorded was filed with the Registrar of
\nCompanies on 11.1.1983, that as per the entries made in the books of  account,
\nthe  property alleged to have been converted into stock-in-trade was valued at
\nthe market value of Rs.35,90,000\/- and recorded in the books of account.    It
\nwas  also  claimed  that  during the relevant previous year an extent of 3 .58
\nacres of land was sold for the gross receipts of Rs.9,15,790\/- and  claimed  a
\nsum of  Rs.10,24,260\/-  as  business loss.  Pending the assessment proceedings
\nbefore the  Assessing  Officer,  the  assessee  made  an  application  to  the<\/p>\n
Inspecting   Assistant  Commissioner  under  Section  14  4A  for  appropriate
\ndirection.  The Inspecting Assistant commissioner after hearing  the  assessee
\ndeclined to give any direction as requested for.\n<\/p>\n
        3.  The Assessing Officer after considering the material on record did
\nnot   accept   the   claim   of  the  assessee  of  conversion  of  land  into
\nstock-in-trade.  The Assessing Officer found  that  the  property,  which  was
\nalleged to have been converted into stock-in-trade as per the resolution dated
\n1.1.1981  was  in  fact  sold  during  the  relevant  previous year as per the
\nagreements of sales entered into by the assessee in the years 1969  and  1970.
\nIt was further concluded by the Assessing Officer that the higher valuation of
\nthe  property  in  question was made by the assessee in order to avoid capital
\ngains tax.  Thus, the Assessing Officer treated the transactions  as  sale  of
\nimmovable property  and  computed  long term capital gains.  Likewise, for the
\nassessment year, 1 983-84, the assessee claimed for allowances of  Rs.56,960\/-
\non  the  ground  that  the  said  amount  was incurred by the assessee towards
\nimprovement of the land.  That claim  was  also  negatived  by  the  Assessing
\nOfficer  on  the  ground that the assessee did not sell any land in respect of
\nwhich the said expenditure was incurred.\n<\/p>\n
        4.  The assessee carried the matter in appeal to the  Commissioner  of
\nIncome-tax (Appeals), who accepted the claim of the assessee that the lands in
\nquestion  were  converted  into  stock-in-trade by accepting the minutes dated
\n1.1.1981 and held that the agreements of sales entered by  the  assessee  were
\nnot acted  upon.    By  the  said  reasoning,  the  Commissioner of Income-tax
\n(Appeals) set aside the  assessment  and  remitted  the  matter  back  to  the
\nAssessing Officer to determine the business profit or loss of the transaction.\n<\/p>\n
        5.  The  revenue  carried  the  matter on appeal to the Tribunal.  The
\nTribunal concluded that the  finding  of  the  Commissioner  of  Income-tax  (
\nAppeals)  are  not based on facts; that the land in question which was alleged
\nto have been converted into stock-in-trade were not at all in  the  assessee’s
\npossession  as  on the date of resolution on 1.1.1981 to convert the same into
\nstock-in-trade.  The properties were sold  under  various  agreements  in  the
\nyears 1969  and  1970.  Some of the agreement holders filed suits for specific
\nperformance of the agreements.  The sale deeds were executed pursuant  to  the
\nagreements  already  entered  into  and also in discharge of the decree passed
\nagainst the assessee.  The Tribunal found that when the asse ssee was  not  in
\npossession  of  the  property in question, there is no question or possibility
\nfor the assessee converting  the  same  into  stock-in-trade.    The  Tribunal
\nfurther  found  that the alleged conversion of the land into stock-intrade was
\nnot genuine.  The Tribunal also rejected the minutes projected by the assessee
\nin order to prove the conversion on the ground that the  minutes  so  produced
\nhas  been  entered into a loose sheet of paper and it is only an after thought
\nto avoid the liability of capital gains.\n<\/p>\n
