Law: Income Tax Act, 1922

Section: 34

Section 10(1) of the Indian Income-tax Act, 1922 - Business income - Assessable as - Assessment year 1940-41 - Assessee was previously a partnership firm engaged in printing of and publishing of newspaper - Firm was dissolved and a limited company took its place and entire business of firm was sold to company as a going concern - Cost of stokes of newsprint required for publication was Rs. 73,693 in books of firm but valuation adopted at time of transfer was Rs. 1,74,363 - Whether no taxable profits could be said to have resulted to transferor - Held, yes FACTS The assessee was previously a partnership firm engaged in printing and publishing newspaper. The Partnership firm was dissolved and a limited company took its place. The partnership purported to sell to the limited company the entire business as a going concern. In the books of the company, the assets and liabilities were valued at particular figures. One of the items so transferred was the stock of newsprint, the cost price of which was Rs. 73,693. But the valuation adopted at the time of the transfer of the business was Rs. 1,74,363. The assessment was made. Subsequently, when an appeal against the assessment was pending, the ITO purported to hold, on an examination of the accounts of the successor company, that a profit had been realised by the sale of the stock of the newsprint, represented by the difference between the valuation on the transfer to the limited company and the cost price set down in the books of the partnership. He, accordingly, issued a notice under section 34, and revised the assessment, enhancing the taxable income by the profit of Rs. 1 lakh and odd referred to. On an appeal, the AAC upheld the view of the ITO in so far as quantum of profit was concerned. But the AAC set aside the original assessment and on appeal, the Tribunal held that since the assessment had been set aside, the appeal on the instant issue was premature. HELD The assessee was not a dealer in newsprint and that the assessee held stocks of newsprint only for the purpose of its business of the publication of the newspaper. It was raw material of the business. On the transfer of a business as a going concern, if…

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