The real consideration for a transfer can be established to be less than what is shown in the document, but evidence must be provided to support this claim.

1. This is a reference made by the Income-tax Appellate Tribunal, Madras Bench, under S.66 (2) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) in compliance with the direction of this Court in O. P. No. 296 of 1964. The year of assessment is 1960-61, and the accounting period is from 1-4-1958 to 25-8-1959. The question referred is:

"Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that no capital gains taxable under the Indian Income-tax Act, 1922, arose to the

assessee?"

2. The assessee was carrying on business of manufacture and sale of packing cases. Pursuant to a sub-contract which he entered into with a firm called Messrs. Moothadatti and Sons, he supplied railway sleepers and timber to the firm during the period between 1-4-1958 and 25-8-1959. The business resulted in heavy loss, which, as computed by the assessee, amounted to Rs. 84, 747/-. This was accepted by the Income-tax Officer, subject to some adjustments for inadmissible expenditure and depreciation.

3. The assessee had taken large advances for the purposes of his business from one Sri. P. R. Moothadath, one of the partners of the firm. Apparently, the assessee's business had completely broken; and he was unable to repay the amounts due to Sri. P. R. Moothadath. Consequently, by a deed dated 19-8-1959, the assessee transferred his business together with the factory, factory premises and all plant, machinery, etc., to Messrs. M. P. Moothadath and Sons for a sum of 1, 70, 791-61. This was satisfied to the assessee as follows:

Table:#1

The written down value of the assets sold by the assessee, excluding the stores and spares, was Rs. 89,090. The stores and spares were valued at Rs. 5,300. Thus, there was a difference of Rs. 76,407. The Income-tax Officer found that this involved a profit of Rs. 15,887/- under S.10 (2) (vii) of the Act, and a capital gain of Rs. 60,520/-. After adjusting this profit against the business loss of Rs. 23,090/-for the year, the net loss was determined as Rs. 7,203/-uader the head "business". This amount was deducted from the aforesaid sum of Rs. 60,520 to arrive at the capital gain taxable under S.12-B of the Act. Accordingly the amount of capital gain was fixed at Rs. 53,317/- and taxed by the Income-tax Officer by an order dated 30-3-1961.

4. The assessee filed an appeal from the aforesaid order and contended before the Appellate Assistant Commissioner that the transaction did not involve any sale, and that it was only a surrender of the business in settlement of his debts and it did not attracts. 12-B of the Act. This contention was rejected; and the appeal was dismissed. The assessee filed a second appeal before the Appellate Tribunal, repeating the same contention. He also contended before the Appellate Tribunal that the consideration shown in the deed of transfer had nothing to do with the actual price of the assets surrendered, and that "the assets conveyed, if valued at the prevailing market rate, would have fetched only far less than the amount of debt", for discharging which the assets were transferred. The Appellate Tribunal seems to have been attracted by the latter contention; and it held:

"From the facts which we had set out earlier it is appeared to us that due to the heavy financial obligation the assessee was under the mercy of his creditor. The assessee could not have had any voice in the fixation of any price and to call the settlement by which the liability was discharged by the taking over the assets a sale would be a misnomer. Moreover factually it would appear that the large indebtedness which is taken as the sale consideration for the assets is due to the advantageous prices which the creditor had obtained from the assessee. We may refer to the differences in the price of Broad gauge and Meter gauge sleepers referred to earlier. But for the weak financial position of the assessee and the dependence on the creditor for further