Sale versus exchange in asset transfers determines taxability under the written-down-value rule, requiring clear factual findings.

The second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922 applies only where a transfer is in substance a sale and the sale price exceeds the written down value of the asset. A transfer of business assets to a company may be structured as a sale or an exchange, and the true legal character depends on clear factual findings. Because the Tribunal had not definitively found whether the motor buses were transferred for money consideration or for shares, no tax consequence could be determined on the reference and fresh factual findings were required before the issue could be answered.

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Issues: Whether the sum arising on transfer of motor buses to a private company was assessable under the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922.

Analysis: The second proviso to section 10(2)(vii) applies only where the transfer amounts to a sale and the sale price exceeds the written down value of the asset. A transfer of business assets to a company may take different legal forms, including sale or exchange, and the true nature of the transaction must be determined from clear findings of fact. On the record before the Tribunal, the factual basis necessary to decide whether there was a sale for money consideration or an exchange for shares had not been clearly found.

Conclusion: No answer could be recorded on the reference in the absence of clear factual findings by the Tribunal on the nature of the transaction.

Final Conclusion: The reference was returned without a merits determination, and the matter was sent back for fresh factual findings so that the tax consequence, if any, could be properly decided.

Ratio Decidendi: The second proviso to section 10(2)(vii) is attracted only upon a sale of the asset, and where the nature of the transfer is unclear the question cannot be answered without definite factual findings.

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