Supreme Court of India
VATSALA SHENOYversusJOINT COMMISSIONER OF INCOME TAX
- Citation
- 2016 INSC 969
- Decided
- 18 October 2016
- Disposal
- Case Partly allowed
- Bench
- A K SIKRI
Holding
The sale of the dissolved firm's assets was a transfer of capital assets, not a slump sale, and the resulting capital gains are chargeable to the individual partners under s.45 of the Income Tax Act, 1961.
Summary
The partners of the dissolved partnership firm Mis. Mangalore Ganesh Beedi Works sold the firm's assets as a going concern to an Association of Persons (AOP-3) after winding‑up proceedings. The Assessing Officer treated the partners' share of the sale proceeds as capital gains in their individual hands, while the business income for the assessment year was taxed to the AOP. The partners challenged the tax, arguing that the transaction was a slump sale and that capital gains should be taxed to the firm, not to them individually. The Supreme Court held that the assets sold were capital assets under s.2(14) and the transfer triggered s.45, making the gains chargeable to the partners. The sale was not a slump sale because values were assigned to individual assets, so s.45(4) applied and the partners, not the firm, were liable for capital gains tax. The Court also upheld that the business income for the assessment year should be taxed in the hands of AOP‑3. Consequently, the partners' appeals were partly allowed and the revenue appeals dismissed.
Issues considered
- The nature of the assets sold by the dissolved partnership firm – whether they constitute a "capital asset" within s.2(14) of the Income Tax Act, 1961.
- Whether the transaction qualifies as a "slump sale" under s.2(42C) and the applicability of s.45(4) versus taxation of the firm.
- The proper computation of capital gains and the applicability of s.48, s.55(2) and s.508 (now s.50) for goodwill valuation.
- The liability for capital gains tax – whether it falls on the individual partners or on the partnership firm/AOP.
- The taxability of the business/revenue income for AY 1995‑96 – whether it should be assessed in the hands of the partners or the AOP.
Legislation cited
- Companies Act, 1956s. 583(4)(a)
- Income Tax Act, 1961s. 2(14), s. 2(42C), s. 2(47), s. 45, s. 45(4), s. 48, s. 55(2)
Subjects
capital gainspartnership dissolutionslump saleIncome Tax ActSection 45Section 2(14)Section 2(42C)Association of Personswinding upvaluation of goodwillbusiness incomeassessment year
Judgment
[2016) 12 S.C.R. 1
VATSALA SHENOY A
v.
JOINT COMMISSIONER OF INCOME TAX
I
(ASSESSMENT), MYSORE
(Civil Appeal No. 1234of2012) B
OCTOBER 18, 2016
[A. K. SIKRI AND N.V. RAMANA, JJ.]
Income Ta:x Act, 1961:
ss. 2(14), 45 - Capital asset - Profit/gain arising from transfer C
thereof to be taxed as "Capital gains" -Assessees, erstwhile partners
of a dissolved partnership firm - Winding up proceedings file.d to
sell the assets of the firm and distribute the share thereof - Firm
sold as an ongoing concern to three partners forming Association
of Persons (AOP-3) - Assesseeslerstwhile partners received their D
net share of the value of the assets of the firm - Taxed as capital
gains in the hands of assessees by Assessing Officer - Held: Result
of winding up proceedings, after dissolution of firm, was to sell the
assets of the firm and distripute the share thereof - On facts, it is
clear that asset of the firm that was sold was capital asset within the
meaning of s. 2(14) of the Act - Thus, once it is held to be the E
"capital asset'', gain therefrom is to be treated as capital gains within
the meaning of s. 45 - Capital gains uls. 45 is deemed income which
arises at a fixed point of time, viz. on the date of transfer - 'Transfer'
of the assets triggered the provisions of s.45, making the capital
gains subject to payment of tax at the hands of assessees - However,
F
business income/revenue income of the firm in the Assess111e1it Year
in question to be assessed at the hands of AOP-3 and not
assessees - Companies Act, 1956 - s.583(4J(a) - Tax/Taxation.
s.2(42)C - Slump &Ile - When not - Held: As per the definition
of 'slump sale', sale in question could be treated as slump sale only
if there was no value assigned to the individual assets and liabilities G
in such sale - In the present case, not only value was assigned to
individual assets, even liabilities were taken care of - Hence, sale
in question not slump sale.
Partly allowing the appeals by assessees, the Court
,, H
2 SUPREME COURT REPORTS [2016] 12 S;C.R.
..,
A HELD: 1.1 The firm stood dissolved with effect from
December 06, 1987; the company petition-was filed by two
partners in view of eruption of disputes among the partners; the
business was carried on by the partners with controlling interest
as an interim arrangement; the income was assessed in their
hands as AOP and not in the hands of the firm which had already
B
been dissolved; assets of the company were put to sale in
accordance with the Partnership Deed of a dissolved firm, though
as an ongoing concern; and outgoing partners (assessees herein)
received their net share of the value of the assets of the firm out
·or the amount received by way of sale of the assets of the firm as
c per the Partnership Deed. On the aforesaid facts, it becomes
clear that asset of the firm that was sold was the capital asset
within the meaning of Section 2(14) of the Act. Once it is held to
be the "capital asset", gain therefrom is to be tn;ated as capital
gains within the meaning of Section 45 of the Act. [Paras 24, 27)
[18-E-H; 19-AJ
D
1.2 Capital gains under Section 45 of the Act is deemed
income which arises at a fixed point of time, viz. on the date of
transfer. When the said legal principle is applied to the facts of
the instant case, it is found that the partnership firm had dissolved
and thereafter winding up proceedings were taken up in the High
E Court. The result of those proceedings was to sell the assets of
the firm and distribute the share thereof to the erstwhile partners.
Thus, the 'transfer' of the assets triggered the provisions of
Section 45 of the Act and making the capital gains subject to the
payment of tax. [Paras 27, 28] [20-G-H; 21-A-B)
F 1.3 The assessees, however, were attempting to wriggle
out from payment of capital gains tax on the ground that it was a
"slump sale" within the meaning of Section 2(42)C of the Act and
there was no mechanism at that time as to how the capital gains
is to be computed in such circumstances, which was provided for
G the first time by Section SOB of the Act with effect from April 01,
2000. As per the definition of 'slump sale' in Section 2(42)C, sale
in question could be treated as slump sale only if there was no
value assigned to the individual assets and liabilities in such sale.
