TMI Blog1967 (5) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... September 9, 1955, it was resolved that the managing director, the Raja of Bobbili, may be authorised to negotiate with the Zamindar of Chikkavaram or his nominee for the sale of the entire concern with all its equipment and machinery, fittings, etc., for a consideration of Rs. 1,20,000. An agreement was concluded to effect a sale and this was confirmed by the assessee-company at an extraordinary general body meeting held on October 4, 1955. Pursuant thereto, a deed called the "exchange deed" was brought into existence on February 21, 1956, and the consideration was received by the assessee-company in the shape of transfer of 5 per cent. tax free cumulative preference shares in Sri Rama Sugar and Industries Ltd., Bobbili, of the face value of Rs. 1,20,000 held by the Zamindar and Zamindarini of Chikkavaram. Separate valuation was given for the immovable property and for the movables, etc., and goodwill, each being valued at Rs. 60,000. For the assessment year 1956-57, the assessee-company submitted a return of income showing a sum of Rs.9,823 as profits derived from the transaction. The Income-tax Officer found that the value realised exceeded the written down value by Rs. 43,568 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these words have to be construed by reference to other enactments. Section 54 of the Transfer of Property Act defines "sale" as a transfer of ownership in exchange for a price paid or promised or part paid and part promised. Section 54 of the Transfer of Property Act reads as follows: " 'Sale' is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised." There is no definition of the word " price " in this Act. But it is well-settled that the word "price" is used in the same sense in this section as in section 4 of the Sale of Goods Act, 1930 (Act III of 1930) (see the decision of a Full Bench of the Madras High Court in Madam Pillai v. Badrakali Ammal). Section 4 of the Sale of Goods Act reads as follows : " (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tty on Contracts, 22nd edition, volume II, page 582). The question presented for determination in this case is whether the transaction of February 21, 1956, was a sale and whether the income-tax authorities were entitled to include the amount of Rs. 43,568 as profits under section 10(2)(vii) of the Income-tax Act as representing the excess of the consideration realised by the assessee-company over the written down value of the assets transferred. On behalf of the appellant it was contended that the money consideration was fixed at Rs. 1,20,000 and the mode of payment was by transfer of shares and the transaction was really a sale and not transfer by way of exchange. We are unable to accept this argument as correct. In the first place, the document is called " exchange deed ". The preamble of the document states: " And whereas the party of the first part as at the directors meeting held on February 3, 1955, resolved to exchange the property mentioned in Schedule I for the property mentioned in Schedule II belonging to the party of the second part and whereas in pursuance of the resolution of the board of directors the managing director of the party of the first part had handed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd part of the property more fully described in Schedule II hereto to the party of the first part, the party of the first part hereby grants and transfers to the party of the second part all the property more fully described in Schedule I hereto to hold the same to the party of the second part absolutely for ever. (2) In further pursuance of the said agreement and in consideration of the transfer by the party of the first part of the property in Schedule I hereto to the party of the second part, the party of the second part hereby grants and transfers to the party of the first part of the shares more fully described in Schedule II hereto to hold the same to the party of the first part absolutely for ever. (3) Each of the parties hereby covenants with the other first that the properties hereby transferred by him is free from encumbrance charge or lien of any kind whatsoever ; secondly, that the properties so transferred by each of them shall be quietly entered upon held and enjoyed by the other of them and the rents and profits and dividends received by the other of them without any interruption or disturbance by the party transferring the same or any one claiming through or u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... described in Schedule I to the deed dated February 21, 1956, but there was a consideration in the shape of transfer of 5 per cent. tax-free cumulative preference shares of Sri Rama Sugar and Industries Ltd. It follows, therefore, that the income-tax authorities were not entitled to treat the transaction dated February 21, 1956, as a sale and to apply provisions of section 10(2)(vii) of the Income-tax Act. We pass on to consider the argument of Mr. Narasaraju that in revenue matters it was the substance of the transaction which must be looked at and not the form in which the parties have chosen to clothe the transaction. It was contended that, in the present case, there was in substance a sale of Sree Rama Talkies by the assessee-company for a money consideration of Rs. 1,20,000, though the mode of payment was by transfer of shares and the resolution of the board of directors dated September 9, 1955, clearly indicated that the intention of the assessee-company was to sell Sree Rama Talkies along with its equipment concerned for a consideration of Rs. 1,20,000. In the present case, however, there is no suggestion on behalf of the appellant of bad faith on the part of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the form and substance of the arrangement, Lord Russell of Killowen stated at page 524 as follows : " If all that is meant by the doctrine is that having once ascertained the legal rights of the parties you may disregard mere nomenclature and decide the question of taxability or non-taxability in accordance with the legal rights, well and good. That is what this House did in the case of Secretary of State in Council of India v. Scoble; that and no more. If, on the other hand, the doctrine means that you may brush aside deeds, disregard the legal rights and liabilities arising under a contract between parties, and decide the question of taxability or non-taxability upon the footing or the right and liabilities of the parties being different from what in law they are, then I entirely dissent from such a doctrine." In a later case-Commissioners of Inland Revenue v. Wesleyan and General Assurance Society---Viscount Simon expressed the principle as follows : " It may be well to repeat two propositions which are well established in the application of the law relating to income-tax. First, the name given to a transaction by the parties concerned does not necessarily decide th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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