Balancing charge on transfer of depreciable assets to a company applies where the price is ascertainable and shares form part of consideration.

A transfer of depreciable transport assets to a newly formed private limited company is treated as a sale for money consideration where the price is ascertainable, even if part of the consideration is satisfied by allotment of shares and the transferor and transferee are closely connected distinct legal entities; on that basis, the balancing charge under the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922 can arise even after the business has ceased. The note also explains that business income earned on 1 and 2 April 1959 remained taxable in the assessment year 1960-61 because the assessee continued the transport business during those days and had not changed the previous year.

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Issues: (i) Whether the transfer of depreciable transport assets to a private limited company constituted a sale for money consideration so as to attract the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922; (ii) Whether the sum of Rs. 223 representing business income for 1st and 2nd April 1959 was assessable in the assessment year 1960-61.

Issue (i): Whether the transfer of depreciable transport assets to a private limited company constituted a sale for money consideration so as to attract the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922.

Analysis: A transfer of ownership for price paid, promised, or partly paid and partly promised is a sale, while an exchange involves only reciprocal transfer of ownership. The company was a separate legal entity from the assessee. The transaction was not a mere change in the mode of enjoyment of the business but an outright transfer of assets for an ascertained price, part of which was discharged by allotment of shares and the balance was treated as payable by the company. The amendment to the proviso also made clear that balancing charge liability could arise even where the business had ceased or the sale was in the course of realisation.

Conclusion: The transfer amounted to a sale for money consideration and the balancing charge under the second proviso to section 10(2)(vii) was rightly brought to tax against the assessee.

Issue (ii): Whether the sum of Rs. 223 representing business income for 1st and 2nd April 1959 was assessable in the assessment year 1960-61.

Analysis: The finding was that the assessee carried on the transport business on 1st and 2nd April 1959 and had not obtained any change of previous year. The inclusion of the income from those two days in the relevant accounting period was therefore justified.

Conclusion: The sum of Rs. 223 was assessable as business income in the assessment year 1960-61.

Final Conclusion: Both referred questions were answered against the assessee, and the tax additions were sustained.

Ratio Decidendi: For purposes of the balancing charge provision, a transfer of depreciable business assets to a newly formed company is a sale when it is for an ascertainable price, even if part of the consideration is discharged by allotment of shares and the transferor and the company are substantially connected, because the company remains a distinct legal entity and the statutory liability is not avoided by the cessation or winding up of the business.

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