Back
1964 Supreme(AP) 217
Andhra Pradesh High Court
Judges : JAGMOHAN REDDY, NARASIMHAM
Motors and General Stores (Private) Ltd., Bobbili - Appellant
Versus
Commissioner of Income Tax, A.P., Hyderabad - Respondent
Decided On : 10-30-64
The word "sale" or "sold" has not been defined in the Income-Tax Act, 1922 and consequently, those words must be constructed by reference to other enactments.
Headnote:
INCOME TAX - SALE - MEANING - TRANSFER OF CINEMA HOUSE AND OTHER ASSETS FOR SHARES - WHETHER SALE - INCOME TAX ACT, 1922, S. 10 (2) (VII).
Fact of the Case:
The assessee, a private limited company, owned a cinema house. In a meeting of the Board of Directors, it was resolved that the Managing Director may be authorized to negotiate with the Zamindar and the Zamindarini of Chikkavaram and or their nominees for sale of the entire concern known by the name of Sri Rama Talkies, Bobbili, with all its equipment, machinery, fittings spares, accessories, the old projector, the jeep car bearing No. MSP 928 purchased from its funds, all the buildings and out-houses, wither newly constructed or mentioned in the registered sale deed No. 1464/ 5-9-1949 together with the entire premises covered thereby and the cash deposits lying with the various distributors and the Commercial Tax Department of the State Government and also the good will of the concern for a consideration of Rs. 1, which amount was to be received in the shape of transfer of 5% tax free cumulative Preference shares of M/s. Sri Rama Sugars and Industries Ltd. , Bobbili, of the face of Rs. 1,20,000. 00 held by Srimathi Rani Ravu Saraswathi Devi Varu, wife of Raja R. J. K. Rangarao Bahadur Varu, Zamindarini of Chikkavaram.
Finding of the Court:
The Tribunal rejected similar pleas taken before it by the assessee except for allowing a sum of Rs. 5000. 00 as representing the cost of the good will.
Issues: Whether the transaction dated 19-9-1956 amounts to a sale within the purview of the second proviso to section 10 (2) (vii) of the Indian Income tax Act ?
Ratio Decidendi: The word "sale" or "sold" has not been defined in the Income-Tax Act, 1922 and consequently, those words must be constructed by reference to other enactments. Section 54 of the Transfer of property Act defines "sale" as a transfer of ownership in exchange for price paid or promised or part paid and part promised. This definition, however, does not say what is meant by price. Decisions of the Courts have interpreted that word to mean money. It is probably for this reason that the word "price" for the purpose of a contract of sale of goods in section 4 (1) of the sale of Goods Act, has been defined under S. 2 (1) as meaning the money consideration for the sale of goods. A contract of sale under section 4 (1) of the sale of Goods Act is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. A part from this, under S. 118 of the Transfer of Property Act, the word "exchange" has been defined as follows : "when two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an exchange. This definition of exchange is not limited to immoveable property, Exchange is therefore not only exchange of land put also barter of goods. If one of the items transferred is money, the transaction is not an exchange but a sale. It is a clear, therefore, that both for the purposes of the sale of Goods Act as well as the Transfer of Property Act, dealing with moveable and immoveable properties sale is a transfer of property in the goods or in the ownership in property, as the case may be for money.
Final Decision: The reference is answered according with costs. Advocates fee Rs. 200. 00.
( 1 ) THE income tax appellate Tribunal, Hyderabad , has stated a case as directed by this court under section 66 (2) of the Indian Income Tax Act, 1922, in I. T. C. M. P. No. 5478 of 1961, on the following questions, namely : (1) Whether the transaction dated 19-9-1956 amounts to a sale within the purview of the second proviso to section 10 (2) (vii) of the Indian Income tax Act ? Alternatively: Whether the consideration for the sale is not the market value of the shares as on the date of the transaction, namely Rs. 95. 00 per share, but the face value of the shares.
( 2 ) THE assessment with respect to which the reference has been made is for the year 1956-57 relating to the accounting period of 1955-56. The facts as set out by the Tribunal in the statement of the case is that the assessee is a private limited company, a cinema house from which it was deriving income by exhibiting films. In a meeting of the Board of Directors held on 9-9-1955, it was resolved that the Managing Director, the Raja of Bobbili, may be authorized to negotiate with the Zamindar and the Zamindarini of negotiate with the Zamindar and the Zamindarini of Chikkavaram and or their nominees for sale of the entire concern known by the name of Sri Rama Talkies, Bobbili, with all its equipment, machinery, fittings spares, accessories, the old projector, the jeep car bearing No. MSP 928 purchased from its funds, all the buildings and out-houses, wither newly constructed or mentioned in the registered sale deed No. 1464/ 5-9-1949 together with the entire premises covered thereby and the cash deposits lying with the various distributors and the Commercial Tax Department of the State Government and also the good will of the concern for a consideration of Rs. 1, which amount was to be received in the shape of transfer of 5% tax free cumulative Preference shares of M/s. Sri Rama Sugars and Industries Ltd. , Bobbili, of the face of Rs. 1,20,000. 00 held by Srimathi Rani Ravu Saraswathi Devi Varu, wife of Raja R. J. K. Rangarao Bahadur Varu, Zamindarini of Chikkavaram. This resolution of the Board of Directors was later confirmed on 4-10-1955, in pursuance of which the property mentioned aforesaid was conveyed by a deed, known as the deed of exchange dated m21-2-1956 in consideration of the transfer of 5% cumulative preference shares of M/s. Sri Rama Sugars and Industries Ltd. , Bobbili of the face value of Rs. 1,20,000. 00 owned by the Zamindarini of Chikkavaram. It was further stated that the assessments books showed a profit of Rs. 9, 82 3. 00 on account of the said transaction, which was treated by the assessee as a capital receipt and was shown in section D of the return of its income. The Income tax Officer, however, after taking into consideration the various items, assessed the total value of the assets transferred at Rs. 76,432. 00 While doing so, he took into consideration the written down value of the depreciable assets comprised in the aforesaid transfer and thus computed the profits under section (10 (2) (vii) of the Act at Rs. 43,568. 00 and added this to the income of the assessee. The assessee appealed to the appellate Assistant Commissioner and contended firstly, that the sale of the cinema concern is only a realisation of assets and as such the excess realised cannot be treated as profits liable to tax; secondly, that the good will was not allowed and thirdly, that it is incorrect for the Officer to treat the face value of the shares as the sale price while the market value of such shares is by far less. In the supplementary grounds of appeal, it was urged that the Income-tax officer was not right in deducting from the written down value the initial depreciation allowed on the machinery and the building in the first year, and that the property in the cinema was only exchanged for shares in a limited liability company and that the transactions did not amount to a sale and as such fell outside the purview of S. 10 (2) (vii) of t
