Sale versus exchange turns on the nature of consideration, with separate treatment possible for movables and immovables.

A transaction may be split into distinct dealings where the parties separately treat movable and immovable assets, value them independently and structure different modes of transfer. The governing distinction between sale and exchange turns on consideration: where payment is in money, the transfer is a sale; where the consideration is reciprocal transfer of property, it is an exchange even if a balancing cash amount is included to equalise value. Applying that principle, the text treats movables and immovables as separate arrangements and emphasises the parties' real intention and the manner in which the assets were dealt with.

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Issues: (i) Whether the transaction comprised one composite dealing or two distinct transactions, one relating to movable assets and the other to immovable property; (ii) whether the transaction relating to movable assets was a sale within section 10(2)(vii) of the Income-tax Act, 1922; (iii) whether the transaction relating to immovable property was an exchange and not a sale within section 10(2)(vii) of the Income-tax Act, 1922.

Issue (i): Whether the transaction comprised one composite dealing or two distinct transactions, one relating to movable assets and the other to immovable property.

Analysis: The documents and conduct of the parties showed separate treatment of movables and immovables. The movables of each concern were separately valued, liabilities were adjusted, and the parties intended payment of price for those assets. The immovable properties were dealt with under a different arrangement, later completed by a deed of exchange.

Conclusion: The transaction consisted of two distinct transactions, one for movables and the other for immovables.

Issue (ii): Whether the transaction relating to movable assets was a sale within section 10(2)(vii) of the Income-tax Act, 1922.

Analysis: For movables, the dominant feature was payment of money as consideration. The assets were separately valued and the difference was settled in cash, which satisfied the essential element of sale. The distinction between sale and exchange depends on whether the consideration is money or goods.

Conclusion: The transaction relating to movable assets was a sale, in favour of the assessee and against the department.

Issue (iii): Whether the transaction relating to immovable property was an exchange and not a sale within section 10(2)(vii) of the Income-tax Act, 1922.

Analysis: For immovables, the consideration was the reciprocal transfer of properties with a balancing amount, and the deed itself described the arrangement as an exchange. The cash component was only to equalise values and did not alter the essential character of the transaction.

Conclusion: The transaction relating to immovable property was an exchange and not a sale, in favour of the department and against the assessee.

Final Conclusion: The reference was answered by treating the movables and immovables as separate dealings, with sale character recognised for movables and exchange character recognised for immovables.

Ratio Decidendi: A transaction is a sale only when the consideration is money; if the consideration is property in exchange, the transaction is an exchange, and a composite arrangement may be divided according to the parties' real intention and the manner in which the assets are dealt with.

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