This had obviously not happened. Not only value was assigned to
individual assets, even the liabilities were taken care of when
H
VATSALA SHENOY v. JOINT COMMISSIONER OF INCOME 3
TAX (ASSESSMENT), MYSORE
the amount of sal.e was apportioned among the outgoing partners, A
i.e. the assessees herein. Once it is held that the sale in question
was not slump sale, obviously Section SOB also does not get
attracted as this section contains special provision for
computation of capital gains in case of slump sale. [Paras 25, 26]
[19-A-B; F-H)
B
1.4 There is merit in the submission of the assessees that
income of the firm in the Assessment Year in question could not
be taxed at the hands of the assessees. First, and pertinently, it
is an admitted case that 40% of the said income was allowed by
the High Court to be retained by the successful bidder (AOP-3)
precisely for this very purpose. This 40% represented the tax c
which was to be paid on the income generated by the ongoing
concern being run by the Association of Persons, as authorised
by the High Court. Secondly, in the previous years, the
Department had taxed the AOP and this procedure had to
continue in the Assessment Year in question as well. Therefore, D
the business income/revenue income in the Assessment Year in
question is to be assessed at the hands of AOP-3, in terms of the
orders of the High Court, as AOP-3 retained the tax amount from
the consideration which was payable to the assessees herein and
it is AOP-3 which was supposed to file the return in that behalf
and pay tax on the said revenue income. [Paras 32, 33, 34) [24- E
B-D, G-H]
PNB Finance Limited v. Commissioner of Income Tax I.
New Delhi (2008) 13 SCC 94 : 2008 (15) SCR 556 -
held inapplicable.
F
Commissioner of Income Tax, Faridabad v. Ghanshyam
(HUF) (2009) 8 sec 412 : 2009 (10) SCR 1025 -
held applicable.
Mis. Radhasoami Satsang, Saomi Bagh, Agra v.
Commissioner of Income Tax (1992) 1 S€C 659 : 1991 G
(2) Suppl. SCR 312; Commissioner of Income Tax 1:
Excel Industries Ltd. (2014) 13 SCC 459 : 2013 (10)
SCR 490 - relied on.
Co111111issioner of Income Tax, Bombay City I v. Tata
Services Ltd. (1980) 122 ITR 594 (Bombay); Mangalore
H
4 SUPREME COURT REPORTS [2016] 12 S.C.R.
A ,Ganesh Beedi Works v. Commissioner of Income Tax,
Mysore & Anr. (2016) 2 SCC 556; CIT v. B.C. Srinivasa
Setty (1981) 2 SCC 460:1981 (2) SCR 938; Areva T &
D India Ltd. v. The Deputy Commissioner of Income
Tax (2012) 345 ITR 421; Commissioner of Income Tax
& Anr. v. Associated Electronic!;, & Electricals Industries
B
(Bangalore) (P} Ltd. (2016) 130 DTR 0222 (Kar) -
referred to.
Case Law Reference
,,
(1980) 122 ITR 594 (Bombay) referred to Fara 15
c 2008 (15) SCR 556 held inapplicable Para 16
(2016) 2 sec 556 referred to Para 17
1981 (2) SCR 938 referred to Para18
(2012) 345 ITR 421 referred to Para 18
D
(2016) 130 DTR 0222 (Kar) referred to Para 18
2009 (10) SCR 1025 held applicable Para 27
2013 (10) SCR 490 relied on Para 33
1991 (2) Suppl. SCR 312 relied on Para 33
E
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1234
of2012.
From the Judgment and Order dated 23.12.2010 of the High Court
ofKarnataka at Bangalore in ITA No. 147 of2000.
F WITH
C.A. Nos.1235, 1236, 1237, 1238, 1239, 1240, 1241, 1242, 1243,
l244and 1245 of2012.
C.A. Nos. 10190, 10191and10192 of2016.
G Ajay Vohra, Sr. Adv., Mohit Chaudhary, Ms. Puja Sharma, Kuna!
Sachdeva, Ms. Damini Chawla, Balwinder S., Iman Ali, Yashraj Singh
Deora, Ashok Kulkarni, Ms. Priyadar Shinee Singh, Ms. Asmita Singh,
Mis. Mitter & Mitter Co., Advs. for the Appellant.
K. Radhakrishnan, Sr. Adv., Rupesh Kumar, Arijit Prasad, T. M.
H Singh, Pratik Raoka, Mrs. Anil Katiyar, Advs. for the Respondent.
VATSALA SHENOY v. JOINT COMMISSIONER OF INCOME 5
TAX (ASSESSMENT), MYSORE
The Judgment of the Court was delivered by A
A:K. SIKRI, J. 1. Delay condoned in Special Leave Petition
(C)No ..... CC 9101and10193 of2014.
2. Leave granted.
3. All these appeals (except Civil Appeal No. 1245 of2012 and B
Civil Appeals arising out of SLP (C) No .... CC Nos. 9101 and I 0193 of
2014 and SLP (C) No. 14812 of2014, which are filed by the Revenue)
are preferred by the assessees. The respondent in these appeals is the
Joint Commissioner oflncome Tax (Assessment), Special Range, Mysore,
who would be referred to as the 'Revenue' hereinafter. It may also be
mentioned that these appeals arise out of a common judgment rendered C
by the High Court of Karnataka on December 23, 20 I 0 in the appeals
filed under Section 260-A of the Income Tax Act, 19(:! I (for short, the
'Act') challenging certain aspects of assessments pertaining to the
Assessment Year 1995-1996. In fact, as would be noticed hereinafter,
all these assessees were partners of a partnership firm known as 'Mis. D
Mangalore Ganesh Beedi Works', which was sold to three other partners,
as a going concern, but after the dissolution of the partnership firm.
Certain considerations received as a result thereof were treated as capital
gains on which income tax was charged by the Assessing Officer: The
case of the assessees was that it was a capital receipt in their hands, not
exigible to income tax. The exact nature of the receipt, treated as capital E
gain by the Assessing Officer, shall be taken note of subsequently at the
appropriate stage. Suffice it to state that the assessees successive appeals
to Commissioner of Income Tax (Appeals) and .then to the Income Tax
Appellate Tribunal (ITAT) and thereafter to the High Court have failed,
thereby sustaining the order of the Assessing Officer. With this brief F
background of the litigation, we advert to the events that have taken
place in some detail.
4. One S. Raghuram Prabhu started the business of manufacturing
beedies in the year 1939. His brother-in-law joined him in the year 1940
and this sole proprietorship was converted into a partnership firm with G
the name 'Mis. Mangalore Ganesha Beedi Works '(hereinafter referred
to as the 'firm'). It was reconstituted thereafter from time to time and
lastly o,n June 30, 1982. t'>artnership deed dated June 30, 1982 was
entered between thirteen persons with the same name. Duration of this
firm was five years, which period could be extended by six months.
