Going-concern purchase surplus is not revenue profit where asset price falls below book value, Gujarat HC rules.

In a composite purchase of a factory as a going concern, the difference between the book value of the acquired assets and the price paid did not, by itself, constitute revenue profit. The revenue's attempt to apportion the composite price between capital and trading assets was aimed at determining the true opening stock and trading profit, but the mere fact that assets were acquired below book value did not create an assessable revenue receipt. The Gujarat HC therefore treated the surplus as non-taxable on the stated facts and held that it was not assessable as revenue profits.

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Issues: Whether the difference between the book value of the assets of the factory acquired as a running concern and the price paid for them was assessable, in whole or in part, as revenue profits derived during the previous year relevant to the assessment year 1955-56.

Analysis: The purchase of the factory was a composite transaction for a going concern. The revenue authorities sought to apportion the composite price between capital assets and trading assets so as to ascertain the true cost of the opening stock and thereby the correct trading profit. The Tribunal, however, proceeded on the mistaken basis that the department was taxing the mere surplus arising on purchase. On the question actually referred, the difference between the book value of the assets and the price paid did not itself amount to profit. At the highest, the assessee had acquired assets at a price lower than their book value, but that circumstance did not create a revenue receipt or assessable trading profit by itself.

Conclusion: The difference between the book value of the assets and the price paid was not assessable as revenue profits.

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