Legal Character of Transaction governs taxability; sale proceeds treated as taxable income even when vendor and purchaser are the same.

Characterisation of a receipt for income-tax purposes depends on the legal character of the transaction; where a transfer is effected as a sale, its legal form governs taxability and cannot be defeated merely because vendor and purchaser are the same person. The note clarifies that authorities must assess taxability by recognising a lawful sale and treating excess sale proceeds over written down value as taxable income; inquiry into underlying substance cannot be used to negate a sale legally effected. The consequence stated is that such excess proceeds fall within taxable income and prior adverse decision against the taxpayer is sustained.

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Issues: Whether the excess of sale proceeds of building, plant and machinery over the written down value of the business (Rs. 1,30,785) could, in law, be treated as income, profit and gain of the taxpayer.

Analysis: The question involved characterization for income-tax purposes of a receipt arising from a transaction that was in form a sale. The legal framework applied requires attention to the legal effect or character of a transaction rather than disregarding its legal form to examine the underlying substance. The transaction in issue was effected as a sale and there was no contention that it was not intended to be a sale; the fact that vendor and purchaser were the same party does not by itself change the legal character of the transaction or render profits untaxable. The authorities cited establish that taxing authorities must determine taxability based on the transaction's legal character.

Conclusion: The excess sale proceeds cannot be excluded from income on the ground that the vendor and purchaser were the same; the amount is not outside the scope of taxable income. The High Court's decision against the assessee is sustained and the appeal is dismissed.

Ratio Decidendi: For income-tax assessment the legal character of a transaction governs taxability; authorities shall not substitute an inquiry into the substance to alter a transaction lawfully effected as a sale.

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