TMI Blog1963 (2) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to the assessment year. On June 1, 1955, the members of the association formed a private limited company and transferred to that company the business and assets of the association. There were no shareholders other than the members of the association, and no assets other than those transferred by the association. The written down value of seven buses transferred to the company was ₹ 24,302. Their value, however, was entered in the books of the company as ₹ 70,000. The question for consideration is whether the difference between the two figures, namely, ₹ 45,698 is assessable to tax under the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922. Sub-section (2) of section 10 provides tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the strict legal sense of the term. The question for determination is whether it is in that strict and legal sense that the word sale is employed in the second proviso to sectition 10(2)(vii ) of the Act. The identical question came up for consideration before the High Court of Bombay in Rogers Co. v. Commissioner of Income-tax [1958] 34 ITR 336 , Chagla C.J., delivering the judgment of the court, said : Now what are the facts and circumstances of this case ? We have a legal entity-the partnership firm consisting of eleven partners. We have a different legal entity constituted by the private limited company. Un-doubtedly, the two entities are different in the eye of the law, but-and it is an important 'but'-the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to look at the form-the legal form-which a transaction has; and when we look at the real nature of the transaction before us, although legally it is a sale, substantially and really it is only a readjustment made by certain persons so as to carry on business in one form rather than in another. Eleven persons are carrying on business as a firm. They are carrying on a particular activity and making profits. Those eleven persons make up their minds to readjust their business position and to carry on the identical business, the identical activity, by means of a limited company. The assets of the firm now belong to the company. No change has taken place except the legal change of a company taking the place of a firm. Under these circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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