COMMISSIONER OF INCOME TAX Vs. AMAR TRANSPORT SERVICES

JUDGEMENT

(1.) THE Income Appellate Tribunal has stated the case and referred to this court for its decision a question of law in accordance with the direction dated February 13, 1981, given in Misc. Civil Case No. 224 of 1977. THE question of law referred is as follows :

(2.) THE assessee is a partnership firm which carried on transport business. During the previous year relevant to the assessment year 1955-56, the assessee entered into an agreement dated March 24, 1955, with the Combined Transport Service, Bilaspur, a private limited company, according to which all the 17 passenger buses owned by the assessee-firm were transferred to the company for a total consideration of Rs. 1,51,565 against the written down value of these vehicles amounting to Rs. 31,024. THE Income-tax Officer rejected the assessee's contention and held that the transaction was one of sale by the assessee-firm to the company and, therefore, the amount of Rs. 1,19,541 earned by it in excess of the written down value of the vehicles by this transaction was liable to be assessed as profit under Section 10(2)(vii) of the Indian Income-tax Act, 1922. On appeal, the Appellate Assistant Commissioner affirmed this view and merely corrected some calculation mistake. On further appeal by the assessee, the Tribunal held that the transaction of transfer of these motor vehicles by the assessee-firm to the company was in the nature of "exchange" and not "sale" and, therefore, Section 10(2)(vii) of the Act was not attracted. It is not necessary to refer to the history of litigation prior to the decision of the Tribunal, in its order annexure D, dated May 31, 1976.

(3.) LEARNED counsel for the parties placed reliance on. three decisions of the Supreme Court. These are: CIT v. Motors & General Stores (P.) Ltd. [1967] 66 ITR 692, CIT v. R. R, Ramakrishna Pillai [1967] 66 ITR 725 and CIT v. B. M. Kharwar [1969] 72 ITR 603. Shri B. K. Rawat, learned counsel for the Revenue, contended that the test laid down in these decisions of the Supreme Court applied to the facts of this case. The undisputed facts of this case clearly show that the transaction was a "sale" to which Section 10(2)(vii) clearly applied. LEARNED counsel for the assessee, Shri Y. S. Dharmadhikari, however, contended that the transaction was not a "sale" but merely conversion of the assets of the partnership firm (transferor) to that of the company (transferee) and the partners were to be made shareholders of the company by holding the shares in lieu of the sale price of the motor vehicles. It is on this basis that Shri Y. S. Dharmadhikari placed reliance on the decision in CIT v. Motors and General Stores (P.) Ltd. [1961] 66 ITR 692 (SC). In our opinion, the contention of learned counsel for the Revenue must be accepted.