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TMI Blog1973 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred to the company for a sum of Rs. 1,37,186. Similarly, a car whose written down value was Rs. 6,720 was transferred for a sum of Rs. 7,500. Some tyres and tubes were taken over by the company for a sum of Rs. 6,105. The accounts also showed that electric goods valued at Rs. 281 and stationery valued at Rs. 300 were also taken over by the company along with tools and machinery which were valued at Rs. 7,500. The total amount which was entered in the accounts of the assessee amounted to Rs. 1,60,606. Out of 600 shares of Rs. 100 each, the company allotted 575 shares to the assessee and 25 shares to his wife. After debiting the value of the shares allotted to the assessee, for the balance of the consideration the assessee was shown as a creditor in the books of the company. For the assessment year 1959-60, corresponding to the previous year ending March 31, 1959, the assessee filed a return showing an income of Rs. 20,157. Though the accounting period ended on March 31, 1959, in the return he included the income from his transport business for the period from April 1, 1958, to April 2, 1959. It appears that the assessee showed an income of Rs. 25,029 in a revised return for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be mentioned that the sum of' Rs. 80,530 was arrived at as against the sum of Rs. 60,396 computed by the Income-tax Officer on the previous occasion on account of the disallowance of certain depreciation. Before the Appellate Assistant Commissioner the assessee contended that he was not carrying on any business during any part of the previous year and that unless a business was carried on in the previous year or in any part of the year the profit under section 10(2)(vii) could not be assessed. He also contended that there was no sale, that it was only a transfer and that in any case it was not a sale in the commercial sense of the term. The Appellate Assistant Commissioner held that the assessee in fact carried on business for two days in the previous year, that there was money consideration for the transfer of the vehicles and that, therefore, there was a sale and not a mere transfer. In that view, he confirmed the order of the Income-tax Officer. In the appeal before the Tribunal, the assessee contended that he did not carry on any business during any part of the previous year and that the transfer to the private limited company did not constitute a sale as contemplated under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kameshwar Singh v. Commissioner of Income-tax. In that case the assessee who was carrying on publication of some newspaper floated a private limited company for the purpose of carrying on his business and sold to the company the said business as a going concern for a sum of Rs. 12,50,000 which was received by the assessee in the shape of 12,500 fully paid up shares of Rs. 100 each. Of the 25,000 shares in the company all but the 50 shares were held by the assessee and the remaining 50 shares were held by his nominees. With respect to the assessability of the difference between the written down value and the amount for which the building, plant and machinery were transferred under the second proviso to section 10(2)(vii) of the Act, it was contended on behalf of the assessee that, since he practically owned all the shares of the limited company, there was no material difference between the vendor and the vendee and the transaction was not in reality a sale. It was further submitted that regard must be had to the substance of the transaction and not to the form in which the transaction was effected. The Patna High Court held that the private limited company is in law a legal entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee. In order to satisfy the provisions of the second proviso to section 10(2)(vii) of the Act, there must be a sale of the machinery or plant and the price for which they were sold must exceed the amount of the written down value of the same. Sale is a transfer of ownership for a price paid or promised or partly paid and partly promised. Price is a money consideration for the sale. In an exchange there is only a reciprocal transfer of the ownership. As regards the test to be applied in determining the nature of these types of transactions, the Supreme Court pointed out in Commissioner of Income-tax v. R. R. Ramakrishna Pillai that : " 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 conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case was not for money consideration. The further submission of the learned counsel for the assessee was that, even assuming that there was a sale, the sale was of the entire business and it amounted to a realisation sale and not a sale of the machinery and plant and, therefore, section 10(2)(vii) is not attracted. In this connection he relied on the decisions in Commissioner of Income-tax v. West Coast Chemicals and Industries Ltd. and Commissioner of Income-tax v. Mugneeram Bangur & Company. The decision in Commissioner of Income-tax v. West Coast Chemicals and Industries Ltd. related to a case of sale of building, plant and machinery of a factory with a view to close down that business. The agreement of sale was executed on May 9, 1943. On default of payment of the price, a fresh agreement was entered into on August 9 for an enhanced consideration. The question for consideration was whether the difference in sale price and the written down value has been rightly charged to income-tax. The assessment year was 1944-45. At the relevant date section 10(2)(vii) did not include the words " whether during the continuance of the business or after the cessation thereof ". Having rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the difference between the original cost and the written down value is liable to be brought to tax." Whether the assessee was carrying on any business on the 1st and 2nd April, 1959-the finding of the Tribunal on this aspect is that he was carrying on the business on 1st and, 2nd April--is also not of great moment in view of the amendment made to section 10(2)(vii) by Act 67 of 1949. On this part of the question, the Supreme Court observed in Commissioner of Income-tax v. B. M. Kharwar at page 610 : " In Commissioner of Income-tax v. Ajax Products Ltd. this court observed that under the Act before it was amended by Act 67 of 1949, three conditions had to be satisfied : (i) during the entire previous year or a part thereof, the business should have been carried on by the assessee ; (ii) the building, machinery or plant should have been used in the business ; and (iii) the building, machinery or plant should have been sold when the business was being carried on and not for the purpose of closing it down or winding it up ; but by the insertion of the words 'whether during the continuance of the business or after the cessation thereof' in the proviso by the amendment of 1949, the th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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