JUDGMENT - M. C. CHAGLA C. J.:

Messrs. Rogers and Co, carried on the busi-of making aerated waters as a firm till the 6th of August 1949 and the partners of the firm were 11 in number. On the 6th of August 1949 this firm converted itself into a private limited company. The shareholders of this company were the same as the partners of the firm and the shares allotted to the shareholders were in the same proportion as the shares held by them in the partnership; the slight difference was due to the shares being round ed off to a specific number. The written-down value of the block assets of Messrs. Rogers and Co. in their books was Rs. 3,81,848/-. These assets were transferred to the limited company at the original cost price of Rs. 4,85,354/- and the Department contended that the limited company in the assessment year 1950-51 was liable to pay tax on the difference between Rs. 4,85,354/- and Rs 3,81,848/- by reason of the second proviso to 5. 10(2)(vii) of the Income-tax Act.

(2) Turning to S. 10(2)(vii), it deals with depreciation and the second proviso is in the following terms:

"Provided further that where the amount for which any such building, machinery or plant is sold, whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place."

The only narrow question that we have to consider on this reference is whether on the facts and cir cumstances of this case it could be said that the building, machinery or plant was sold by the firm of Messrs. Rogers and Co. to the private limited company of Messrs. Rogers and Co. Ltd. If there was a sale, then the second proviso is attracted and the assessee company is liable to pay tax on the difference between the written-down value and the cost price

(3) Now what are the facts and circumstances of this case? We have a legal entity __the partnership firm consisting of eleven partners. We have a different legal entity constituted by the private limited company. Undoubtedly the two entities are different in the eye of the law, but__and it is an important but-the persons who constitute the two entities are identical. They are identical from a commercial point of view, because we fully understand the position that in the eye of the law a limited company is not the same as the shareholders of that company. But the persons who benefit by the profits made by the firm and the persons who benefit by the profits made by the limited company are identical and the profits made by the firm and the profits made by the limited company are shared by these persons in identically the same proportion. Mr. Joshi says that the sale contemplated by the second proviso to S. 10(2)(vii) is a transfer of assets by one legal entity to another, and once there is a transfer for a price, in law there is a sale and the second proviso comes into play. If that be the true view to take of the expression "sale" used in the second proviso, then Mr. joshi is undoubtedly right be cause we have here a transfer of assets from one legal entity to another for a fixed price; and if no thing more is to be looked at except the purely legal position, then there can be no controversy and there can be no debate that for the purpose of the second proviso a sale has taken place, and inasmuch as the price received by the vendor exceeds the written-down value to the extent laid down in the second proviso, he is liable to pay the tax. But in all transactions which come up for consideration in a taxing statute we have to look at the real nature of the transactions; we have not to look at the form__ the legal form __ which a transaction has; and when we look at the real nature of the transaction before us, although legally it is a sale, substantially and really it is only a readjustment made by certain persons so as

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