1982 (11) TMI 167 - HC - VAT and Sales Tax

Summary

Issues involved: Determination of whether the transfer of machinery in exchange for fully-paid shares constitutes a sale for tax assessment purposes.

Summary:
The petitioner, a proprietary concern, sold machinery to a private limited company in exchange for fully-paid shares. The assessing authority considered the transaction as taxable sales turnover, leading to an appeal by the petitioner. The Tribunal upheld the assessment, defining "sale" as the transfer of property for valuable consideration under section 2(n) of the Act.

The Court agreed with the Tribunal, emphasizing that the allotment of fully-paid shares does not constitute a transfer of the company's property or assets. The transaction involved two separate elements: the sale of machinery and the discharge of the payment obligation through share allotment. Referring to Commissioner of Income-tax v. B.M. Kharwar, the Court highlighted that such transactions involve both a sale and an allotment of shares.

The petitioner argued that the allotment of shares should not be considered as "valuable consideration" for the sale. However, the Court noted that the entries in the company's books reflected the transaction as the cancellation of debts, akin to cash consideration. Relying on the legal position established in Devi Dass Gopal Krishnan v. State of Punjab, the Court affirmed the Tribunal's decision as correct.

In conclusion, the revision petition was dismissed, and the petitioner was directed to pay the costs of the State Government along with counsel's fee.