Thereafter, the. affairs of the firm had to be wound up as provided. in H
6 SUPREME COURT REPORTS f2016112 S.C.K
A Clause 16 of the Partnership Deed. The firm was dissolved on December
06, 1987 by afflux of time after extending the life of the firm by a period
of six months, as per the terms stipulated in the Partnership Deed.
However, because of the difference of opinion among the erstwhile
partners, the affairs of the finn could not be wound up. Therefore, two
of the partners of the firm filed a petition before the High Court under
B
the provisions of Part X of the Companies Act, 1956 for winding up of
the affairs of the firm in terms of Section 583(4)(a) thereof. The said
petition was registered as Company Petition No. 1 of 1988. Significantly,
though the firm stood dissolved on December 06, 1987, and thereafter
Company Petition No. 1 of 1988 for the winding up proceedings after
c dissolution was filed in the High Court, the business of the partnership
firm continued because of the interim order passed by the High Court.
This was because of the agreement of the partners, as stipulated in the
Partnership Deed itself, providing that on dissolution the firm was to be
sold as a continuing concern to that partner(s) who could give the highest
D price therefor. The relev,ant clauses in the partnership firm stipulating
the aforesaid arrangement are clauses (3) and (16) which read as under:
"3. The duration of the Partnership shall be five yearS> in
the first instance; but by mutual agreement the parties hereto
may extend the said duration. If during the subsistence of
this Partnership any of the partners desire to retire from
E the partnership he or she can do so, if all the other partners
agree to the said retirement. However, if all the other
partners do not agree to the said retirement, the partner
intending to retire shall give six months' notice in writing of
his or her intention to retire and on expiration of the.period
F of the said notice the said Partner shall,cease to be a Partner
and subject to Para 14 infra from that date all his or her
liabilities and rights as a Partner of the firm shall come to
an end.
xx xx xx
G 16. If the Partnership is dissolved, the.going concern carried
on under the name of the Firm MANGALORE GANESH
BEEDI WORKS and all the trade marks used in course of
the said business by the said firm and under which the
business of the Partnership is carried on shall vest in and
belong to the Partner who offers and pays or two or more
H
VATSALA SHENOY v. JOINT COMMISSIONER OF INCOME 7
TAX (ASSESSMENT), MYSORE [A. K. SIKRI, J.]
Partners who jointly offer and pay the highest price therefor A
as a single group at a sale to be then held as among the
Partners shall be entitled to bid. The other Partners shall
execute and complete in-favour of the purchasing Partner
or Partners at his/her or their expense all such deed,
instruments and applications and otherwise aid him/her or
B
them for the registration his/her name or their names of all
the said trade marks and do all such deed, acts and
transactions as are inc lental or necessary· to the said
transferee or assignee Partner or Partners."
5. In view of the aforesaid clauses, specific order dated November
05, 1988 was passed by the High cto1,1rt permitting the group of partners, C
seven in number, who had controlling interest, to continue the business
as an interim arrangement till the completion of winding up proceedings.
Ultimately, the orders dated June 14, 1991 were passed in the said
company petition for winding up the affairs .of the firm by selling its
assets as an 'ongoing concern'. Though this order was challenged by o
some of the partners by filing special leave petition in this Court, the
same was dismissed as withdrawn in the year 1994. In this manner,
orders dated June 14, 1991 became final, which had permitted the sale
of the firm, as an ongoing concern, to such of its partner(s), who makes
an offer of highest price. Reserve price of~30 crores was also fixed
thereby mandating that the price cannot be less than ~30 crores. The E
successful bidder was also required to accept further liability to pay
interest @ 15% per annum towards the amount of price payable to
partners from December 06, 1987 till the date of deposit. In the order
dated June 14, 1991, it was also directed thatthe successful bidder shall
deposit the offer price together with interest with the Official Liquidator F
within a period of sixty days of the date of acceptance of the offer.
6. On the aforesaid terms, these partners individually or in groups
offered their bids. Bid ofAssociation of Persons comprising three partners
(hereinafter referred to as 'AOP-3 '),at ~92 crores, turned out to be the
highest and the same was accepted by the High Court vide order dated G
September 21, 1994. AOP-3 deposited this amount of ~92 crores with
the Official Liquidator on November 17, J 994 and with the occurrence
of this event, assets of the firm were treated as having been sold to
AOP"3 on November 20, 1994. Even actual handing over of the business
of the firm along with its assets by the Official Liquidator to the said
AOP-3 took place on January 07, 1995. H
8 SUPREME COURT REPORTS [2016] 12 S.C.R.
A 7. From the aforesaid facts, following events which are relevant
for the purposes of these appeals, are recapitulated:
(i) Date of dissolution of the partnership firm is December 06,
1987.
(ii) Company Petition No. 1 of 1988 was filed in the High Court
B ofKarnataka for winding up of the firm. All steps and formalities for
winding up, thereafter, are taken pursuant to the orders passed by the
High Court from time to time.
(iii) Order dated November 05, 1988 is passed permitting the
group of partners (seven in number) to continue the business as an interim
c arrangement till the completion of winding up proceedings.
(iv) WindinguporderdatedJune 14, 1991 ispassedfiJ!.ingminimum
price of~30 crores for the sale of the dissolved partnership firm as a
going concern to such of its partner(s) who makes the offer of highest
price.
D
(v) The date of deposit of the bid amount of~92 crores by AOP-
3, being the highest bid, is on November 17, 1994.
8. With the aforesaid background facts, we advert to the
developments that have taken place on the income tax front.
E 9. Since the firm stood dissolved with effect from December 06,
1987, upto December 06, 1987, it is the firm which had filed the income
tax retums in respect of the income which it had earned, for payment of
income tax thereupon. However, as. mentioned above, though the firm
was dissolved, but the business continued because of the orders passed
by the High Court keeping in view the provisions contained in the
F
Partnership Deed. The income that was earned from the date of
dissolution till the date of winding up and when the firm was sold to
AOP-3 was assessed at the hands of dominant partners controlling the
business activities (seven in number) as "Association of Persons" (AOP),
meaning thereby, the income from the business of the said firm
G December 06, 1987 till winding up was assessed as an AOP. At the
same time, these assessees were also filing their individual returns as
well.
