Case: Commissioner of Income Tax Vs. Bhurangya Coal Company

T.L. Venkatarama Aiyar, J.1. This is an appeal against the judgment of the High Court of Patna in a reference under S. 66 (1), Indian Income-tax Act, 1922. The respondent is a firm and was the owner of a colliery, at a place called Bhurangya. On 16-3-1946, it entered into an agreement to sell the colliery, lands, super-structures, machinery and fixtures to a company called Bhurangya Coal Co. Ltd., for a consideration of Rs. 6,10,000. There is a schedule attached to the deed of agreement and thereunder are set out in great detail all the properties which are the subject-matter of the agreement. It consists of two parts; the first part includes land, building and the structures and the second part consists of movables including machinery, trucks, pipes, motor cars and the like. The value of the property mentioned in Part 1 is fixed at Rs. 2,00,600 and that of the properties described in the second part at Rs. 4,09,400. It is recited in the agreement that the properties mentioned in the second part are capable of being transferred by delivery it may be mentioned that the Bhurangya Coal Company Ltd., was incorporated only on 18-3-1946. But two of the promoters of the company signed the agreement dated 16-3-1946. as representing the company. After the company was incorporated the directors adopted the transaction by a resolution dated 19-3-1946. On 30-3-l946. all the properties included in the agreement, movables and immovables, were put into the possession of the company. On 7-5-1946, a sale deed was executed and registered in respect of the immovable proparties mentioned in Part 1. The sale deed recites the agreement dated 16-3-1946, and refers to the two classes of properties agreed to be sold thereunder. The actual conveyance under the deed is only of the properties mentioned in Part 1. The prize is also given as Rs. 2,00,600 which is the price mentioned in the agreement for the immovable properties set out in Part 1. These are the facts material for the purposes of the present appeal.2. On 1-4-1948, S. 12B, Indian Income-tax Act, came into force. It is as follows :-"The Tax shall be payable by the assessee under the head Capital gains in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after the 31st day of March, 1946, and before the 1st day of April, 1948."3. Now the point that arises for determination in these proceedings is as to the extent to which the profits of the transaction entered into on 16-3-1946 and completed by the sale dated 17-5-1946 are assessable to Income-tax under the above section.So far as the immovables are concerned, the position is clear. The title to them passed to the transferee only when the sale deed was executed on 17-5-1946 and not when the agreement was concluded on 16-3-1946. The transaction therefore falls directly within the operation of S. 12 (b). So far as the movable properties are concerned, the position is equally clear. Title to the movables passed when they were delivered to the transferee and that was on 30-3-1946 and their sale falls outside the section. Therefore, on the terms of the agreement dated 16-3-1946, and the sale deed dated 17-5-1946, the position is that while the respondent will be liable for tax in respect of profits made with reference to immovables covered by the sale deed dated 17-5-1946, it will not be liable to tax in respect of profits attributable to the sale of movables of which delivery was given to them on 30-3-1946. That precisely was the determination made by the Appellate Tribunal.4. The matter then came before the High Court of Patna on a reference under S. 66 (1), Income-tax Act, at the instance of the appellant.There the contention was raised that the differentiation between movables and immovables on which the judgment of the Tribunal rested had not been made at any time in the prior stages of the proceedingsand that was a matter on which further evidence would have to be taken to ascertain the intention of the parties and that therefore the matter should be remanded for further enquiry to the Appellate Tribunal. The learned Judges refuse to accede to this contention for the reason that no such application was made before the Tribunal and that it was a point which ought not to be allowed to be taken for the first time in the High Court. On behalf of the Appellant, it is stated that the question as to what are immovables and what are movables, arises only on the Judgment of the Tribunal and that therefore an opportunity ought to be given for an investigation of this aspect of the question. We are not impressed by this argument. Surely, before the Tribunal there must have been a discussion as to the position with reference to the movables as distinct from the immovables, under the transaction and if the appellant considered that in view of that distinction, further enquiry was called for, it was incumbent upon it to apply to the Tribunal itself to order it and not having done so, it had no right to call upon the High Court to remand the matter for that purpose. In our opinion the High Court was justified in declining to entertain this point.5. It is next argued for the appellant that some of the properties described as movables in Part. 2 of the schedule are really fixtures which would be immovable properties as defined in the General Clauses Act and S. 3, Transfer of Property Act, and that they passed to the transferee under the sale deed dated 17-5-1946 and that therefore their value should also be taken into account in assessing the chargeable income under S. 12 (B), Income-tax Act. The argument in support of this contention might thus be stated :"Section 2, sub-cl. 7, Sale of Goods Act, defines goods as follows :Goods means even kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, glass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale."6. According to this definition fixtures mentioned in Part 2 of the schedule could be held to be movables only if they were intended to be served and sold separately. But that was not the intention of the parties. The collieries were sold as a going concern and the intention was therefore that the fixtures should pass along with the land. Therefore there was no valid sale of the fixtures as movables. Moreover; S. 85 of the Contract Act provides that"Where an agreement is made for the sale of immovable and movable property combined, the ownersnip of the movable properly does not pass before the transfer of the immovable property".Though this section