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TMI Blog1967 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... and loss account of the service was Rs. 74,000. The written down value of the seven motor buses in the books of account of the service was Rs. 24,302. In a proceeding for assessment to tax in the year 1956-57 the Income-tax Officer held that out of the consideration of Rs. 74,000, Rs. 4,000 should be allocated to the workshop assets (in respect of which no depreciation had been previously allowed), and the balance of Rs. 70,000 be taken into account under section 10(2)(vii), proviso two, of the Indian Income-tax Act, 1922, as profit of the service. The Appellate Assistant Commissioner agreed with the view of the Income-tax Officer. He observed that " the sale value of the assets would be taken at Rs. 70,000 for the 7 buses " and the excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes arise." The Commissioner of Income-tax has appealed to this court, with special leave. Counsel for the Commissioner contended that a company is in law a legal entity distinct from the shareholders who have interest in its business and the transaction under which a company formed by the persons interested in the business to take over that business, is of the nature of sale when in lieu of the value of their interest shares of the company are allotted. Counsel said that in determining the true nature of a transaction, for the purpose of assessing tax liability, the Tribunal cannot ignore the strict legal position and rely upon what it believes is the substance of the transaction. Counsel relies in support of that contention upon the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e true nature of the transaction, but assumed that there was no sale of the assets of the society to the company, because " in identical circumstances " the High Court of Bombay had held that there was no sale. A transaction by which a person carrying on business transfers the assets of that business to another assessable entity may take different forms and may have different legal effect. The assets of a business may be sold at a fixed price to a company promoted by a person who carried on the business : if the price paid for or attributable to an asset exceeds the written down value of the asset, proviso 2 to section 10(2)(vii) would ex facie be attracted. Where the person carrying on the business transfers the asset to a company in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts on the basis of which the question may be answered have not been clearly found by the Tribunal. It is true that in the profit and loss account of the service, the motor buses transferred to the company were valued at Rs. 70,000 and the same value was entered in the books of account of the company. It appears from the statement made by the Appellate Assistant Commissioner that the shares of the face value of Rs. 70,000 were allotted to the five persons who were carrying on the business in the name of the service. This transaction may be one in which there was a sale of the motor buses for Rs. 70,000 and in satisfaction of the liability to pay that amount the company allotted shares of the face value of Rs. 70,000 to the members of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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