10. The assessees filed the return for the Assessment Year 1995-
1996. It is in this Assessment Year the assets of the firm were sold as
H ongoing concern to A.OP-3 on September 21, 1994. The Assessing
VATSALA SHENOY v. JOINT COMMISSIONER OF INCOME 9
TAX (ASSESSMENT), MYSORE [A. K. SIKRI, J.}
Officer, while making the assessments, bifurcated this Assessment Year A
into two periods. One period from April 01, 1994 to November 20, 1994
(asAOP of the partners who had continued the business in that capacity
in previous years). Second period from November 20, 1994 till March
31, 1995 (as the business was handed overtoAOP-3 and the assessment
was treated as that of AOP~J). While doing so, the Assessing, Officer .
8
observed that the entire capital gains on the sale as a going concern of
the business of the firm as well as the proportionate profits for the period
April 01, 1994 to November 20, 1994, when the controlling AOP was
carrying on business as computed in accordance with the order of the
High Court in Company Petition No. 1 of 1988, on a notional basis a sum
of ~9,57,57,007 should be taxed in the hands of the firm. However, C
according to the Assessing Officer, to protect interests of the Revenue,
the same amounts were included in the assessment of the AOP for the
first period. The income and tax. computations were made separately
for the two periods in the order of assessment. The Assessing Officer
apportioned the consideration among the various assets comprised within D
the business with further splitting between short term and long term
capital gains.
11. While the aforesaid treatment was given to the assessment of
the income of the firm, insofal" as the assessees as individuals are
concerned, on the same date the Assessing Officer made assessment in
their cases also by including therein the proportionate share from out of E
~92 crores (the amount ofauction bid) as capital gain at their hands and
bifurcated the same into long term and short term gain. The manner in
which it is done can be discerned from' one such Assessment Ord~
where the capital gain is computed in the following manner:
"INCOME AS RETURNED Rs.29,40,680 F
II. Computation of capital gains on account of transfer .Of
interest in partnership firm Mis. MGBW out of Rs. 92 c~ores
Share of assessee out of Rs. 92 crores Rs. 12,73,55,600 G
Al
Goodwill u/s. 48 r.w.s.
55(1)
76.6% ofRs.12,73,55,600 Rs.9, 75,54,390
(See Table 3)
H
10 SUPREME COURT REPORTS [2016112 S.C.R.
A less Cost of acquisition nil
(See Table 3)
Net Taxable Goodwill Rs. 9,75,54,390
A2
B
Sale of Land
(See Table 3)
Marketvalue @ 19% of Rs.12, 73,55,600
less Cost of acquisition , Rs.2,41,97,564
c (see Table 3)
13.843%of
Rs.1,53,45,025,
Indexed Cost 21,24,22lx259
100
D 55,01,710 Rs.1,86,95,854
TOTAL LONG TERM CAPITAL GAINS (Al +A2) Rs. 11,62,50,244
III Short-term Capital gain on transfer of movable (depreciable
asset) u/s. 50
E
4.4% ofRs.12,73,55,600 Rs. 56,03,646
Less Value I w.d.v. in the beginning
of accounting year - 31.03 .1994
13.843% ofRs.15,11,404 Rs.2,09,224
F
SHORT TERM CAPITAL GAINS Rs. 53,94,422
IV Share ofNotional/Proportionate Profit""' Rs. 1,32,55,640
revenue receipt
TOTAL INCOME (I+ II+ III+ IV) Rs. 13,78,40,987
G
TOTAL INCOME EXCLUDING LONGTERM Rs. 2, 15,90, 743"
CAPITAL-GAINS
- 12. As can be gathered from the above, the total proceeds of~92
crores are first apportioned among the assessees in the ratio in which
H
VATSALA SHENOY v. JOINT COMMJSSIONER OF INCOME 11
TAX (ASSESSMENT), MYSORE [A. K. SlKRI, J.]
they had received the said amount. Thereafter, this amount is div.ided A
into long term capital gains and short tenn capital gains. Two components
oflong term capital gains are taken into consideration, namely goodwill
and sale ofland. Likewise, short term capital gain is arrived at in respect ·
of transfer of movables which were depreciable assets. For the purposes
of calculation/ computation, figures were taken from Table II incorporated B
in the Assessment Order itself mentioning the market value of these
assets. This, Table II reads as under:
Sales/Market Amount in
S.No. Asset %age Value assessee's
case
c
I. Land as per H.S.
Seshagiri - Registered 19.00 17,47,90;000 2,41,97,564
valuer
2. Buildings as per H.S.
Seshagiri - Registered 4. I 0 3,80,00,000 56,06,646
Valuer D
3. Plant & Machinery
estimated on the basis
0.30 25,00,000
of Swamy& Rao's
Report
4. Goodwill - being E
balancing figure
remaining out of total -
figure of 92,00,00,000 76.60 70,47,10,000 9,75,54,390
also being almost same
figure if super-profit
F
method is adopted
Total I 00.00 92,00,00,000 12, 7 3,55 ,600
13. It becomes apparent that the approach adopted by the
Assessing Officer was to take into consideration market value of the
assets of the firm, viz. land,.building and plant & machinery, which had G
already been evaluated by the Registered Valuers as reflected. in the
Table above. The market value of these three assets was ~21 ;52,90,000.
Since total sale consideration at which the firm was sold was ~92 crores,
balance amount of~70,4 7, I 0,000 was treated as representing goodwill
of the firm which was taxed as longterm gain. This mode of arriving at H
12 SUPREME COURT REPORTS [2016) 12 S.C.R.
A short term and long term capital gain and taxing it accordingly by the
Ass~ssing Officer has received the stamp of approval by the
Commissioner oflncome Tax (Appeals) and the Income Tax Appellate
Tribunal, as well as the High Court.
14. Mr. Ajay Vohra, learned senior counsel appearing for the
B assessees, submitted, with great emphasis, that the aforesaid approach
is incorrect, invalid and impermissible in law. Two broad arguments, on
the basis of which he attacked the rationale of the aforesaid assessments,
are the following:
(i) After referring to the averments made in the winding up petition
c that was filed in the Karnataka High Court, order of winding up and the
final order of confirmation of sale, Mr. Vohra pointed out that the firm
was admittedly sold as a going concern. Predicated on this fact, his
submission was that there could not have been any capital gain on the
sale of ongoing concern. For this purpose, he drew sustenance from the
definition of 'capital asset' as contained in Section 2( 14)(a) of the Act
D as well as Section 45 of the Act. Section 2(14)(a) is to the following
effe<;t~
"2(14) "capital asset" means -
(a) property of any kind held by an assessee, whether or
not connected with his business or profession;
E
xx xx xx''
15. He submitted that the expression 'property of any kind'was
of widest amplitude, as held in Commissi011er ofll~come Tax, BOi11bay .
