TMI Blog1965 (3) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 2,50,000 attributed to goodwill is added to the cost of land, it is nobody's case that this represented the market value of the land. Thus the sale was the sale of the whole concern and no part of the slump price is attributable to the cost of land. If this is so, it is clear from the decision of this court in Commissioner of Income-tax v. West Coast Chemicals & Industries Ltd. [1962 (3) TMI 5 - SUPREME Court] that no part of the slump price is taxable. We, therefore, answer question in the negative. - - - - - Dated:- 31-3-1965 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SIKRI J.--This is an appeal by special leave directed against the judgment of the High Court at Calcutta in a reference under section 66 of the Income-tax Act. The four questions referred to the High Court by the Income-tax Appellate Tribunal are : " (1) Whether on the facts and circumstances of this case the Income-tax Officer, Central Circle XIV, Calcutta, was competent to file the appeal before the Tribunal against the order of the Appellate Assistant Commissioner of Income-tax, Range-A, Calcutta ? (2) Whether on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch will be accepted by the vendors in full satisfaction of the said purchase price. 5. The company shall undertake and discharge all debts and liabilities of the vendors including development expenses such as opening out roads, laying out drains and sanitary arrangements, providing electricity in the areas and providing a school in Tollygunge for education of children for which the vendors have given an undertaking to the Tollygunge Municipality and also the liability of the vendors in respect of the deposits made with them by various intending purchasers of lands but excluding the liabilities of the vendors for income-tax, super-tax or any other tax or duty on income or revenue in respect of the profits of the business. " The sum of Rs. 34,99,300 was arrived at in the Schedule thus : Rs. As. Ps. 1. Land 12,68,628 7 7 2. Goodwill 2,50,000 0 0 3. Motor car lorries 25,866 8 6 4. Furniture, fixtures, etc. 5,244 5 6 5. Mortgage secured 17,62,367 6 0 6. Deposits for purchase of land 53,500 0 0 7. Advance paid to pleaders, solicitors, contractors' staff and other outstandings 1,83,622 3 6 8. Cash in bank 71,800 1 8 -------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mugneeram Bangur Co., Land Department. In the circumstances, in our opinion, the price paid by the purchase company was not on the consideration of the goodwill of the vendors but upon taking over the entire going concern and paying the consideration not in money but by allotment of shares. In such circumstances, the surplus was out of the sale of the business as a whole, including the stock in-trade of the assessee-firm. Since the other assets transferred had definite value which would not increase in value by the process of transfer, the only value that could increase was the value of the stock in hand, that being the land in the present case. In our opinion, therefore, the amount of Rs. 2,50,000 was really the excess value of the lands sold along with the other assets." But the Tribunal dismissed the appeal on the ground that although the vendors were a different entity from the vendee, the first being a partnership and the second being a limited company, the transaction was a mere adjustment of the business position of the partners. It further observed that the income-tax department was not entitled to take mere book-keeping entries as evidence of any profit in the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to deal with the other questions and the arguments addressed in respect of them. The Appellate Tribunal held in this case that the sale was a sale of business as a going concern. This is also apparent from clause 1 of the agreement set out above. If this is so, Doughty's case applies. The facts in Doughty's case may be conveniently taken from the headnote in that case. " In 1920, two partners carrying on business in New Zealand as general merchants and drapers sold the partnership business to a limited company in which they became the only shareholders. The sale was of the entire assets, including goodwill, the consideration being fully paid shares, and an agreement by the company to discharge all the liabilities. The nominal value of the shares being more than the sum to the credit of the capital account of the partnership, in its last balance-sheet, a new balance-sheet was prepared showing a larger value for the stock-in-trade. The Commissioner of Taxes treated the increase in value so shown as a profit on the sale of the stock-in-trade, and assessed the appellant upon it for income-tax under the Land and Income Tax Act, 1916, of New Zealand, which imposes the tax on all pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly be said that there was a trading from which alone profits can arise in business." It follows from the above that once it is accepted that there was a slump transaction in this case, i.e., that the business was sold as a going concern, the only question that remains is whether any portion of the slump price is attributable to the stock-in-trade. The learned counsel for the appellant relies on two grounds to support the contention that there is profit attributable to the sale of land which was the stock-in-trade of the vendors. He says first that in the schedule to the agreement the value of land and the value of goodwill and other items is specified. He says that although the amount of Rs. 2,50,000 was shown as price of goodwill, it was really excess value of the land sold along with other assets. Secondly, he says, relying on the passage already cited above from Doughty's case that the vendor's business was a business of purely buying and selling land. In our opinion, on the facts of this case it cannot be said that the vendors were carrying on the business of purely buying and selling land. In this case the vendors were engaged in buying land, developing it and then sell ..... X X X X Extracts X X X X X X X X Extracts X X X X
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