Sale versus exchange of motor vehicles: transfer for fixed consideration with part payment in shares attracted the tax charging provision.

Transfer of specified motor vehicles for a definite money consideration, satisfied partly by allotment of shares and partly by cash, was treated as a sale and not a mere exchange. The court applied the rule that a transaction structured around a fixed price, with shares issued only in satisfaction of part of that price, has two distinct elements: sale of the assets and payment of consideration. On that basis, the charging provision for sale of machinery or plant under section 10(2)(vii) of the Indian Income-tax Act, 1922 was attracted where the sale price exceeded written down value, and the reference was answered for the Revenue.

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Issues: Whether the transfer of motor vehicles by the assessee-firm to a private limited company under the agreement dated 24 March 1955 was a sale or merely an exchange, and whether the excess over written down value was chargeable under section 10(2)(vii) of the Indian Income-tax Act, 1922.

Analysis: The agreement showed specified motor vehicles with separate prices, a total money consideration, part of which was satisfied by allotment of shares and the balance by cash. The transaction was treated by the parties as a sale, including for transfer of registration. On these facts, the arrangement was not a mere conversion of assets or a simple exchange. The legal effect was that there were two distinct elements: a sale of the vehicles and an allotment of shares in satisfaction of the price. Under the governing rule, section 10(2)(vii) applies where there is a sale of machinery or plant and the sale price exceeds written down value.

Conclusion: The transfer was a sale and not merely an exchange. Section 10(2)(vii) applied, and the reference was answered against the assessee and in favour of the Revenue.

Final Conclusion: The transaction attracted tax as a sale of capital assets, not as a non-taxable exchange.

Ratio Decidendi: Where assets are transferred for a definite money consideration and the price is satisfied partly by allotment of shares and partly by cash, the transaction is a sale with a separate arrangement for satisfaction of the price, not a mere exchange; the charging provision applicable to sales is therefore attracted.

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