COMMISSIONER OF INCOME TAX Vs. VAIDYANATHAN K S

JUDGEMENT

(1.) THE petitioner in this case is a proprietary concern run under the name of Premier Electro Mechanical Fabricators. Part of the assets of this business represented items of machinery. On 29th June, 1975, and 31st October, 1975, the petitioner sold items of machinery for Rs. 90,000 and 86,000 respectively to a private limited company called Premier Fabricators Pvt. Ltd., Madras. THE aggregate sale value of machinery in the sum of Rs. 1,76,000 was considered by the assessing authority, who brought to assessment Rs. 1,63,000 thereof as taxable sales turnover. THE petitioner objected to this assessment in appeal. THE petitioner contended that no sale at all was involved in the transfer of the machinery to the private limited company, because the consideration received by the petitioner was not cash, but only the equity shares of that very company. THE receipt of fully-paid shares as consideration, it was contended, tended to make the transaction not a sale, but only a barter or exchange. THE Tribunal, however, rejected this contention, applying the definition of "sale" under section 2(n) of the Act, which included transfer of property for valuable consideration.

(2.) WE agree with the Tribunal's determination. The idea of exchange or barter would emerge where the owner of a property transfers it to another person, in consideration of that other person parting with his property in favour of the former. In this case, there are no mutual cross-transfers of properties belonging to each of the two parties. It is trite law that where fully-paid shares are allotted to a person by a company, in consideration of payment of the value of goods sold to them, the title to the shares becomes vested in the allottee, but allotment of share is not per se a transfer by the company at all, much less a transfer of the company's property or assets. Equity shares or any other kind of shares in a company are really part of the share capital of the company. In that sense, they are liabilities of the company and not assets held by the company. Moreover, the process of allotment of fully-paid shares in consideration of payment of the value of goods or services cannot be regarded as "transfer" of property. All that it involves is the admission of the person concerned as a member of the company with all the rights and obligations that it involves. In this sense, therefore, there is hardly any scope for treating the shares allotted as being given in exchange for the properties transferred by the individual.

(3.) THE revision petition fails and is accordingly dismissed. THE petitioner will pay the costs of the State Government. Counsel's fee Rs. 250.