Law:

Section:

Section 2(13) read with section 28(i) of the Income-tax Act, 1961 - Adventure in nature of trade - Assessment year 1963-64 - Assessee was engaged in business of manufacture and sale of carbon dioxide - Subsequently, it obtained licence from Government and started constructing a sugar factory - Having invested amount of Rs. 41 lakhs it sold part of sugar factory to one 'J' - In terms of transfer agreement, 'J' was to pay Rs. 4,10,051 being book value together with a sum of 25 per cent of profit of first two years of working of factory - Assessee claimed amount received for transfer was capital receipt - Whether transaction viewed as a whole and judged from commercial point of view was only a sale and not an adventure in nature of trade and instalments paid by transferee towards 25 per cent of its profits for first two years of working of factory were only capital receipts in hands of assessee - Held, yes -Whether, therefore, receipts in question were not liable to tax - Held, yes FACTS The assessee company was mainly engaged in manufacture and sale of carbon dioxide. It procured permission from concerned authorities and started erecting a factory for manufacture of sugar wherein it had invested around Rs. 41 lakhs. In the year ending 30-9-1969, the entire undertaking of sugar factory was transferred partly to one 'KCP' and partly to 'J'. The agreement was that the 'J' should pay the assessee the book value of the assets transferred, i.e., Rs. 4,10,051, together with a sum calculated at 25 per cent of the profits of the first two years of the working of the factory. As the erection of the factory on the date of transfer was not complete, the factory actually went into production only in November 1961. In pursuance of the terms of the agreement, the J paid the assessee-company sums of Rs. 41,219 and Rs. 1,11,312, respectively, during its account years ending 30-6-1962 and 30-6-1963. The aforesaid amounts had been shown in the accounts of 'J', in its profit and loss account as payment towards goodwill written off. These sums had also not been claimed as revenue deductions in the computation of the profits of the 'J'. The assessee, in its return of income, showed…

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