TaxTMI 
TaxTMI 
1983 (10) TMI 20
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....harat Pvt. Ltd., of which the partners of the assessee-firm were the sole shareholders, for a consideration of Rs. 1 lakh in the form of shares of said company, the excess value of Rs. 72,760 which accrued to or was received by the assessee-firm under the said transaction was capital gains and taxable as such ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the said excess value of Rs. 72,760 which accrued to, or was received by, the assessee-firm under the said transaction was only fictional income or fictional gain and, therefore, was not chargeable to tax ? " As we shall presently show, the Tribunal has, in our opinion, decided in favour of the assessee on a wrong footing.....
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....consideration for the sale was fixed in the sum of Rs. 1,00,000 which was to be paid through the allotment to the vendors or their nominees of 1,000 fully paid up shares of Rs. 100 each in the capital of the company. In other words, the business of the firm was taken over as a going concern by the said limited company. The ITO found during the course of assessment of the said firm for the assessment year 1966-67 that the book value of the assets of the firm at the time of taking over came to Rs. 6,14,238. Against this, its liability stood at Rs. 5,87,000. According to the ITO, the net value of the assets thus came to Rs. 27,238 against which the firm had received Rs. 1,00,000 being the value of the shares. Thus, according to the ITO, the....
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....ered ignoring its form. A number of other arguments were also advanced before the Tribunal. These are indicated in para. 3 of the statement of the case. The Tribunal, however 'after noting certain decisions of the Supreme Court, held that the excess appeared to be only fictional income or fictional gain. This observation to be found in paragraph 3 of the appellate decision was obviously a result of acceptance of the assessee's first argument that if regard be had to the substance of the transaction, there were no two separate entities and, therefore, no real income or real gain. This argument found favour with the Tribunal which chose not to apply its mind to the other contentions. Mr. Joshi has drawn our attention to the decision ....
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....inery. In our opinion, in view of these clear observations, the Tribunal was in error in allowing the appeal of the assessee on the footing that there was no real income or real gain but only fictional income or fictional gain. The other decisions cited are not directly in point and cannot be availed of for the purpose of granting relief to the assessee. The above discussion is sufficient, in our opinion, to dispose of question No. 2 referred to us which will have to be answered in favour of the Revenue. On question No. 1, however, we find that the Tribunal has not gone into several aspects, both pertinent and relevant, which are germane to the question. In our opinion, it will not be proper for us to attempt to answer this questio....