TMI Blog1973 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment of Rs. 223 as income from business is valid in law ? 2. Whether the sum of Rs. 80,530 is assessable to tax under the provisions of the second proviso to section 10(2)(vii) of the Income-tax Act, 1922 ? " The assessee was carrying on transport business as a sole proprietor. On 3rd of April, 1959, a private limited company in the name of Swathanthiram Transports Private Ltd. was incorporated. The share capital of the company was 600 shares of Rs. 100 each. The assessee transferred to this company his entire transport business. The entries relating to effecting this transfer was made in the books of the assessee on April 2, 1959. The written down value of the motor vehicles was Rs. 58,066. These were transferred 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the profit on the sale of the vehicles under section 10(2)(vii) of the Act. The assessee contended that there was no justification for the reopening of the assessment, that the assessee had not carried on any business during the previous year and that there was no sale as contemplated under section 10(2)(vii). The Income-tax Officer held that there was nothing illegal in the reopening of the assessment, that the assessee had in fact carried on business for a part of the previous year ending March 31, 1960, that the income of the business on the two days, 1st and 2nd April, 1959, was Rs. 223, that there was a sale as contemplated under section 10(2)(vii) and that the profit under that section was Rs. 80,530. It may 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial sense and that the Tribunal and the authorities below overruled this contention holding that the seller was the assessee and the purchaser was a limited company, a different entity. There was a divergence of opinion on the question whether the transaction in such circumstances would amount to a sale, some decisions taking the view that the substance of the transaction will have to be taken into account in determining the character of the transaction, and the other line of decisions taking the view that the legal effect or the character of the transaction and not the substance of the transaction was relevant. The Supreme Court had set the matter at rest by approving the decision of the Patna High Courtin Maharajadhiraj Sir 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was no sale as contemplated under section 10(2)(vii), that there was a substantial identity between the vendor and the vendee-company and that by the transfer only the mode of enjoyment of the business had been altered. Towards the end of its order, the Tribunal further stated that the vehicles which had depreciated to the value of Rs. 58,066 had been sold to the company for Rs. 1,37,186 and the assessee got shares towards sale consideration and they represented the enhanced value of the assessee's properties. These observations of the Tribunal, in our view, were only with respect to the argument that the sale was not for cash consideration. We, therefore, proceed to consider the question argued by the learned counsel 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 owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company for the balance. The contention of the learned counsel for the assessee that because even the money portion of the consideration was not paid but only a credit entry was made in the books of accounts of the company no portion of the consideration was paid in cash is untenable. In order to constitute a sale, the transfer of ownership need not be for the price paid. Even the promise of payment of the price will make the transaction a sale. Surely, in default of payment of the money in respect of which a credit entry was made in the books of accounts of the company, the assessee will be entitled to recover the same through court. We are, therefore, unable to accept the contention of the assessee that the transaction in this 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue authorities suggest that only the manufacturing side of the business was closed and not the business of purchasing and selling the cloth. The High Court observed that it was not possible to say that the entire business carried on by the firm at Surat, namely, the manufacturing of art silk cloth and sale thereof, was not taken over by the company. We do not propose to express any opinion on the correctness of that view, for, in our judgment, by virtue of the amendment made in section 10(2)(vii), proviso (ii), of the Indian Income-tax Act, 1922, by section 11 of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 (67 of 1949), even under a 'realisation sale' excess over the written down value not exceeding 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 Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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