Deemed profit on sale of identified asset taxed where stated consideration was not shown to be nominal or unreal

Where a company sold an identified building for a stated consideration, the excess of original cost over written down value was held taxable as deemed profit under the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922. The court rejected the contention that the consideration was merely nominal or that the transfer was only a readjustment of business position, because the agreement specifically allocated consideration to the property and no proof was offered that the stated consideration or the value received was unreal. The principle applicable to a true slump sale did not apply on these facts.

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Issues: Whether the difference between the original cost and the written down value of the building sold by the assessee-company to another company, for a stated consideration, could be brought to tax as deemed profit under the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922.

Analysis: The transaction was treated as a sale of the property described in the second schedule for an expressly stated consideration. The contention that the consideration was merely nominal or that the matter was a mere readjustment of business position was not established on the record. The burden to show that the stated consideration was not real or that the market value of the shares received was less than their face value lay on the assessee-company, and no such proof was offered. The principle applicable to a true slump sale or to a transfer without separate valuation of assets did not apply, because the agreement specifically allocated consideration to the property sold.

Conclusion: The amount representing the excess of the original cost over the written down value was taxable as profit under the second proviso to section 10(2)(vii); the issue was decided against the assessee.

Ratio Decidendi: Where a company sells an identified asset for a stated and unproved-to-be-nominal consideration exceeding its written down value, the excess is taxable as deemed profit under the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922.

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