City Iv. Tata Services Ltd. 1 Therefore, assets of the partnership were
to be treated as capital assets.
F
16. He, thus, argued that undertaking that was transferred as a
going concern was a capital asset. However, at that time, ,there was no
provision as to how the asset of the firm when sold is to be computed as '
a capital gain .. The learned counsel pointed out that such a provision
was introduced for the first time (vide Finance Act, 1999) by inserting
·G Section SOB to the Act with effect from April 01, 2000, laying down the
mechanism for computation of capital gains in case of slump sale. For,
such slump sales prior to April 01, 2000 were, therefore, not taxable,
was the submission of the learned counsel. It was argued that precisely
this very issue had been clinchingly determined by this Court in PNB
1
H (1980) 122 ITR 594 (Bombay)
VATSALA SHENOY v. JOINT COMMISSIONER OF INCOME 13
TAX (ASSESSMENT), MYSORE [A. K. SIKRI, J.]
Finance Limited v. Co111111issio11er of Income Tax I, New Del/ti : in A
the following manner:
"16. In the case of Artex Manufacturing Co. this Court
found that a valuer was appointed, th~t valuer submitted
his valuation report in which itemized valuation was carried
out and on that basis the consideratiOn was fixed at B
Rs.11,50,400. Therefore, the sale consideration had been
arrived at after taking into account the value of plant,
machinery and dead stock as computed by the valuer and,
consequently, it was held that the surplus arising on the sale
was taxable under section 41 (2) of the Act and not as capital
gains. In the circumstances, the judgment of this court in c
the case of Artex Manufacturing Co. was not, applicable
t-0 the present case. Further, this court in the case of C/Tv.
Electric Control Gear Mfg. Co. [1997] 227 ITR 278 has
held that whether (sic) the business of the assessee stood
transferred as a going concern for slump sale price, in the D
absence of evidence on record as to how the slump price
,stood arrived at, section 41(2) had no application. It is
interesting to note th11t the judgment in the ca~e of Electric
Control Gear Mfg. Co. is given by the same Bench which
decided the case of Artex MamtfacJ11ring Co. In fact,
' E
both the judgments are reported on after other in 227 ITR
at pages 260 and 278 respectively. In the present case, as
can be seen from the impugned judgment of the Delhi High
Court, the judgment of this court in Electric Control Gear
Mfg. Co. is missed out. That judgment has not been
considered by tf1e High Court. As stated above, this court F
has clarified its judgment in Artex Mamtfacturing Co. in
its judgment in the case of Electric Control Gear Mfg.
Co. Therefore, section 41 (2) has no application to the facts
of the present case.
17. As regards applicability of section 45 is concerned,
three test~ are required to be applied. In this case, section G
45 applies. There is no dispute on that point. The first test
is that the charging section and the computation provisions
are inextricably linked. The charging section and the
computation provisions together constituted an integrated
' (2008J 13 sec 94 : 307 ITR 75 H
14 SUPREME COURT REPORTS [2016] 12 S.C.R.
A code. Therefore, where the computation provisions cannot
apply, it is evident that such a case was not intended to fall
within the charging section, which, in the present case, is
section 45. That section contemplates that any surplus
accruing on transfer of capital assets is chargeable to tax
in the previous year in which transfer took place. In this
B
case, transfer took place on July 18, 1969. The second test
which needs to be applied is the test of allocation/attribution.
This test is spelt out in the j_udgment of this Court in
Mugneeram Bangur and Co. (Land Department) [1965]
57 ITR 299. This test applies to a slump transaction. The
c object behind !his test is to find out whether the slump price
was capable of being attributable to individual assets, which
is also known as item-wise eannarking. The third test is
that there is a conceptual difference between an undertaking
and its components. Plant, machinery and dead stock are
individual items of.an undertaking. A business undertaking
D
can consist of not only tangible items but also intangible
· items like, goodwill, man power, tenancy rights and value
of banking licence. However, the cost of such items
(intangibles) is not determinable. In the. case of CIT v.
B. C. Srinivasa Setty reported in [l 981] 128 ITR 294, this
E cout1 held that section 45 charges the profits or gains arising
from the transfer of a capital asset to income-tax. In other
words, it charges surplus which arises on the transfer of a
capital asset in terms of appreciation of capital value of
that asset. In the said judgment, this Court held that the
"asset" must be one which falls within the contemplation
F
of section 45. It is further held that, the chargingsection
and the computation provisions together constitute an
integrated code and when in a case the computation
provisions cannot apply, such a case would not fall within
section 45. In the present case, the banking undertaking,
G inter alia, included intangible assets like, goodwill, tenancy
rights, man power and value of banking licence. On the
facts, we find that item-wise earmarking was not possible.
On the facts, we find that the compensation (sak
consideration) of Rs.10.20 crores was not allocable (sic)
item-wise as was the case in Artex Mam!facturinf{ Co."
H
VAJ'SALA SHENOY v. JOINT COMMISSIONER OF INCOME 15
TAX (ASSESSMENT), MYSORE [A. K~ SIKRI, J.]
17. Mr. Vohra pointed out that in the instant case itself, insofar as A
AOP-3 is concerned (who were the successful bidders and purchased the
assets of the firm), they were treated as purchasers of an ongoing concern
by this Court in the case of their assessment in Mmtglllore Gllnesh Bee<li
Works v. Commissioner ofIncome Tax, Mysore &Am: 3
In nutshell, his argument was that since it was a sale of an ongoing
concern, it had to be treated as a slump sale within the meaning of Section B
2( 42C) of the Act and, therefore, it was not permissible for the Assessing
Officer to assign the amount of ~92 crores into different heads of land,
building and machinery and treating balance amount as goodwill. It was a
capital asset as an ongoing-concern which was sold at~ 92. crores ancflh
th_<e..absence of provisions relating to mode of computation and d~ductions c
at the relevant time, which were inserted subsequently only with effect
from April 0 I, 2000, as per PNB Fi"'mce Limited, the consideration was
to be treated as capital receipt and no capital gain was payable thereon.
