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Issues Involved:
1. Whether the transfer of the business along with its assets and liabilities resulted in any capital gain liable to tax under section 12B of the Indian Income-tax Act, 1922. 2. Whether the sale and transfer of the goodwill of the assessee-company can in law be said to have taken place on April 23, 1947, and thus be assessable to capital gains under section 12B of the Indian Income-tax Act, 1922. 3. Whether the Tribunal was justified in not allowing the assessee to raise the question as to whether goodwill was property assessable to capital gains under section 12B of the Indian Income-tax Act, 1922. Issue-wise Detailed Analysis: 1. Capital Gain on Transfer of Business: The primary issue was whether the transfer of the business along with its assets and liabilities by the assessee-company to Evans Fraser and Company (India) Ltd. resulted in any capital gain liable to tax under section 12B of the Indian Income-tax Act, 1922. The court considered the statutory provisions of capital gains tax, which was introduced in the Indian fiscal legislation by the Income-tax and Excess Profits Tax (Amendment) Act, 1947. The court emphasized that the charging section and the computation provisions together constitute an integrated code. It held that unless it is possible to determine in terms of money the cost of acquisition of goodwill as also the cost of additions or alterations thereto, the charging section is not attracted. The court concluded that there was no capital gain made on the transfer of goodwill of its business by the assessee-company to the said public company, and the department was in error in taking into account the value of the goodwill while computing the capital gain. 2. Date of Transfer of Goodwill: The second issue was whether the sale and transfer of the goodwill of the assessee-company can in law be said to have taken place on April 23, 1947, and thus be assessable to capital gains under section 12B of the Indian Income-tax Act, 1922. The court analyzed the facts and the agreement dated April 5, 1948, which provided that the business was sold and purchased as from April 1, 1947. The court held that a sale or transfer postulates two persons, namely, a vendor or transferor and a vendee or transferee. It is not legally possible for a transfer to take place to a non-existent entity. The court concluded that the transfer could not have taken place on April 1, 1947, as the public company was not incorporated until April 23, 1947. Further, the court found that the actual transfer did not occur on April 23, 1947, either, as the agreement was an executory agreement and the various things required to be done for the transfer were not completed by that date. 3. Tribunal's Justification on Goodwill Assessment: The third issue was whether the Tribunal was justified in not allowing the assessee to raise the question as to whether goodwill was property assessable to capital gains under section 12B of the Indian Income-tax Act, 1922. The court held that the assessee-company had consistently contended that they were not liable to pay any capital gains tax on the sale or transfer of goodwill. The court found that the question referred to it was in very wide terms and embraced within its scope the question whether some of the assets which were transferred were such as could be the subject-matter of the charge under section 12B. The court concluded that the Tribunal should have allowed the assessee to argue the point that goodwill is not liable to capital gains tax under section 12B. Conclusion: The court answered all the referred questions in the negative, in favor of the assessees and against the department. It held that there was no capital gain on the transfer of goodwill, the transfer did not legally occur on April 23, 1947, and the Tribunal was not justified in disallowing the assessee to raise the question regarding the assessability of goodwill to capital gains tax. The respondent was ordered to pay the costs of the references quantified at Rs. 1,500.
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