COMMISSIONER OF INCOME TAX Vs. MUGNEERAM BANGUR AND CO

JUDGEMENT

(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.

(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.