18. Two incidental submissions were also made on this aspect, which
are:
(a) Even ifthe provisions of capital gain were applicable and the D
amount was to be taxed as the capital gain, valuation of goodwill, as.done
by the Assessing Officer, was contrary to-law. It was submitted that the.
manner in which the goodwill was valued showed that cost ofacquisition
was treated as 'Nil'. However, it could not be so having regard to the
provisions of Section 48. He c2ntrasted the same with Section 55(2) E
which was inserted with effect from April 0 I, 2002 and deals with 'cost of
acquisition' for the purposes of Sections 48 and 49 stipulating that insofar
as capital asset in relation to goodwill of a business is concerned, cost of
acquisition would be the cost at which it was p'urchased from the previous
owner. According to him, this yardstick could not have been applied prior
to April 01, 2002 in the absen9e of any statutory scheme and the instant F
case needed to be covered by the law laid down by the courts in this behalf
in various judgments. The learned couns~I referred to the following
judgments in support: _
(i) C/Tv. B.C. SriniV(ISll Setty
(ii) M<mgalore Ganesh Bee<li Works
(iii) Areva T & D Inc/ill Ltd. v. The Deputy Commissioner of G
Income T~
'(2016) 2 sec 556: (2015) 378 ITR 640
'(1981) 2 sec 460: 128 ITR 294
'(2012) 345 !TR 421 (Delhi High Court)
H
16 SUPREME COURT REPORTS r2016l 12 S.C.R.
A (iv) Commissioner of Income Tax & Anr. v. Associated
Electronics & Electricals Industries (Bangalore) (P) Ltd. 6
(b) Without prejudice to the aforesaid contentions, his other
submission was that if at all the capital gain tax was payable, liability to
pay the same was that of the partnership firm and not the individual
B partners by virtue of Section 45(4 ), which reads as under:
"45. Capital gains. - (I) Any profits or gains arising ·
from the transfer of a capital asset effected in the previous
year shall, save as otherwise provided in sections 54, 548,
54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable
c to income-tax under the head "Capital gains", and shall be
deemed to be the income of the previous year in which the
transfer took place.
F '
\
xx xx xx
. (4) The profits or gains arising from the transfer ofa capital
D asset by way,of distribution of capital assets on the dissolution
of a firm or other association of persons or body of
individuals (not being a company or a co-operative society)
or otherwise, shall be chargeable to tax as the income of
the firm, association or body, of the previous year in which
E the said transfer takes place and, for the purposes of section
48, the fair market value of the asset on the date of such
transfer shall be deemed to be the full value of the
consideration received or accruing as a result of the
transfer."
19. Second submission of the learned senior counsel for the
F
assessees pertained to the payment of tax on the income which the
business earned from April 01, 1994 till November20, 1994. The learned
counsel argued that as per the orders of the High Court in the winding
up petition, 40% of this income was retained by AOP-3 as a tax
component because of the reason that for business income of the earlier
G years, after the dissolution, the same was taxed as an AOP. Therefore,
the individual partners could not be taxed on the said business income in
the year in question, as held in Mis. R<ulltasoami Satsa'ng; Saomi Baglt,
Agra v. Commissioner ofIncome Tax' and CQmmissioner ofIncome
6
(2016) 130 DTR 0222 (Kar)
'(1992) 1sec659: 193 ITR 321
H
VATSALA SHENOY v. JOINT COMMISSIONER OF INCOME 17
TAX (ASSESSMENT), MYSORE [A. K. SIKRI, J.]
Tax v. Excel l11dustries Ltd. 8 His related submission was that in any A
case this amount was not received by the assessees as it was retained
by AOP-3 and, therefore, tax was not payable by the assessees.
20. Coming to the first submission of the assessees, it can be seen
that it is founded on the premise that the assets of the firm were sold to
AOP-3 as a going concern with further premise that it was a slump sale. B
It is pointed out that the firm was doing business even after the winding
up petition was filed and as a going concern, it was put to sale.
21. Mr. Radhakrishnan, learned senior counsel appearing for the ·
Revenue, has refuted the aforesaid premise of the argument by submitting
that though it was sold as a going concern, nevertheless, the assets were c
that of a dissolved firm as the firm had come to an end on December 06,
1987 by afflux of time. In order to establish this fact, learned counsel
took us through the record, including the winding up petition which was
filed in the High Court as well as the orders passed therein, which are
relied upon by the assessees themselves.
D
22. After going through the records, we find that the Revenue has
been able to substantiate the aforesaid submission. We have already
noticed that the firm was dissolved on December 06, 1987 by afflux of
time. This event happened as per the terms stipulated in the partnership
deed itself. The necessity for filing the petition under the Companies
Act arose because of differences between the erstwhile partners that E
had erupted, pertaining to the affairs of the firm. No doubt, in the said
petition interim order dated November 05, 1988 was passed by the High
Court permitting the group of persons (seven in number), having
controlling interest in the firm, to continue the business. However, this
was done as an interim arrangement till the completion of winding up F
proceedings. Pertinently, insofar as the firm is concerned, it did not
carry on business thereafter as an existing firm. On the contrary, few
ex-partners with controlling interest were allowed to continue the business
activity in the interregnum as a stopgap arrangement. Another important
fact which needs a mention is that, insofar as the firm is concerned, it
did not file income tax returns after the date of dissolution. Obviously G
so, as it stood dissolved and was no more in existence. Precisely for this
reason, the income that was generated from the business, after the
dissolution, was assessed by the income tax authorities in the hands of
such erstwhile partners as an AOP. It is this AOP which was filing the
• (2014) t3 sec 459: 358 ITR 295 H
18 SUPREME COURT REPORTS rio 161 12 S.C.R.
A returns and getting the same assessed in that capacity and paying the
income tax thereupon. Further, in the orders passed by the High Court
from tim.e to time in the said petition, insofar as the firm is concerned, it
has always been described as 'the dissolved partnership/inn'. Thps,
the assets which were sold ultimately on November 20, 1994 were of a
dissolved partnership firm, though as a going concern.
B
Once we straighten the factual position in the manner stated above,
the whole legal edifice of the assessees case crumbles down.
23. At this stage, we would like to clarify one more factual aspect.
During the pendency of the winding up petition before the High Court,
c the High Court had passed various orders which included an order for
valuation of the assets of the firm. This valuation was done to enable
the Court to fix the reserve price for the purpose of inter se bidding
between the erstwhile partners and/or association of erstwhile partners.
The Chartered Accountants had done the valuation and submitted reports
on the basis of which base price was fixed at ~30 crores taking into
D account the value of various assets. These assets valued at ~30 crores
are sold for ~92 crores. Thereafter, AOP-3, the successful ·bidder,
deposited the amount ofbid in respect of the share of nine other partners
and a settlement was also prepared recording the value of the assets of
the firm after deducting the liability of the said nine partners. The net
E value of the assets so arrived at and distributed among the nine partners.
