Business asset transfer for liability discharge can attract capital gains tax where deed consideration is not disproved.

Transfer of business assets to a creditor in discharge of genuine liabilities was treated as a taxable transfer under section 12B of the Indian Income-tax Act, 1922, because the consideration recorded in the deed was not shown to be unreal or below fair market value. The Court found no material to displace the stated consideration, and the fact that the amount was applied directly to third-party liabilities did not prevent capital gains tax from attaching. The revenue authorities were therefore entitled to assess the capital gain on the transfer.

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Issues: Whether the transfer of the assessee's business assets to a creditor in discharge of liabilities amounted to a sale or transfer attracting capital gains tax under section 12B of the Indian Income-tax Act, 1922, and whether the consideration stated in the transfer deed could be treated as the real consideration for the transaction.

Analysis: The reference arose under section 66(2) of the Indian Income-tax Act, 1922, for assessment year 1960-61. The assessee transferred his business, factory, premises, plant and machinery to the purchasers and the stated consideration was applied directly towards discharge of genuine liabilities owed to third parties and to the creditor. The Court held that the recited consideration was not shown to be unreal or less than the fair market value, and there was no material to displace the consideration recorded in the transfer deed. In these circumstances, the transaction was a transfer within the ambit of section 12B, and the capital gain computed by the revenue authorities was rightly brought to tax.

Conclusion: The question was answered in the negative, and the assessee's contention failed. The transfer was held to give rise to taxable capital gains under section 12B.

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