has been repealed by the, Sale of Goods Act, 1930 the principle enunciated thereunder could be applied to the facts of this case. There was a sale of both movables and immovables and that therefore title to the movables could pass only on the execution of the sale deed on 17-5-1946. Coming next to the sale of the immovables under the sale deed dated 17-5-l946 the matter is governed by S. 8, Transfer of Property Act. That section provides that unless a different intention is expressed or necessarily implied, a transfer of property passes forthwith to the transferee all the interest which the transferor is then capable of passing in the property and in the legal incidents thereof, and those incidents include all things attached to the earth. Fixtures will pass under this section, to the transferee unless it is provided otherwise. Therefore, the sale deed dated 17-5-1946 operated to vest title in the fixtures also in the purchaser.7. Now the sole point for determination in this appeal is, what were the properties that were sold to the purchaser under the sale deed dated 17 5-1946, whether they were only the properties mentioned in part 1 to the schedule or whether they included the fixtures mentioned in part 2 as well. That is a question which must be decided purely on the construction of the sale deed. No doubt, fixtures attached to the land will pass on a sale of the land under S. 8, Transfer of Property Act, but that is subject to any different intention which is express or necessarily be implied in the document.We have examined both the sale deed dated 17-5-1946 and the agreement to sell dated 16-3-1946 on which it was based.Now it is clear to us on a reading of these documents that there were really two sale transactions, one relating to movablas and the other relating to the immovables, as set out in the two parts to schedule.Different prices are fixed therefor and the actual conveyance under the sale deed dated 17-5-1946 is only of the immovables described in part 1. Then there is the fact that the price fixed for the properties sold under the deed dated 17-5-1946 is Rs. 2,00,600 which is the price only of the properties described in part 1. It is also to be noted that the parties were conscious that title for the movables would pass by delivery, and expressly say so with reference to the properties mentioned in the second part including the, fixtures.Now to say that the parties really intended to sell under the sale deed dated 17-5-1946 not merely the properties mentioned in part 1, but also some of the properties mentioned in part 2 would be re-writing the whole document. That, in our opinion, cannot be done. On a construction of the two documents, we are of opinion that what were intended to be sold and what were actually sold under the deed dated 17-5-1946 were only the properties mentioned in part 1 of the schedule and not any items included in part 2 and that the intention was to sell the fixtures as movables in this view, the question whether the movables have been validly sold does not really arise for determination, because if the sale is invalid, then there is no sale so far as they are concerned and S.12-B will be inapplicable. The decision of the Tribunal holding that it is only the profits in respect of the sale of the properties described in part 1 that are liable to tax under S. 12 B is correct.

Decision reasoning: 0[ds]On behalf of the Appellant, it is stated that the question as to what are immovables and what are movables, arises only on the Judgment of the Tribunal and that therefore an opportunity ought to be given for an investigation of this aspect of the question.We are not impressed by this argument. Surely, before the Tribunal there must have been a discussion as to the position with reference to the movables as distinct from the immovables, under the transaction and if the appellant considered that in view of that distinction, further enquiry was called for, it was incumbent upon it to apply to the Tribunal itself to order it and not having done so, it had no right to call upon the High Court to remand the matter for that purpose. In our opinion the High Court was justified in declining to entertain this point.Now the sole point for determination in this appeal is, what were the properties that were sold to the purchaser under the sale deed dated 17whether they were only the properties mentioned in part 1 to the schedule or whether they included the fixtures mentioned in part 2 as well.That is a question which must be decided purely on the construction of the sale deed. No doubt, fixtures attached to the land will pass on a sale of the land under S. 8, Transfer of Property Act, but that is subject to any different intention which is express or necessarily be implied in the document.We have examined both the sale deed datedand the agreement to sell datedon which it was based.Now it is clear to us on a reading of these documents that there were really two sale transactions, one relating to movablas and the other relating to the immovables, as set out in the two parts to schedule.Different prices are fixed therefor and the actual conveyance under the sale deed datedis only of the immovables described in part 1. Then there is the fact that the price fixed for the properties sold under the deed datedis Rs. 2,00,600 which is the price only of the properties described in part 1. It is also to be noted that the parties were conscious that title for the movables would pass by delivery, and expressly say so with reference to the properties mentioned in the second part including the, fixtures.Now to say that the parties really intended to sell under the sale deed datednot merely the properties mentioned in part 1, but also some of the properties mentioned in part 2 would bethe whole document. That, in our opinion, cannot be done. On a construction of the two documents, we are of opinion that what were intended to be sold and what were actually sold under the deed datedwere only the properties mentioned in part 1 of the schedule and not any items included in part 2 and that the intention was to sell the fixtures as movables in this view, the question whether the movables have been validly sold does not really arise for determination, because if the sale is invalid, then there is no sale so far as they are concerned andwill be inapplicable. The decision of the Tribunal holding that it is only the profits in respect of the sale of the properties described in part 1 that are liable to tax under S. 12 B is correct.