24. What follows from the aforesaid facts is that the firm stood
dissolved with .effect from December 06, 1987; the company petition
had to be filed by two partners in view of eruption of disputes among the
partners; the business was carried on by the partners with controlling
p interest as an interim arrangement; the income was assessed in their
hands as AOP and not in the hands of the firm which had already been
dissolved; assets of the company were put to sale in accordance with
Clause I 6 of the Partnership Deed of a dissolved firm, though as a going
concern; and outgoing partners (assessees herein) received their net
share of the value of the assets of the firm out of the amount received
G by way of sale of the assets of the firm as per Clause 16 of the Partnership
Deed.
On the aforesaid facts, it becomes clear that asset of the firm that
was sold was the capital asset within the meaning of Section 2( 14) of
the Act. It is not even disputed. Once it is held to be the "capital asset'',
H
VATSALA SHENOY v. JOINT COMMISSIONER OF INCOME 19
TAX (ASSESSMENT), MYSORE [A. K. SIKRI, J.]
gain therefrom is to be treated as capital gain within the meaning of A
Section 45 of the Act.
25. The assessees, however, are attempting to wriggle out from
payment of capital gain tax on the ground that it was a "slump sale"
within the meaning of Section 2(42C) of the Act and there was no
mechanism at that time as to how the capital gain is to be computed in B
such circumstances, which was provided for the first time by Section
508 of the Act with effect from April 0 I, 2000. However, this argument
fails in view of the fact that the assets were put to sale after their valuation.
There was a specific and separate valuation for land as well as building
and also machinery. Such valuation has to be treated as that of a
partnership firm which had already stood dissolved.
c
26. Section 2( 42)C defines 'slump sale' and reads as under:
" .. slump sale" means the transfer of one or more
undertakings as a result of the sale for a lump sum
consideration without values being assigned to the individual D
assets and liabilities in such sales.
Explanation 1. - For the purposes of this clause,
"unde1taking" shall have the meaning assigned to it in
Explanation 1 to clause (19AA).
Explanation 2. - For the removal of doubts, it is hereby E
declared that the determination of the.value of an asset or
liability for the sole purpose of payment of stamp duty,
registration fees or other similar taxes or fees shall not be
regarded as assignment of values to individual assets or
liabilities."
F
As per the aforesaid definition, sale in question could be treated
as slump sale only ifthere was no value assigned to the individual assets
and liabilities in such sale. This has obviously not happened. It is stated
at the cost of repetition that not onl.Y. value was assigned to indiyidual
assets, even the liabilities were taken care of when the amount of sale
G
was apportioned among the outgoing partners, i.e. the assessees herein.
Once .we hold that the sale in question was not slump sale, obviously
Section 508 also does not get attracted as this section contains special
provision for computation of capital gains in case of slump sale. As a
fortiorari, the judgment in the case of PNB Finance Limited also would
not apply. H
20 SUPREME COURT REPORTS [2016] 12 S.C.R.
A 27. In the aforesaid scenario, when the Official Liquidator has
distributed the amount among the nine partners, including the assessees
herein, after deducting the liability of each of the partners, the High
Court has rightly held that the amount received by them is the value of
net asset of the firm which would attract capital gain. Scope of Section
45 of the Act was explained in Commissioner of Income Tax,
B
Faridabad v. Glumsllyam (HUF) 9 and we would like to reproduce
the following discussion from the said judgment:
"16. The following conditions need to be satisfied for taxing
a transaction as capital gains viz. the subject-matter must
be a capital asset, the tr.ansaction must fall in the definition
c of "transfer", there. must be profit or loss cal led "capital
gains" and that the taxpayer has claimed exemption in whole
or in part by complying with legal provisions (like Section
54-F).
I 7. Section 45(1) of the 1961 Act speaks about capital
D gains arising out of "transfer" of a capital asset. The
definition of the expression "transfer" is contained in Section
2(47) of the 1961 Act. It has very wide meaning. What is
taxable under Section 45( I) of the 1961 Act is "profits and
gains arising from a transfer of a capital asset" and the
charge of income tax on the capital gains is a charge on the
E
income of the previous year in which the transfer took place.
18. Capital gain(s) is an artificial income. It is created by
the 1961 Act. Profit(s) arising from transfer of capital asset
is made chargeable to income tax under Section 45(1) of
the 1961 Act. From the scheme of Section 45, it is clear
F that capital gains is not an income which accrues from day-
to-day during a specific period but it arises at a fixed point
oftime, namely, on the date of the transfer. In short, Section
45 defines "capital gains", it makes them chargeable to tax
and it allots the appropriate year for such charge. It also
G enacts a deeming provision. Section 48 lays down the mode
of computation of capital gains and deductions therefrom."
In para 45 of the judgment, the Court also stated that capital gains
under Section 45 of the Act are not income accruing from day to day. It
• (2009) s sec 412
H
VATSALA SHENOY v. JOINT COMMISSIONER OF INCOME 21
TAX (ASSESSMENT), MYSORE [A. K. SIKRI, J.]
is deemed income which arises at a fixed point of time, viz. on the date A
of transfer.
28. When we apply the said legal principle to the facts of the
instant case, we find that the partnership firm had dissolved and thereafter
winding up proceedings were taken up in the High Court. The result of
those proceedings was to sell the assets of the firm and disti'ibute the B
share thereof to the erstwhilir. partners. Thus, the 'transfer' of the assets
triggered the provisions ofSection 45 of the Act and making the capital
gain subject to the payment of tax under the Act.
29. Insofar as argument of the assessees that tax, if at all, should
have been demanded from the partnership firm is concerned, we may c
only state that on the facts of this case that may not be the situation
where the firm had dissolved much before the transfer of the assets of
the firm and this transfer took place few years after the dissolution, that
too under the orders of the High Court with clear stipulation that proceeds
thereof shall be distributed among the partners. Insofar as the firm is
concerned, after the dissolution on December 06, 1987, it had not filed D
any return as the same had ceased to exist. Even in the interregnum, it
is theAOP which had been filing the return of income earned during the
said period. The High Court has touched upon this aspect in greater
detail in para 30 of its judgment. Since we agr7e with the same, we
reproduce below the discussion in the said para: E
"30. In view of the p~ovisions of Section 45 it is clear that
in the present case, the effect of the sale conducted by this
court among partners and under Clause 16 of the said
Partnership Deed, is that once the partnership is dissolved,
the partners would become entitled to specific share in the F
assets of the firm which is propo1tionate to their share in
sharing the profits of the firm and they are placed in the
same position as the tenants in common and for the purpose
of dissolution and u/s 4 7 of the Indian Partnership Act, 1932,
it is clear that even after the dissolution of the firm, the
authority of each partner to bind the firm and the other G
mutual rights and obligations of the partners continue
notwithstanding the dissolution so far as may be necessary
to wind up the affair of the firm and to complete transactions
begun but unfinished at the time of the dissolution.