        6.   The  alternative  claim  of  the  assessee  that  part   of   the
\nconsideration  had  gone  into  discharging the mortgage debt and therefore to
\nthat extent, the consideration paid by  the  purchaser,  which  went  into  in
\ndischarging mortgage debt has to be allowed as a deduction while computing the
\ncapital  gain, has also been rejected by the Tribunal on the ground that there
\nwas absolutely no evidence to  show  that  any  consideration  had  gone  into
\ndischarging the mortgage debt and on the contrary found that the property sold
\nunder various sale deeds were got released from the mortgage and then the sale
\ndeeds were  executed.    As against the order of Tribunal, the above reference
\nwas made.\n<\/p>\n
        7.  It is the contention of the learned counsel for the assessee  that
\nby  resolution dated 1.1.1981, it was decided to convert the land belonging to
\nthe Company at Tirupur and Kurichi as stock-in-trade of the business  proposed
\nto be carried on by them.  In order to prove the same, the assessee filed copy
\nof  the  minutes  of  the proceedings of the meeting of the Board of Directors
\nheld on 1.1.1981.  That aspect of the matter has been totally brushed aside on
\nthe grounds that since the minutes book in  original  has  not  been  produced<\/p>\n
before  the  authority and the minutes were produced before the authorities in
\nloose sheets.  There is no legal necessity that the minutes must  be  recorded
\nin the minutes book.\n<\/p>\n
        8.   On  the other hand, the learned counsel appearing for the revenue
\nhas submitted that there is absolutely no question  of  law  involved  in  the
\npresent case.    The only point to be decided in this case viz., whether there
\nwas any conversion of the land in question as stock-intrade is a pure question
\nof fact.  The fact finding authority has ultimately held that  the  so  called
\nconversion  as  claimed  by the assessee of the land into stock-in-trade to be
\nfalse.  The Tribunal by cogent reason held that the assessee  has  not  proved
\nthe  conversion  of  land  in  question  as  stock-in-trade  in respect of the
\nrelevant assessment  years  and  submitted  that  there  is  no  materials  to
\ninterfere with the finding arrived at by the Tribunal.\n<\/p>\n
        9.  We heard the arguments of the learned counsel on either side.\n<\/p>\n
        10.   The  only  evidence  that  has been let in in order to prove the
\nclaim of the assessee that the  land  in  question  has  been  converted  into
\nstock-in-trade by  the assessee is the resolution dated 1.1.1981.  Section 193
\nof the Companies Act provides for “Minutes of proceedings of General  meetings
\nand  of Board and other meetings”, which contemplates that every Company shall
\ncause minutes  of  all  proceedings  of  every  general  meeting  and  of  all
\nproceedings  of  every meeting of its Board of directors or of every Committee
\nof the Board, to be entered in books kept for that purpose within thirty  days
\nof  the  conclusion  of  every  such  meeting  with  their pages consecutively
\nnumbered.       Each page of every such book shall be initialed and signed and
\nlast page of the records of proceedings of each meeting in such books shall be
\ndated and signed in the case of minutes of proceedings of meeting of Board  or
\nof  a Committee thereof by the Chairman of the said meeting or the Chairman of
\nthe next succeeding meeting.  In the case of a minutes of the  proceedings  of
\nthe  general  meeting by the Chairman of the same meeting within the aforesaid
\nperiod of thirty days or in the event of death or inability of  that  Chairman
\nwithin  that  period  by  a  Director  duly  authorised  by the Board for that
\npurpose.  In no case, the minutes of the proceedings of the meeting  shall  be
\nattached to  any  such book as aforesaid by pasting or otherwise.  The minutes
\nof each meeting shall contain a fair and correct summary of  the  proceedings.
