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TMI Blog1964 (4) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... 21, 1948, the said business was sold as a going concern by the assessee firm to R.B. Lachmandas Mohan Lal and Sons Ltd., a private limited liability company incorporated on January 20, 1948. The memorandum and articles of association of the said company are annexed hereto as annexures "A" and "B", which form part of the case. They are, however, not printed in order to save cost and the assessee has undertaken to furnish copies to their Lordships at the time of the hearing. The Controller of Capital Issues issued a certificate to the said company, dated January 12, 1948, a copy whereof is annexed hereto as annexure "C" and forming part of the case. 3. The transfer to the said company by the assessee is evidenced by an agreement of sale dated January 20, 1948, and a sale deed dated January 21, 1948, which are annexed hereto as annexures "D" and "E" and forming part of the case. 4. According to the sale deed, the consideration for the land, buildings, machinery, plant and other assets was fixed at ₹ 30,00,000. Out of this, the cost of assets on which depreciation had been allowed to the assessee-firm was found to be ₹ 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as soon as an Act entitled the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, shall have come into force. CHAPTER II 3. Amendment of section 10, Act XI of 1922.--In section 10 of the Income-tax Act,-- (1) in sub-section (2),--... (ii) in the second proviso to clause (vii), for the words 'is sold' the words 'is sold, whether during the continuance of the business or after the cessation thereof, 'shall be substituted;" "(3) The Taxation Laws (Extension to Merged States and Amendment) Act, 1949. (Received the assent of the Governor-General on the 31st December, 1949). ACT NO. LXVII OF 1949 CHAPTER II 3. Extension of Taxation Laws to Merged States.--(1) The following Acts, namely:--... (2) The Indian ?ncome-tax Act, 1922, the Business Profits Tax Act, 1947, and the Indian Finance Act, 1949, and all Rules and Orders made thereunder, shall operate as if they had been extended to, and brought into force in, all the merged States on the 1st day of April, 1949. "(4) Section 10(2)(vii): (vii) in respect of any such building, machinery, or plant which has been sold or discarded or demolished or destroyed, the amount by which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1948-49 or the assessment year 1949-50; (d) that the surplus realised was not chargeable as capital gains under section 12B of the Act as the sale was effected by the individual partners and therefore, fell within the exemption mentioned in the third proviso to sub-section (1) of section 12B; (e) that the excess receipts on the sale of stocks of sugar to the company on January, 1948, was not chargeable to tax. 9. The Income-tax Officer negatived the assessee's contentions. The Appellate Assistant Commissioner although agreeing with the assessee's contention that the second proviso to section 10(2)(vii) as amended would not apply to the assessment year 1949-50, confirmed the Income-tax Officer's finding as to the assessee's liability under the second proviso to section 10(2)(vii) on the ground that the assessee had sold the business to the company as a "going concern" and also confirmed the Income-tax Officer's findings regarding the liability to capital gains tax on the sum of ₹ 19,59,258 and tax liability in respect of excess receipt on the sale of stocks of sugar. 10. The Tribunal for the reasons set out in its order under section 33(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication No. 2316 of 1959 in I.T. Reference No. 315 of 1958, we hereby draw up a supplementary statement of the case. 2. The assessee was a firm consisting of six partners, viz.: (1) Lachmandas, (2) Mohanlal, (3) Mulkraj, (4) Banrasi Das, (5) Dwarka Das, and (6) Kanhaiya Lal. The accounting year relevant to the assessment year 1949-50 is the year ending September 30, 1948. The business of the assessee-firm was that of manufacture and sale of sugar, molasses, confectionery, golden syrup and extraction and sale of rice and oil. It also owned sugar mills in the form of land, buildings, plant and machinery for the purpose of the said business. 3. The said business was transferred as a going concern to a private limited company called R.B. Lachmandas Mohan Lal and Sons Ltd. (hereinafter called the company) by a deed of sale dated January 21, 1948. The issued capital of the private limited company was 4,000 shares of ₹ 1,000 each. The following are the shareholders with their respective shareholdings: Rs. (1) Lachmandas ... 7,21,000 (2) Mulk Raj ... 7,10,000 (3) Banarsi Das ... 6,80,000 (4) L. Dwarka Das ... 6,97,000 (5) L. Mohan Lal (nephew) ... 4,44,000 (6) L. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing an income of ₹ 2,75,713 after adjusting for certain revenue expenses incurred by the company on behalf of the firm. On April 10, 1952, yet another return was filed showing an income of ₹ 76,015-10-6. 6. The assessee sold 20,143 bags of "old sugar" prior to the transfer of the business to limited company and 5,838 bags and 117½ maunds of opening stock were (sold) to the company. The sale value was ₹ 12,77,918-10-0 and ₹ 5,41,040-2-3 respectively. Similarly in regard to new sugar the sales to outsiders prior to the transfer to the company were 7,692 bags for ₹ 7,55,032-5-3. The transfer to the company were 16,578 bags together with 2,420 maunds of sugar in process and they were valued at ₹ 16,09,108-6-2. The total transfer to the company were ₹ 21,50,148. 