COMMISSIONER OF INCOME TAX ANDHRA PRADESH Vs. MOTORS AND GENERAL STORES PRIVATE LIMITED

JUDGEMENT

(1.) This appeal is brought, by special leave, on behalf of the Commissioner of Income-tax, Hyderabad from the judgment of the Andhra Pradesh High Court dated October 30, 1964 in a case Referred No. 6 of 1963.

(2.) The respondent (hereinafter referred to as the 'assessee-company') is a private limited company owning a cinema house called "Sree Rama Talkies", at Bobbili. It was being taxed on the profits made by exhibition of films therein. At a meeting of its Board of Directors held on September 9, 1955, it was resolved that the Managing Director, the Raja of Bobbili may be authorised to negotiate with the Zamindar of Chikkavaram or his nominee for the sale of the entire concern with all its equipment and machinery, fittings etc., for a consideration of Rs. 1,20,000. An agreement was concluded to effect a sale and this was confirmed by the assessee-company at an extraordinary general body meeting held on October 4, 1955. Pursuant thereto a deed called the "exchange deed" was brought into existence on February 21, 1956 and the consideration was received by the assessee-company in the shape of transfer of 5 per cent tax free cumulative preference shares in Sri Rama Sugar and Industries Ltd., Bobbili, of the face value of Rs. 1,20,000 held by the Zamindar and Zamindarini of Chikkavaram. Separate valuation was given for the immovable property and for the movables etc., and goodwill, each being valued at Rupees 60,000. For the assessment year 1958-57, the assessee-company submitted a return of income showing a sum of Rs. 9,823 as profits derived from the transaction. The Income-tax Officer found that the value realised exceeded the written down value by Rs. 43,568 and accordingly computed the profits under Section 10 (2) (vii) of the Income-tax Act, 1922 and included the amount in the taxable income of the assessee-company. The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner in appeal and by the income-tax Appellate Tribunal "except for allowing a sum of Rs. 5,000 as representing the cost of the goodwill. As directed by the High Court, the Appellate Tribunal stated a case under Section 66 (2) of the Income-tax Act, 1922 on the following questions of law:

(3.) Section 10 (2) (vii) of the Income-tax Act' 1922 provides as follows: