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TMI Blog2009 (6) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... contract basis. It has its offices in various parts of Kerala and Karnataka. The proprietary business was run by him up to 30-9-2000 and thereafter this business was taken over by the company, viz., M/s. KAP (India) Projects & Constructions (P.) Ltd. with its assets and liabilities as on 1-10-2000. For the assessment year concerned, the assessee had filed a return declaring an income of Rs. 47,83,440. The return was processed under section 143(1) of the Act. 3A. Thereafter, the Commissioner of Income-tax issued notice to revise the assessment under section 263 on 24-11-2004. The Commissioner of Income-tax was of the view that all the conditions as stipulated under the provisions of section 47(xiv)( c) are not satisfied in the case of the transfer of proprietary concern to the company. Hence, according to the ld. Commissioner, the goodwill valued at Rs. 2,45,00,000 ought to have been taxed under the head "Capital gain". 4. The assessee objected to the above notice by stating that all the conditions prescribed under the provision to section 47(xiv) have been complied with. The total issued and paid-up capital of the company as on 31-3-2002 was Rs. 3 crores of which the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receive any consideration or benefit, directly or indirectly, in any form or manner other than by way of allotment of shares in the company. Balance in the proprietary concern as on 30-9-2000: Rs. Capital Account 2,55,00,000.00 Current Account 2,62,03,897.63 5,17,03,897.63 (a)As could be seen from the balance sheet as on 30-9-2000, the amount payable to the proprietor (Shri K.V. Mohammed Zakir) in his capital account amounts to Rs. 2,55,00,000 only. The company which had converted the proprietary concern had allotted equity shares worth Rs. 2,55,00,000, i.e., 51 per cent of the share capital of the new company was allotted to the proprietor. Hence, the proviso to section 47(xiv)(c ) has been fully complied with. (b)As on 30-9-2000, the proprietary concern had to pay to Shri K.V. Mohammed Zakir, Rs. 2,62,03,897.63 in current account. This represents a liability of the concern to the proprietor. The new company treated this amount as a liability in its account on 1-10-2000 under unsecured loans. (c)The consideration for the transfer of the proprietary concern as taxable income in the hands of the assessee consideration or benefit accruing to the propr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed shares for Rs. 1,52,94,900. The balance carried forward as on 31-3-2001 are as under :- Rs. Shares issued 1,52,94,900 Advance towards shares 1,02,00,000 Unsecured loan 2,62,08,797.63 5,17,03,897.63 (c)In the case of a proprietary concern or partnership firm, the current account of the proprietor or a partner is liability which has to be repaid as and when demanded by the proprietor or the partner, as the case may be. Such a liability was taken over by the new company and has correctly treated as such by it in its books as unsecured loan. There is no basis for coming to the conclusion that the provisions of section 47(xiv)( c) of the Income-tax Act are not complied with. (d)In any case, during the previous year relevant to the assessment year 2001-02, the assessee has 'received' only shares in the new company. The amount credited in the new company in the loan account of the appellant cannot be taken as consideration or benefit 'received' by your appellant." 8. The learned Authorised Representative has also stated that the order of the Assessing Officer is neither erroneous nor prejudicial to the interests of the Revenue and, hence, the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 263 of the Income-tax Act. (f)In the case of B & A Plantation & Industries Ltd. v. CIT [2007] 290 ITR 395, the Hon'ble Gauhati High Court has held that in a case where the rectification proceedings were initiated on the basis of audit objection but was dropped subsequently and later notice under section 263 was issued on the basis of the same audit objection, there is no independent application of mind by the CIT and, hence, the order under section 263 of the Income-tax Act was held invalid. 9. The learned Departmental Representative, on the other hand, drew support from the order of the ld. Commissioner and stated that all the conditions stipulated under the provisions of section 47(xiv)( c) of the Act were not satisfied and, hence, the ld. Commissioner has correctly directed the Assessing Officer to assess the sum of Rs. 2,45,00,000 under the Head 'Capital gains tax'. 10. We have heard the rival submissions and perused the material available on record. In terms of provisions of section 47(xiv) of the Act, any transfer of a capital asset will not be regarded as transfer liable to capital gains tax, if the conditions under clauses (a), (b) and (c ) of the said se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e "sole proprietor does not receive any consideration or benefit directly or indirectly in any form or manner other than by way of allotment of shares in the company." [Emphasis supplied] 10.5 In this case, there is no receipt of any benefit involved in the transfer of the undertaking for the agreed values. What is to be received is only the consideration for the transfer, as agreed upon between the transferor and the transferee. The expression "consideration" is not defined in the Income-tax Act. Therefore, the meaning assigned in the Indian Contract Act has to be applied. Section 23 of the Indian Contract Act, 1872 defines "consideration" as follows : "When, at the desire of the promisor the promisee or any other person has done, or abstained from doing, or does or abstain from doing something, such act or abstinence or promise is called a consideration for the promise." 10.6 So, "consideration" is something which arises on the basis of an agreement in a contract between the two persons for doing certain act or thing. The consideration, therefore, is what is agreed upon between the two parties. Thus, where the consideration for transfer of an undertaking, is agreed upon as cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K.V. Mohammed Zakir 5,100 51 1,53,00,000 51 2,41,43,400 51 2,55,00,000 52 Other relatives 4,900 49 1,47,00,000 49 2,31,96,600 49 2,35,01,500 48 Total 10,000 100 3,00,00,000 100 4,73,40,000 100 4,90,01,500 100 The abovementioned allotment has not been contravened by the learned Departmental Representative. 11. Without prejudice to the above, if the full amount due under the capital account and also the current account of the proprietor have to be clubbed and treated as the consideration payable to the sole proprietary concern on the transfer, then there could be no case of violation of sub-clause (c) of section 47(xiv) of the Act, during the previous year ended 31-3-2001, relevant to the assessment year 2001-02. This is because under sub-clause (c) of section 47(xiv) only if the consideration is received in any form or manner other than by way of allotment of shares, there can be said to be a violation of the provisions. During the year under appeal, the sole proprietor has not received any payment in cash or in kind or otherwise, except for allotment of shares in the company. Unless the sole proprietor who is the owner of the sole proprietary concern, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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