CHAKRAVARTTI, C.J. - (1.) TAKEN by itself the question referred in this case is one of an ordinary kind, turning, as it does, merely on the construction of two deeds. But the facts are rather out of the ordinary.
(2.) IT appears that the two assessees made use of the liberty which the law allowed them so to adjust their affairs as to minimise their tax liability and they made an attempt to transfer some capital assets in a way which might avert their liability for a tax on the capital gains made by them out of the transfer. The question is whether they succeeded. The facts are simple and are as follows. There was a firm carrying on business in Calcutta, called Landale and Morgan, which at one time seems to have had many partners. By the beginning of the accounting year in question, viz., 1947-48, the two assessees before us came to be the sole partners. Then, w.e.f. 1st Oct., 1947, they took in as partners eight outsiders who have been compendiously described as the Ajit Saria group. Although this was in fact done on and w.e.f. 1st Oct., 1947, the relevant deeds were not executed till 2nd Dece following. On that date, two documents were executed, one a deed of agreement and another a partnership deed. The decision of the question in the present case really turns on the construction of the first of those two deeds. The terms which specially concern this case are two in number. By one, the two assessees agreed and undertook to sell portions of their shares in the capital and goodwill of the firm as at 1st Oct., 1947, to the members of the Ajit Saria group and by the other, they agreed to sell further shares in the capital and goodwill of the same firm on 1st April, 1948. The method adopted for effecting this transfer was an extremely ingenious one and of a compartmental character. By the first clause in the deed of agreement to which I have already referred, Daniel Smith agreed to sell 15 per cent of his share in the capital and the goodwill of the firm for a consideration of Rs. 1,83,750 while James Elder agreed and undertook to sell 9 per cent. of his share for a consideration of Rs. 1,10,250. It was provided that the total of those two sums, namely, Rs. 2,94,000 would have to be paid to the vendors on the signing of the agreement. It would thus appear that although expressed in the form of an agreement to sell, this clause in effect operated as a sale eo instanti.
(3.) THE second clause was a little more complicated. By the first clause the two transferors had parted with only fractions of their shares in the capital and goodwill of the firm. By the second clause Daniel Smith agreed to sell a further 15 per cent of his shares for a consideration of Rs. 1,83,625 and James Elder agreed to sell a further 10 per cent. for a consideration of Rs. 1,22,375. It was provided that the sale would take place on 1st April, 1948, and the consideration would have to be paid then. It will now appear that by the first clause the two assessees sold 24 per cent of the total interest in the capital and goodwill of the firm to the Ajit Saria group and by the second clause they agreed to sell a further 25 per cent, making altogether a total of 49 per cent.;