G.K.MITTER J. - (1.) IN this matter four questions of law have been referred to this Court by the Tribunal. The first relates to the competency of an appeal filed by the ITO, Central Circle XIV, Calcutta, against the order of the AAC, Range-A, Calcutta, on the ground that he was not the proper officer to do so. Before us the point was not pressed and it is covered by a judgment of a Division Bench of this Court in Matter No. 105 of 1952 (CIT vs. Sarkar & Co.). The other questions are inter-dependent and arise out of the transfer of the business of a firm known as Mugneeram Bangur & Co., Land Department, to a public limited company by the name of Amalgamated Land Development company Ltd., the central question being whether the partners of the firm made a profit in the transaction which is assessable to income-tax.
(2.) THE assessee firm, Mugneeram Bangur and Co., Land Department had been carrying on the business of land development for many years. Its business was to buy large blocks of land in the suburbs of Calcutta, develop the same and parcel out in small plots and sell at a profit. Originally it had seven partners, six of them being Bangurs and the seventh being one Charu Chandra Chatterjee. Two of the partners, namely, Mugneeram Bangur and Charu Chatterjee, retired from the firm on 11th July, 1945. The remaining partners were not willing to carry on the business with unlimited liability and decided to float a limited company which would take over the business of the firm. Accordingly, a new company was formed in the name mentioned above and incorporated as a public company on 8th April, 1948. The five remaining of the firm were also the promoters of the new company which had four directors, two of them Bangurs and two being outsiders, namely, one Walter Robert Elliot and the late Sir Bejoy Prasad Singha Roy. The capital of the company was Rs. 34,99,300 divided into shares of Rs. 100 each. Out of these all but seven shares were allotted to the five partners. Rs. 34,99,300 was the consideration for which the firm transferred its business and its assets to the company. The sum was made up as shown below in the agreement for sale dt. 7th July, 1948. The value of the land shown above was the cost of acquiring the same form time to time. Items Nos. 3 and 4 give the written down values of the assets mentioned in the books of account of the company. Items Nos. 5, 6, 7 and 8 represent transactions in cash about which there is no dispute. The controversy in this case centers round the item of goodwill valued at Rs. 2,50,000. The case of the Department was that there was and could no goodwill in respect of the transaction effected and by the inclusion of this item the partners were seeking to get something from the company which really represented the increase in the value of the land. There is no dispute that the value of the land at the date of the transfer was much more than that shown in the agreement for sale and that land was the stick-in-trade of the firm which was taken over by the company. The Department's contention that the assessee firm had no goodwill or that the value of the goodwill was negligible in the circumstances of the case is based on the following : (1) Mugneeram Bangur & Co., Land Department, was a firm consisting of the same partners as those constituting another firm by the name of Mugneeram Bangur & Co., the only difference being that the partners had difference shares in the two firms. Mugneeram Bangur & Co., also carried on business in lands and buildings and some of the conveyances purported to have been executed by the assessee firm of Mugneeram Bangur & Co., Land Department, were as a matter of fact executed in the name of Mugneeram Bangur & Co. From this it is sought to be inferred that the name of the firm in which the business was carried on was not a matter of any moment. (2) The name of the assessee firm is completely different from the name of the new company, there being nothing common between the two names. (3) The assessee firm carried on business at an address different from that of the company, the . . Rs. A. P. 1. Land 12,68,628-7-7 2. Goodwill 2,50,000-0-0 3. Motor car and lorries 26,866-8-5 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. Advances paid to pleaders, solicitors, contractors' staff and other outstandings 1,83,622-3-3 8. Cash in bank 71,800-1-8 . . 36,21,029-0-9 . Less liabilities 1,21,729-0-9 . . 34,99,300-0-0 firm's address being No. 65, Sir Hariram Goenka Street, Calcutta, while the company's office was situated at No. 9, Clive Row, Calcutta. (4) There was no undertaking given by the members of the assessee firm not to carry on a business in land development in the old name and style and if they chose to carry on business in that name and style a transfer of the goodwill to the company was meaningless. (5) In the prospectus issued by the new company disclosing the balance-sheet of the vendor firm no value had been assigned to the goodwill.
(3.) IT was further argued on behalf of the Department that as the partners had stated in the prospectus issued by the company that the properties which were being taken over at cost were according to market value well above the said cost price and as the value of the items Nos. 3 to 8 were fixed the appreciation could only be ascribed to the rise in value of the land which was measured by Rs. 2,50,000, wrongly given as the value of the goodwill. Consequently, it was contended that this excess of Rs. 2,50,000 over the cost price showed the profit which was being made by the firm in the transaction.;