7. The assessee-firm ascertained the profit rate of "old sugar" at 1.106 per cent. on sales and at 11.915 per cent. on sales of "new sugar". Applying these rates to the transfer to the company, the assessee firm worked out the profit on the transfer sale of ₹ 21,50,148 to the company at ₹ 5,990¼ plus ₹ 1,91,737 minus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he connected reference by the assessee (R.A. No. 462 of 1957-58). 13. The draft statement of the case was placed before the parties. The suggestions made by the department's representative and the assessee's counsel have been carried out. The statement is finalised. B. L. Gupta, Ashoke Gupta and L. D. Seth, for the assessee R. L. Gulati, for the Commissioner JUDGMENT The judgment of the court was delivered by R.S. PATHAK J.--The assessee is a firm consisting of six partners. It carried on business in the manufacture and sale of sugar, molasses, confectionery and also in the extraction and sale of oils. It owned a sugar mill. On January 21, 1948, the business was transferred as a running concern by the assessee to a private limited company, R.B. Lachmandas Mohanlal and Sons, Ltd., which was incorporated the previous day. On the date on which the company was incorporated, the assessee entered into an agreement to sell the business to the company, and on January 21, 1948, a sale deed was executed. Under the terms of the sale deed, the consideration for the land, buildings, machinery, plant and other assets was determined at ₹ 30,00,000. The original cost of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se dated September 23, 1959, to this court for its opinion on the following further questions: "Whether the excess receipts on the transfer (sale) of the stock of sugar to the limited concern is chargeable to tax under section 10 of the Income-tax Act?" Learned counsel on behalf of the Commissioner of Income-tax has raised a preliminary objection to our entertaining the supplementary statement of the case. He urges that the application, upon which this court called for a statement in respect of a further question of law and consequent to which the supplementary statement was submitted to this court, was an application made under section 66(4) and was, therefore, not maintainable. Since the application was not maintainable, it is argued, no valid reference could be called for by this court nor made by the Tribunal. The Supreme Court in Kamlapat Motilal v. Commissioner of Income-tax [1962] 45 I.T.R. 266 (S.C.) has held that where the Tribunal does not refer all the questions of law raised by the assessee but only some of them, an assessee desiring that other questions of law should also be referred to the High Court must apply to the court under section 66(2) and not und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Supreme Court. But that circumstance, it seems to us, can be of no assistance to the assessee. The Supreme Court in Kamlapat Motilal's case [1962] 45 I.T.R. 266 (S.C.) merely stated what the law always was. That being so, clearly the application was not maintainable under section 66(4), and the order of this court calling for a reference upon a further question was entirely without jurisdiction. The consequent reference made by the Tribunal must, therefore, be considered as incompetent. We are, accordingly, of the opinion that the preliminary objection must be upheld. In the result, we decline to answer the question referred in the supplementary statement of the case. Turning to the questions referred by the original statement of the case, it seems to us that the answer to the first question is plainly that the sale on January 21, 1948, was effected by the assessee and not by its partners in their individual capacity. Learned counsel for the assessee has not seriously pressed the contention that the sale was by the individual partners. Indeed, it appears to us that the contention is not capable of serious consideration having regard to the several circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad of being held by Sir Homi Mehta and his sons jointly in their individual capacity were held by these very persons constituted into a limited company. We are quite conscious of the distinction which has been constantly emphasised by the Advocate-General in this reference between an individual as an entity and a limited company as an entity. and there can be no doubt that in law Sir Homi Mehta and his sons were very different entities from Sir Homi Mehta & Sons Limited. But what the Advocate-General is doing is looking at the matter from a legal aspect, but in truth and in substance the only result of this particular transaction was that Sir Homi Mehta and his sons held these very shares in a different way from the way they held before the transaction was completed. They adopted a different mode, the mode of the formation of the limited company with all its advantages, in order to hold these shares and to deal with these shares and to make profit out of these shares." Similarly, in Commissioner of Income-tax v. Mugneeram Bangur & Co., [1963] 47 I.T.R. 565 the Calcutta High Court, considering a case where a firm consisting of five partners floated a limited company and transf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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