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Issues Involved:
1. Whether the transaction of sale of the raw materials along with the business, including machinery, plant, and premises, is a revenue sale and whether the sum of Rs. 1,15,259 has been rightly charged to income-tax. 2. Whether the decision that the sale of match machinery and premises was distinct from the sale of chemicals is legally warranted and whether there was legally a single transaction of the entire match factory inclusive of raw materials. Issue-wise Detailed Analysis: 1. Nature of the Transaction: Revenue Sale or Realisation Sale The primary issue was whether the sale of raw materials, machinery, plant, and premises constituted a revenue sale or a realisation sale. The assessee company argued that the transaction was a realisation sale, thus only capital gains and not liable to income-tax. The Department, however, contended that the sale was part of the company's business activities, thus taxable. The High Court examined the company's memorandum of association, which authorized it to manufacture and deal in chemicals. The court noted that the company had previously sold chemicals, indicating ongoing business activities. However, the court emphasized that even if a company is engaged in a particular business, a sale can still be a realisation sale if it is aimed at the advantageous disposal of assets. The court referred to precedents such as Commissioner of Income-tax v. Shaw Wallace and Co. and Doughty v. Commissioner of Taxes, establishing that the sale of an entire business or its assets could be considered a realisation sale if the transaction was indivisible and aimed at winding up the business. The court concluded that the second agreement was an indivisible transaction aimed at the advantageous disposal of the company's assets, thus constituting a realisation sale. Therefore, the sum of Rs. 1,13,259 was wrongly charged to income-tax. 2. Distinction Between Sale of Machinery and Chemicals The second issue was whether the sale of match machinery and premises was distinct from the sale of chemicals. The Tribunal had treated the sale of chemicals and match papers as part of the company's business, thus taxable. The High Court analyzed the terms of the second agreement, noting that it was an indivisible contract covering the sale of land, buildings, fixed machinery, chemicals, and match paper. The court highlighted that the agreement provided for the vendor to work the factory at the purchaser's risk until full payment was made, indicating that the sale was a single, integrated transaction. The court referred to Hickman v. Federal Commissioner of Taxation, which established that an indivisible contract for the sale of business assets should be treated as a single transaction, regardless of how the consideration was allocated in the accounts. The court found that the Tribunal's conclusion was vitiated by an error of law as it failed to recognize the indivisible nature of the transaction. The sale of chemicals was closely linked with the sale of the match factory, aimed at facilitating the overall sale of the business. Therefore, the court ruled that the sale of machinery was not distinct from the sale of chemicals, and the transaction was a single, indivisible deal. The decision to separate the two was legally unwarranted. Conclusion The High Court concluded that: 1. The transaction was a realisation sale, and the sum of Rs. 1,13,259 was wrongly charged to income-tax. 2. The sale of machinery and chemicals was part of a single, indivisible transaction, and any decision separating the two was legally incorrect.
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