1967 (9) TMI 34 - HC - Income Tax

Transfer of the business by the assessee - capital gains - there is no material on record to show that the amount mentioned in the document as consideration for the transfer is not the fair market value of the property on the date of the said transfer - Tribunal was not correct in holding that no capital gains taxable under the Indian Income-tax Act 1922 arose to the assessee

Summary

Issues:
1. Whether capital gains taxable under the Indian Income-tax Act, 1922, arose to the assessee?

Analysis:
The case involved a reference made by the Income-tax Appellate Tribunal regarding the assessment year 1960-61. The assessee, engaged in the business of manufacturing and selling packing cases, incurred heavy losses during the period in question. Due to financial difficulties, the assessee transferred the business, including assets, to a firm to settle outstanding debts. The Income-tax Officer determined a capital gain arising from this transfer, which was contested by the assessee in subsequent appeals.

The Income-tax Officer calculated a capital gain of Rs. 53,317 from the transfer of assets based on the consideration mentioned in the transfer deed. The Appellate Assistant Commissioner upheld this decision, leading the assessee to appeal to the Appellate Tribunal. The Appellate Tribunal considered the circumstances of the transfer, noting the financial strain the assessee was under and the advantageous prices obtained by the creditor. It concluded that the transfer did not constitute a sale, as the assessee had no control over the pricing and was essentially coerced into the transaction due to financial dependency.

The High Court analyzed the situation and emphasized that the transfer fell within the scope of section 12B of the Income-tax Act. It noted that while the consideration mentioned in the transfer deed could be challenged, there was no evidence to suggest that the actual value was different from what was stated. The entire consideration amount was utilized to settle genuine liabilities owed by the assessee, except for a small sum. As there was no dispute regarding the value of the assets transferred, the Court affirmed the Income-tax Officer's decision, ruling against the assessee and in favor of the department.

In conclusion, the High Court answered the question of whether capital gains were taxable in the negative, supporting the department's position. The judgment highlighted the importance of substantiating claims regarding consideration amounts and affirmed the findings of the lower authorities in this case.