TMI Blog1982 (4) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... ds covered by the decision of a Full Bench of this court in CIT v. Geeta Ram Kali Ram [1980] 121 ITR 708. In view of that decision the Tribunal was right in holding that the assessee had no right of appeal against the levy of interest under s. 215 of the I.T. Act, 1961 hereafter " the Act ". The material facts which have given rise to questions Nos. 1 and 2 may now be stated. The respondent-assessee, M/s. Chandra Katha Industries, Najibabad, a partnership firm, carries on business in manufacture and sale of katha. For the assessment year 1972-73, the corresponding accounting period for which was August 1, 1970, to July 31, 1971, the assessee returned an income of Rs. 1,00,000 which was arrived at in the following circumstances. It had entered into an agreement to sell all its assets and liabilities to M/s. Subhash Chand Dinesh Chand Katha Allied Industries Private Ltd. on July 31, 1970, i. e., the last date of the preceding accounting year. The consideration was agreed to be the book value of the assets and liabilities, the details being as under : Immovable properties : Rs. Land 18,282.50 Building 1,58,144.00 Plant machinery 4,08,278.00 -------------------- 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find favour with the AAC and he dismissed the appeal. Still aggrieved, the assessee took up the matter in further appeal to the Tribunal. The same submissions were reiterated on its behalf before the Tribunal but they were not accepted and the appeal was dismissed. Now, at the assessee's instance, the questions, indicated above, have been referred to this court. Two submissions were made before us on behalf of the assessee by its learned counsel, Sri R. K. Gulati: firstly, since the transaction was of business as a whole, no part of the consideration could be attributed to the plant and machinery and it was only for purposes of executing document of sale and stamp duty that the consideration of Rs. 5,84,704.50 was mentioned in the deed. The intention was to transfer the business as a whole and the net consideration was arrived at after setting off the liabilities from the book value of the different items transferred and hence sub-s. (2) of s. 41 of the Act will not be attracted. Sri Gulati also urged that it was a sale for a slump price also and for that reason also no part of the price could be attributed to any one particular item. It was also claimed that the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her with the amount of scrap value, if any, exceed the actual cost as determined under that Explanation, so much of the excess as does not exceed the difference between the actual cost so determined and the written down value shall be chargeable to income-tax as income of the business or profession of such previous year. Explanation.-Where the moneys payable in respect of the building, machinery, plant or furniture referred to in this sub-section become due in a previous year in which the business or profession for the purpose of which the building, machinery, plant or furniture was being used is no longer in existence, the provisions of this sub-section shall apply as if the business or profession is in existence in that previous year. " The principle underlying this provision is that where a building, machinery, plant or furniture owned by the assessee is sold, discarded, demolished or destroyed, the depreciation allowance and the balancing allowance under s. 32(1) would recoup to the assessee the entire capital loss on the asset. If the assessee is able to recover more than the written down value out of the " moneys payable " in respect of the asset together with the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h transaction would become complete in the eye of law only when proper sale deed is executed and registered. The Revenue is seeking to bring to tax the profit which the assessee earned on the sale of plant and machinery only. The consideration represented the book value of this asset. It was in excess of the written down value by Rs. 1,00,000. There is no dispute regarding these facts. There is no question of artificially attributing any part of the consideration to any one particular item of the asset sold. In the schedule attached to the agreement the book value of the different assets was separately specified, and there is no question of entering into an exercise of finding out the consideration of the different items separately. Apart from this, it was certainly not a case of an exchange because it has been found by the Tribunal that the amount of consideration was agreed to be credited to the account of the vendors in the books of the limited company. In other words, payment of consideration was made by passing debit and credit entries in the books of the company in the accounts of the vendors. There is no mention in the agreement or the sale deed that the payment of conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of which such plant or furniture was being used, is no longer in existence, the provisions of this sub-section shall apply as if the business or profession is in existence in that previous year. This provision, thus, deems the existence of the business even though factually it may not have been there. Sri Gulati placed reliance on certain decisions in support of his contentions. In our opinion, they are all distinguishable. The first case relied upon is that of CIT v. Mugneeram Bangur Co. [1965] 57 ITR 299 (SC). The facts of that case were that the assessee, a partnership firm, tarried on business of buying land, developing it and then selling it. Pursuant to an agreement, it sold the business as a going concern with its goodwill and all stock-in-trade, etc., to a company promoted by the partners of the firm. The company undertook to discharge all debts and liabilities, development expenses and liability in respect of deposits made by the intending purchasers. The consideration of Rs. 34,99,300 was paid by the allotment of shares of the face value of that very amount to the partners or their nominees. The schedule to the agreement indicated the details of the conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a concern carrying on the business is sold as a whole it can be assumed that the transfer is for a slump price. In that case it had been found as a fact that the vendors had incurred debts and liabilities for development expenses and hence transfer on book value was treated as transfer for slump price. Further, the transfer was by the vendors to a company which they themselves had promoted. Such facts have not been found in the, present case. This decision, therefore, is of no help to the assessee. We may refer to a later decision of the Supreme Court which would be certainly applicable to the instant case. In CIT v. B. M. Kharwar [1969] 72 ITR 603 (SC), it was laid down that it is now well settled that the taxing authority is first bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to, determine the true character of the relationship. However, the, legal effect of a transaction cannot be: displaced by probing into the It substance of the transaction ". It was further laid down that where the machinery of a factory belonging t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t reserved to itself any rights over the property, which it had agreed to convey to the Corporation, and the latter was free to deal with it in any manner it liked, it was entitled to depreciation under s. 32 on the buildings which it had purchased from the State Govt. It would be seen that the question for consideration in that case was entirely different and that decision has no application to the present case. Lastly, according to Sri Gulati, the decision of the Gujarat High Court in Artex Manufacturing Co. v. CIT [1981] 131 ITR 559, is closer to his case. We do not agree. What has been held there is that on the conversion of a firm as a going concern into a company, if at all there is any surplus, in the sense of an excess of the consideration for the transfer of the business of the undertaking, within the meaning of s. 45 of the Act, there would be a capital gain and such capital gain would be taxable in the hands of the assessee-firm. There cannot be any question of any balancing charge arising under s. 41(2). It has been laid down that a balancing charge arises only when any building, plant, machinery or furniture is sold or transferred. It would be seen that this decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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