Consideration in shares treated as money's worth, realisation and valuation rules make the excess over written down value taxable.

Sale of building, plant and machinery to a company controlled by the vendor is treated as a transfer between separate legal persons where no exception or sham is established, and the excess of sale proceeds over written down value is taxable under the Income-tax Act. Consideration consisting of fully paid shares constitutes money's worth and is capable of valuation for computing realised profit. Authorities on corporate personality, realisation and valuation of assets received in kind were applied, and the accounting year fixed by the tribunal governs the relevant assessment period, producing the stated tax consequence.

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Issues: Whether the excess of sale proceeds of building, plant and machinery over their written down value (Rs. 1,30,785) received by the assessee on sale to a private limited company constituted income, profits and gains taxable under section 10(2)(vii) of the Income-tax Act.

Analysis: The company is a juridical person distinct from its members and a sale to a company, even if its shares are largely owned by the vendor, is a transfer between separate legal parties unless established exceptions apply. Authorities on corporate personality and exceptions (including Salomon v. Salomon & Co. and subsequent decisions) were applied to determine that no established exception or sham existed in the facts. Income is assessable when received in money or money's worth; consideration in fully paid shares is money's worth and can give rise to realised profit. Precedents establishing valuation and realisation principles for assets received in kind were applied to treat shares allotted as capable of valuation for computing profits. The accounting year for the transaction as recorded by the tribunal is binding for the reference and places the sale within the relevant assessment period.

Conclusion: The amount of Rs. 1,30,785 being the excess of sale proceeds over the written down value of building, plant and machinery is income taxable in the hands of the assessee under section 10(2)(vii) of the Income-tax Act.

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