COMMISSIONER OF INCOME TAX Vs. CAREW PHIPSON LTD

JUDGEMENT

(1.) The question to be answered, in this reference under Section 256(1) of the Income-tax Act, 1961, is :

(2.) The assessee sold the whole of the sugar factory as a going concern for a total price of Rs. 53,50,000. The purchaser took over the liability of Rs. 15,90,324 and the balance Rs. 37,59,676 was shown apportioned against the various items of assets. The Assessing Officer held that the individual items of assets were sold and, therefore, the assessee was liable to profit under Section 41(2) of the Income-tax Act, 1961 (the "IT Act") as well as the capital gains tax. The Commissioner (Appeals) confirmed the assessment order. The learned Tribunal held that the sale was of the whole of the going concern. Therefore, the assessee was not liable to profit under Section 41(2) of the Income-tax Act, or capital gains.

(3.) Section 41(2), of the Income-tax Act, as applicable to the relevant assessment year 1978-79 provided that where any building, machinery, plant or furniture, owned by the assessee and used for the purpose of business and in respect whereof depreciation is claimed, is sold, the money receivable would, in specified cases, be chargeable to income-tax as income of the business. In this case the ingredients provided are admittedly fulfilled. The deed of transfer referred to the sale of the whole of the sugar factory as a going concern, but had apportioned the balance amount, after setting off the liability, to different items of assets. Now the question is whether this apportionment to itemwise assets will attract the application by Section 41(2) of the Act.