COMMR OF INCOME TAX CENTRAL CALCUTTA Vs. MUGNEERAM BANGUR AND CO LAND DEPARTMENT

JUDGEMENT

(1.) THE following Judgment of the court was delivered by

(2.) THIS is an appeal by special leave directed the judgment of the High court at Calcutta in a reference under s. 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 facts and circumstances of this case the sum of Rs. 2,50,000.00 represented the surplus on the sale of lands which was the stock in trade of the assessee company or was the value of goodwill alleged to have been transferred? (3) Whether on the facts and circumstances of this case by the sale of the whole business concern it could be held that there was taxable profit in the sum of Rs. 2.50,000.00? (4) Whether on the facts and circumstances of this case and in view of the findings of the tribunal that the entire share capital of the vendor company (excepting seven ordinary shares) was taken over by the vendor firm in lieu of the sale price of the business as a whole, there was any profit in the amount of Rs. 2,50,000.00 the same being taxable under the Indian Income Tax Act?

(3.) THE Income Tax Officer filed an appeal before the Appellate tribunal. THE Appellate tribunal held that although the sale was the sale of a business as a going concern, the value of the stock could be traced, and, therefore, the profits arising out of the sale was taxable income. Regarding the goodwill, the tribunal observed: 'We do not think that there was much value of the goodwill of the business that was transferred. Mugneeram Bangur and Co. was a firm constituting of several partners and Mugneeram Bangur and Co. Land Department was a separate firm consisting of the same partners with however different shares in the firm Mugneeram Bangur and Co. were also carrying on business in lands and buildings along with its activities in other businesses. Our attention was drawn by the Department Representative to the fact that in the case of transfer of lands and buildings of the assessee firm the conveyances were as a rule executed in the name of Mugneeram Bangur and Co. THE assessee's learned Counsel did not object to this fact. We are therefore accepting it as correct. If so, there was nothing in the name of Mugneerarm Bangur and Co. Land Department. THE conversion of the said firm into a Company in an entirely different name would also indicate that not much of importance was attached to the name of Mugneeram Bangur and 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. 2,50,000.00 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 vendor, the first being a partnership and the second being a limited company, the transaction was 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 the evidence of any profit in the matter.