D.K.Seth,J. - (1.) In this case, the liability of one of the firms, Gobindo Sheet Metal Works & Foundry, held to be the erstwhile firm under the name and style of which the assessee was carrying on business could satisfy the test of being expenditure incurred wholly and exclusively in connection with the transfer of the assets of the assessee for the purpose of computation of capital gains for asst. yr. 1992-93. In order to ascertain the proposition reference to the factual aspects of the case are required to be referred to.
(2.) Dr. Pal, the learned senior counsel, ably assisted by Mr. J.P. Khaitan, pointing out to the various materials submitted that there is already a finding of fact to the extent that the assessee was carrying on business under the name and style of Gobindo Sheet Metal Works & Foundry (Gobindo Sheet Metal). It is also pointed out that there is nothing on record to show that the Gobindo Sheet Metal was an assessee, on the other hand, the sale proceeds of the said two firms was assessed at the hands of Gopee Nath Paul & Sons, the assessee. Relying on the decision in CIT v. Bradford Trading Co. (P) Ltd., Dr. Pal contended that this expenditure was incurred wholly and exclusively in connection with the transfer and, as such, is allowable under Section 48(1) of the IT Act, 1961, as it then stood. He also relied on the decision in CIT v. Shakuntala Kantilal as his sheet-anchor and pointed out that the liability of the Allahabad Bank was an absolute necessity to meet in order to effect the sale and without removing this liability the property could not be sold and, as such, this satisfies the test of being an expenditure incurred wholly and exclusively in connection with the transfer.
(3.) Mr. Som, the learned senior advocate appearing for the Department, strenuously argued that the assessee and Gobindo Sheet Metal were two different firms and the liability of Gobindo Sheet Metal towards the Allahabad Bank seeking declaration of hypothecation of stock-in-trade and other movable goods would not be a liability or encumbrance which was absolutely necessary to be removed for transfer of the assets of the assessee or without removal of which encumbrance the assets could not be sold. He drew our attention elaborately to the records before us, particularly those in the paper book and had attempted to drive home his contention with unparalleled eloquence. "Mr. Som relied on the decision in D.D. Chittaranjan v. CIT (1992) 193 ITR 238 (Mad) and contended that the amount spent to meet the liability, capital nature, would not be an expenditure incurred wholly and exclusively in connection with the transfer to a post-transfer application of the sale proceeds or distribution of the sale proceeds after transfer. Pointing out from the materials on record, he contended that this was to be made after 30 days from the date of realization of the full amount. This being a post-transfer affair, this could not be treated to be an expenditure incurred in connection with the transfer. Mr. Som then relied on the decision in CIT v. SRV Press & Publication (P) Ltd. where an amount of finance received from a financial corporation repaid out of the sale proceeds received by the liquidator, was held not to be an expenditure incurred wholly and exclusively in connection with the sale on account of liability being capital in nature met out of the sale proceeds. He also relied upon the decision in R.M. Arunachalam v. CIT in order to contend that this payment was not a cost of transfer but distribution of the sale proceeds to meet the liability of the assessee.";