TMI Blog1989 (12) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... the business in 1956 itself and that the rights of the assessee have been transferred to the Government or got extinguished even in 1956 is right in law and fact ? 3. Whether, on the facts and in the circumstances of the case, the assessee is exigible to income-tax on capital gains ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that 'the industrial undertaking as a whole has been taken over' ? 5. Whether, on the facts and in the circumstances of the case, the assessment of the profit under section 41(2) of the Income-tax Act, 1961, is valid under law ?' The facts relevant and requisite to dispose of the disputes covered by the questions lie in a narrow compass. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the appeal (A. S. No. 600 of 1969) the Government had filed. The appeal was decreed in terms of a compromise the parties had entered into. As per the compromise, a sale deed dated April 14, 1971, was executed. The sale deed would show that the assessee-company sold the properties to the Government for a consideration of Rs. 17 lakhs. We shall now extract the following clauses contained in the sale deed "10. WHEREAS one of the conditions in the compromise petition is that the vendor shall sell to the purchaser and purchaser shall purchase all the properties mentioned and described in the schedule hereto for consideration of rupees seventeen lakhs out of which a sum of rupees five lakhs has already been deposited in the High Court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expressly agreed and declared that, after the execution of this sale deed, the vendor shall not have any manner of right, title, interest or claim in respect of the properties hereby conveyed or in respect of the business connected with the goodwill hereby transferred. 8. The purchaser shall be at liberty to use the firm name F. X. Pereira Minerals and do the business in any manner the purchaser deems fit. " (emphasis supplied) It is discernible from the sale deed that the business, as a going concern, has been sold. A question would arise, when did the title to the property pass ; was it on January 12, 1956, the date on which the agreement came into being or on April 14, 1971, the date on which the sale deed was executed ? The answer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that title to the land and building and the plant and machinery, etc. (the business was sold as a going concern), passed to the State on the date of the execution of the registered deed, namely, April 14, 1971 only, and not on January 12, 1956, the date on which the agreement was executed. The finding of the Tribunal, under challenge before us, that the Government had become the owner of the properties in 1956, therefore, is not sustainable. The properties, under no circumstance, can be said to have been sold in 1956, although some of the documents would show that they had been handed over to the State as per the agreement dated January 12, 1956. The decree in the suit in terms of the compromise entered into between the assessee and the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee in the previous year in which they are sold." This charge is called the balancing charge. This balancing charge represents the amount the assessee got as depreciation allowance in the earlier years. The reason for treating this difference as profit earned in the previous year is that, to the extent to which the depreciation allowance was granted in the past, the chargeable profit of the business during those past years had been reduced and a lower profit alone was computed for tax. The section applies only to the four types of assets, namely, building, plant, machinery or furniture. The Tribunal, therefore, has rightly held that". . . . . in any event and under no circumstances can the assets be charged to section 41(2) a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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