\nHence,  the  Tribunal  has  recorded  a  finding  that  in view of the express
\nprovision under Section 193 of the Companies Act, the minutes  dated  1.1.1981
\nproduced in  a loose sheet cannot be accepted.  Even the Assessing Officer has
\ngiven a finding that in spite of the opportunity given to  the  assessee,  the
\nminutes book  was  not  produced.    When  the  Inspector visited the business
\npremises of the assessee on 29.12.1984 on the basis of an authorisation  under
\nSection  133A,  the  Chairman informed the Inspector that the resolutions were
\ntyped in loose sheets and kept with various other papers  and  it  would  take
\ntime to  trace and locate the same.  Ultimately, the minutes book produced was
\nfound to be totally blank by the assessing authority.  Further, in the minutes
\nin original  recorded  in  loose  sheets  on  1.1.1981,  produced  before  the
\nassessing  officer,  it was found that apart from the Chairman of the assessee
\nCompany, who has signed the minutes, two other Directors were also present  at
\nthe meeting, however they did not sign.\n<\/p>\n
        11.   Further,  the Tribunal also taken into consideration of the fact
\nthat as early as the year May, 1969 and December, 1970,  the  Company  entered
\ninto  several  sale  agreements  in respect of the properties in question with
\nseveral persons which  are  not  consistent  with  minutes.    Ultimately  the
\nTribunal  found  on fact with the available material that the assessee’s claim
\nof conversion was not genuine.  The Tribunal has also recorded a clear finding
\nthat the  finding  of  the  Commissioner  of  Income-tax  (Appeals)  that  the
\nagreements  of sale entered into by the assessee with various persons have not
\nbeen acted upon was not based on materials and in fact, against the contention
\nof the assessee who claimed to have sold the properties under agreements at  a
\nlower price than the actual market value as on the date of sale.  Further, the
\nTribunal  has  also  found that the advertisement given by the counsel for the
\nassessee on 8.9.1982 inviting purchasers for the sale of land in an extent  of
\n357.74 cents with factory, shed, godown and other machines clearly showed that
\nthe  assessee was intending to dispose of the entire business premises and was
\nnot doing any business in real estate.  Taking into consideration of  totality
\nof these  factual  position,  the  Tribunal  has  rejected  the  minutes.  The
\nCertificate given by the Department under Section 230-A, which has  also  been
\nshown  as  a proof on behalf of the assessee, has been negatived on the ground
\nthat in the Certificate, it was only certified that there  was  no  income-tax
\narrears  on  the  part  of  the  assessee and apart from that, the certificate
\ncannot be used  to  prove  that  the  land  in  question  was  converted  into
\nstock-in-trade of the business.\n<\/p>\n
        12.   That  apart,  the  Tribunal  recorded a finding that there is no
\nmaterial to come to the conclusion as done by the Commissioner  of  Income-tax
\n(Appeals) that  the  lands  were divided into plots and thereafter sold.  From
\nthe material records, the 31 sale deeds executed by  assessee  show  that  the
\nlands  were  not sold in terms of plots, but in terms of extent over an extent
\nof 357.74 cents.  It is also found by the Tribunal that the assessee  was  not
\nin  possession  of the land, which was sold during the relevant previous year.
\nAll those lands were sold under various agreements of sale and the  purchasers
\nwere given  possession  in  the  years  1969  and  1970  itself.  This factual
\nposition clinches the issue when the assessee was not in actual possession  of
\nthe  properties  and  the properties were given in possession of the agreement
\nholders in the years 1969 and 1970 itself, there was no question of converting
\nthe land into stock-in-trade by passing a resolution in the year 1981.\n<\/p>\n
        13.     Learned counsel for the assessee contended that  even  if  the
\nminutes  produced by the assessee is ignored, the account books are sufficient
\nto show that the land has been converted into stock-in-trade.  In  so  far  as
\nthe  accounts  are  concerned  for  the  assessment  year ended 31.03.1981 the
\nChartered Accountant signed the balance sheet subsequently on  15.01.1982  and
\nit  was  filed  before  the  Income  Tax  Officer in May 1982 and the Tribunal