H
22 SUPREME COURT REPORTS r20l6l 12 S.C.R.
A Therefore, for realisation of the assets, discharging the
liability of the firm and settling the accounts of the partners,
etc., the firm will continue to exist despite the dissolution
and not for any other purpose. The material on record in
the instant case would clearly show that after dissolution of
the firm on 06.12.1987, the firm has never filed any return
B
and in view of the order of this court permitting the pai1ners
to carry on the business in the interest of employees, return
was filed by AOP-13 consisting of erstwhile 13/12 partners
for accounting profits and seeking depreciation in the assets
of the firm and continued to do business in view of the
c order of this court that there was no agreement among the
partners to continue the busjness during the pendency of
the winding up proceedings. Further having regard to Clause
16 of the Partnership Deed of the dissolved firm, it is clear
that the partners intended that the assets of the firm should
not be sold to an outsider. It is well settled that every act of
D
the partner would be binding on the finn and also the partners
interse and Clause 16 of the Partnership Deed which has
been culled out supra clearly shows that if Partnership is
dissolved, the going concern carried on under the name of
the Firm MANGALORE GANESH BEED! WORKS and
E all the trade marks used in course of the said business by
the said firm and under which the business of the Partnership
is carried on shall vest in and belong to the Pai1ner who
offers and pays or two or more Partners who jointly offer
and pay the highest price therefor as a single group at a
sale to be then held as among the Partners shall be etititled
F
to bid. The other Partners shall execute and complete in .
favour of the purchasing Partner or Partners at his/her or
their expense all such deed, instruments and applications
and otherwise aid him/her oro them for theregistration his/
her name or their names of all the said trade marks and do
G all such deed, acts and transactions as are incidental or
necessary to the said transferee or assignee Partner or
Partners. The final order passed by this court to wind up
' the affairs of the firm would clearly show that the property
of the firm is purchased by the association of 3 pa11ners
H
VATSALA SHENOY v. JOINT COMMISSIONER OF INCOME 23
TAX (ASSESSMENT), MYSORE [A. K. SIKRI, J.]
who submitted their highest bid and that other partners had A
to given an undertaking that they may not interfere with the
carrying on business which is vested in the name ofMGBW
and all the trademarks used in the course of said business
and therefore it is clear that the appellants who are erstwhile
partners were not successful bidders for continuation of
B
business in the individual capacity of the MGBW and in
view of Clause 16, all tangible and intangible assets vested
with Association of3 partners whose highest bid ofRs.92
crores was accepted and admittedly after the passing of
the order of this court on 20.11.1994, all the appellants herein
and otherout-going pai1ners have given requisite undertaking c
as per the order of this com1 and the MGBW as a going
concern under the name and style MGBW and all
trademarks used in the course of said business by the said
firm and all tangible and intangible assets of the firm vested
with the purchasers erstwhile 3 partners who paid the highest
D
bid and the appellants have received consideration of the
conveyance and their respective share in the sale of net
assets of the firm after their undertaking that they cannot
interfere with the business ofMGBW which is vested with
all assets in favour of3 pa11ners have received the value of
their net asset which has been distributed by the Official E
Liquidator and AOP 3 who have purchased the business of
the old firm, succeeded to it and constituted a new firm in
the same name (vide order defendant (sic - dated)
14.06.1991 in the Company Petition) and therefore it is clear
that the order passed by the Assessing Authority confirr11ed
F
in the first appeal and by the Income Tax Appellate Tribunal
(Special Bench) holding that the appellants as erstwhile
partners are liable to pay capital gain on the amount received
by them towards the value of their share in the net assets
of the firm are liable for payment of capital gains u/s 45 of
the Act. The said finding is justified and accordingly we. G
answer the substantial question of law in favour of the
Revenue and against the assessee."
30. In view of our aforesaid discussion, the arguments that valuation
of goodwill was wrongly done may also not survive. In any case, we
H
24 SUPREME COURT REPORTS [2016] 12 S.C.R.
A find that no such plea was taken by the assessees in the· High Court or
before the Tribunal or lower authorities.
31. We now advert to the second argument.
32. It is argued that insofar as income of the firm in the Assessment
B Year in question is concerned, it could not be taxed at the hands of.the
assessees. We find merit in this submission.
33. First, and pertinently, it is an admitted case that 40% of the
said income was allowed by the High Court to be retained by the
successful bidder (AOP-3) precisely for this very purpose. This 40%
c represented the tax which was to be paid on the income generated by
the ongoing concern being run by the Association of Persons, as authorised
"·
by the High Qourt. Secondly, in the previous years, the Department had
taxed the AOP and this procedure had to continue in the f..ssessment
Year in question as well {See - Mis. Radlwsoami Satsa11g, Saomi
Bagli, Agra and Excel Industries Ltd.}
D
From the judgment of the High Court, we find that this aspect
has been dealt with very cursorily, without taking into consideration the
aforesaid aspects highlighted by us. The entire discussion on this issue
is contained in para 31, which reads as under:
E "31. The concurrent finding on question of fact that value
of profit received during interregnum period for a period of
234 days is to be treated as revenue income having regard
to the reasons assigned that said profit is calculated on the
basis of notional profit calculated on two years average
profit and from this average 40% was to be deducted and
F the net amount was to be paid, the finding is unassailable ... "
The aforesaid discussion of the High Court. deals how the business
income/revenue income is to be treated/calculated, but the question of
taxability at the hands of the assessees has not bee touched upon at all.
34. The upshot of the aforesaid discussion would be to allow the
G
appeals partly only to the extent that business income/revenue income in
the Assessment Year in question is to be assessed at the hands of AOP-3,
in terms of the orders of the High Court, as AOP-3 retained the tax
amount from the consideration which was payable to the assessees herein
and it is AOP-3 which was supposed to file the return in that behalf and
H pay tax on the said revenue income.
VATSALA SHENOY v. JOINT COMMISSIONER OF INCOME 25
TAX (ASSESSMENT), MYSORE [A. K. SIKRI, J.]
35. Insofar as the appeals preferred by the Revenue are concerned, A
they arise out of the protected assessment which was made at the hands
of the partnership firm. As we have upheld the order of the Assessing
Officer in respect of payment of capital gain tax by the assessees herein,
these appea1s are rendered otiose and are disposed of as such.
36. There shall be no order as to costs. B
Divya Pandey Appeals of assessees partly allowed:
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