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TMI Blog1967 (5) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ereditaments, plant and machinery, stock-in-trade and book debts, Government securities and shares and full benefit of all shipping and general agencies, distributorships, etc., in consideration of 9,996 shares in the vendee-company of the face value of Rs. 100 each and Rs. 400 in cash. The assessee was dissolved and its business was discontinued with effect from February 1, 1948. In a proceeding for assessment to tax payable by the assessee for the year 1949-50 (the relevant previous year being the year ending June 30, 1948), the Income-tax Officer assessed the capital gains made by the assessee, on the transfer of its capital assets to the two companies, at Rs. 32,01,747. In appeal, the Appellate Assistant Commissioner modified the order. He was of the view that the assessee had made capital gains amounting to Rs. 25,40,737 by sale of shares to the two companies and other assets transferred to Killick Nixon & Co. Ltd., and had suffered a capital loss of Rs. 4,00,530, being the difference between the market value of the managing agencies, 240 shares of the Cement Agencies Ltd. and the goodwill on January 1, 1939, estimated at Rs. 51,40,802 and the market value of those assets on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The stand taken by the assessee, in our opinion, is inconsistent. A uniform method must be adopted both as on the date of the transfer and as on January 1, 1939. It is not open to the assessee to value an asset by applying one method on February 1, 1948, and another on January 1, 1939." The Tribunal then observed that since the assets were transferred to a company in which the partners of the assessee were interested, and the transfer was made for a consideration which was less than the market value, it was not open to the assessee to contend that the market value of the assets on January 1, 1939, should be taken into account ; that the assessee was not entitled to reduce the capital gain by adopting the valuation of those assets which had a market quotation and in respect of assets which had no market quotation by adopting the sale price ; and that " if the goodwill of the business on January 1, 1939, was worth Rs. 8 lakhs its value on February 1, 1948, should be higher." The Tribunal recorded its conclusion that : " For the purpose of this appeal, it is enough to say that if the value of the assets in question was Rs. 46,40,279 on February 1, 1948, it could not be higher t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : " (1) The tax shall be payable by an 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 such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer, took place :... (2) The amount of a capital gain shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange or transfer of the capital asset is made, namely :-- (i) expenditure incurred solely in connection with such sale, exchange or transfer ; (ii) the actual cost to the assessee of the capital asset, including any expenditure of a capital nature incurred and borne by him in making any additions or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provision of sections 8, 9, 10 and 12 : Provided that where a person who acquires a capital asset from the assessee, whether by sale, exchange or transfer, is a person with whom the assessee is directly or indirectly connected, and the Income-tax Officer has reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t transferred, required to prove the fair market value of the asset on January 1, 1939, when the asset transferred belonged to him before that date. There was no dispute in the present case about the market value at the date of the transfer of the assets conveyed. The first proviso therefore did not come into play. The dispute related to the value to the assessee on January 1, 1939, of three assets, viz., the managing agencies, 240 shares of, the Cement Agencies Ltd. and the goodwill. The capital gain or loss had to be determined by deducting from the market value of the asset on February 1, 1948, the fair market value of those assets on January 1, 1939, proved by the assessee to the satisfaction of the Income-tax Officer. The Appellate Assistant Commissioner estimated the value of the three assets on January 1, 1939, at Rs. 51,40,802. The assessee contended that the evidence on the record showed that the market value exceeded the estimated value. It is true that the onus lay upon the assessee to prove the fair market value of the assets on January 1, 1939, to the satisfaction of the income-tax Officer and, therefore, of the Tribunal. The Tribunal did not consider the evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to the benefit of section 25(3), i.e., it was exempted from payment of tax in respect of the income, profits and gains earned by carrying on business for the period between the end of the previous year and the date of discontinuance of the business. This court observed in Commissioner of Income-tax v. Chugandas and Co. that the exemption under section 25(3) is not restricted only to income on which tax was payable under the head " Profits and gains of business, profession or vocation under the Act of 1918. Counsel for the assessee contended that, even though under the Act of 1918 capital gain was not charged to tax under the Income-tax Act, 1922, as amended in 1947, since capital gains earned by the assessee form part of the income of the assessee as defined in section 2(6C) of the Act, and are on that account exigible to tax as income of the business, the assessee is entitled to the benefit of exemption prescribed by section 25(3) of the Act. Counsel for the Commissioner contended that on income earned from business which is discontinued, the assessee is entitled to exemption from payment of tax for the period during which the business was carried on in the year in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income-tax v. Express Newspapers Ltd. this court expounded the true nature of capital gains at page 260 : " Under that section (section 12B) the tax shall be payable by the assessee under the head 'Capital gains' in respect of any profits or gains arising from the sale of a capital asset effected during the prescribed period. It says further that such profits or gains shall be deemed to be income of the previous year in which the sale, etc., took place. This deeming clause does not lift the capital gains from the sixth head in section 6 and place it under the fourth head. It only introduces a limited fiction, namely, that capital gains accrued will be deemed to be income of the previous year in which the sale was effected. This fiction does not make them the profits or gains of the business." Capital gains by the definition under section 2(6C) are income, and they are liable to tax by virtue of section 6 read with section 12B, and if they are not income arising from a trading activity, the benefit of exemption from taxability arising from the discontinuance of the business will not, in our judgment, be available in respect of that head of income. It is only income which is ea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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