Section 41(2) and intra-group transfer treatment were confined to prior precedent in a holding-company sale to a subsidiary.

Section 41(2) was discussed as applying only within its limited statutory scope in a transfer of a going concern by a holding company to its wholly owned subsidiary, with Section 47 noted as relevant to the treatment of such intra-group transfers. The article states that the Court followed an earlier binding decision on both referred questions: the applicability of Section 41(2) was resolved against the assessee to the extent indicated, and the correctness of the AAC's direction to reframe the assessment was also determined in favour of the Revenue. The discussion emphasises that the issues were treated as concluded by prior precedent.

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Issues: (i) Whether, on the facts and circumstances of the case, profits under Section 41(2) of the Income-tax Act, 1961 could be assessed in the hands of a holding company on sale of a going concern to its 100% subsidiary company; (ii) whether the AAC was right in setting aside the assessment and directing the ITO to reframe it.

Issue (i): Whether, on the facts and circumstances of the case, profits under Section 41(2) of the Income-tax Act, 1961 could be assessed in the hands of a holding company on sale of a going concern to its 100% subsidiary company.

Analysis: The questions referred were already answered by the Court in an earlier decision. The Court treated the applicability of Section 41(2) as governed only to the extent already recognised in that decision, and noted the relevance of Section 47 in relation to transfers by a company to its wholly owned subsidiary company.

Conclusion: The question was answered in the negative to the extent indicated, in favour of the Revenue and against the assessee.

Issue (ii): Whether the AAC was right in setting aside the assessment and directing the ITO to reframe it.

Analysis: The Court followed its earlier ruling on the same point and held that the issue stood concluded by that decision.

Conclusion: The question was answered in the affirmative to the extent indicated, in favour of the Revenue and against the assessee.

Final Conclusion: The reference was finally answered by following the earlier binding decision, and both referred questions were disposed of in a manner adverse to the assessee.

Ratio Decidendi: Section 41(2) applies only within its limited statutory scope, and a transfer by a company to its wholly owned Indian subsidiary may attract the statutory treatment recognised by the Court, including the exclusionary effect of Section 47 in relation to capital gains.

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