\ntherefore recorded a finding that the action of the assessee is in  conformity
\nwith its  action to cover up the liability of capital gain.  We therefore hold
\nthat the finding of the appellate Tribunal that the alleged conversion of  the
\ncapital  into stock-in-trade by the resolution dated 1.1.1981 is not a genuine
\none is purely a finding of fact, especially when the  said  finding  has  been
\narrived at  on  the  basis  of  materials  on  record.    The  Tribunal  after
\nconsidering of the relevant materials has recorded a finding that the  alleged
\nresolution dated 1.1.1981 was not a genuine one.\n<\/p>\n
        14.   One  other contention was also raised by the learned counsel for
\nthe assessee that for the assessment years 1982-83  and  1983-84  respectively
\nfor  the  previous year ended 31.03.1982 and 31.03.1983, the Tribunal not have
\ngone into the question of the correctness of the  resolution  dated  1.1.1981,
\nwhich fall  in  the  previous  year  ended  31.03.19  81 i.e.  for the earlier
\nassessment year.  We are also unable to accept  the  said  submission  as  the
\nlands  were  sold  during  the  previous years and the assessee claimed on the
\nbasis of the resolution dated 1.1.1 981 that the  lands  were  converted  into
\nstock-in-trade and hence it is necessary for the Appellate Tribunal to go into
\nthe question and determine same.  Further, it is also relevant to mention here
\nthat the assessee has not produced any material before the authorities to show
\nduring  the  assessment  proceedings  for the assessment year 1981-82 that the
\nassessee had produced the resolution dated 1.1.1981 and claimed  the  same  as
\nstock-in-trade.   Hence,  we  are  of  the  considered  view  that the alleged
\nconversion of the land into stock-in-trade and the resolution  dated  1.1.1981
\nare  not true and only make believe documents and thus we answer question No.1
\nin the affirmative against the assessee and in favour of the revenue.\n<\/p>\n
        15.  In respect of the alternative contention of the assessee that  as
\nmost  part  of the sale consideration was paid for discharging the mortgage to
\nthe extent of payment made to South India Bank has to be treated as  the  cost
\nof  the land or expenditure in executing the sale deeds so as to take the said
\namount before computing the sale proceedings for capital gain.  Here again, we
\nare not able to accept the contention of the learned counsel  for  the  reason
\nthat  the  Tribunal has recorded a categoric finding that the assessee did not
\nproduce any evidence to show that the sale consideration was  appropriated  by
\nthe  mortgagee  bank  and  further  found  that from the material filed by the
\nassessee in the gift tax appeal that the  mortgagee  Bank  has  released  3.71
\nacres of vacant property in T.S.No.328, Tirupur town from security and thereby
\ngiving a  free  hand  to  the assessee for the disposal of the same.  When the
\nfinal fact finding authority has recorded a finding that there is no  material
\nto  prove  that  the  sale  consideration  has  been paid for discharge of the
\nmortgage amount, we have no material to go against that finding.   Hence,  the
\nsecond  question  also  has  to  be  answered  in  the affirmative against the
\nassessee and in favour of the revenue and we are answering as such.   However,
\nthere is no order as to costs.\n<\/p>\n
Index:Yes
\nWebsite:  Yes
\nusk<\/p>\n
To\n<\/p>\n
1.  The Assistant Registrar,
\nIncome-tax Appellate Tribunal,
\nRajaji Bhavan, Besant Nagar,
\nChennai-600 090 (Five copies with records)<\/p>\n
2.The Secretary,
\nCentral Board of Direct Taxes,
\nNew Delhi,<\/p>\n
3.The Commissioner of Income Tax,
\nCoimbatore,<\/p>\n
4.  The Commissioner of Income Tax
\n(Appeals- V), Coimbatore,<\/p>\n
5.The Income-tax Officer,
\nCity Circle, I
\nCoimbatore.\n<\/p>\n
((SCO LYRIX 6.1
\n))<\/p>\n","protected":false},"excerpt":{"rendered":"
Madras High Court M\/S. Sathappa Textilers (P) Ltd vs The Commissioner Of Income-Tax on 4 December, 2002 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 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[8,13],"tags":[],"class_list":["post-183776","post","type-post","status-publish","format-standard","hentry","category-high-court","category-madras-high-court"],"yoast_head":"\nM\/S. 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