Law:

Section:

Section 28(i) of the income-tax act 1961-Business income-Assessee took over banking business as a going concern, with assets exceeding liabilities by Rs. 67,48,098, on allotment of fully paid-up shares of face value of Rs. 24,94,950-Whether difference of Rs. 42,53,148 constituted revenue profits liable to tax-Held, on Facts, no Facts The assessee-bank was incorporated, on 4-1-1959, as a private limited company with the sole object of taking over the banking business of the erstwhile ruler of a State. The company's paid-up capital was Rs. 25,00,000 consisting of 50,000 shares of Rs. 50 each paid-up (101 shares thereof were taken up by six persons and the balance of 49,899 by the erstwhile ruler as consideration for the business so taken over). Although the sale took place under a sale agreement, dated 26-4-1958, a formal indenture was executed on 1-11-1958 whereunder the assets of former banking business of the ruler were taken over by the assessee, as a going concern, for a consideration of its 49,899 partly paid-up shares whose par value was Rs. 24,94,950. The surplus of assets (Rs. 2,21,69,441) over liabilities (Rs. 1,54,21,343) aggregated Rs. 67,48,098. A sum of Rs. 24,94,950 was credited to the ruler's share capital account representing the consideration under the indenture. The balance of Rs. 42,53,148 was credited to various specified reserve accounts. The assessee was following calendar year as its accounting year and its original assessment for the assessment year 1959-60 had been completed on 16-3-1960 on a total income of Rs. 3,30,261. In his assessment the ruler had claimed a capital loss of Rs. 39,00,000 on the sale of said banking business. Arising from the claim, the ITO subsequently reopened the assessment of the assessee under section 147( b) to tax the aforementioned sum of Rs. 42,53,148 representing the difference between the book value of trading assets and the consideration paid therefor. The assessee contended that the said sum merely represented the capital and not its income as it did not involve sale of any stock-in-trade. The ITO, however, treated the entire sum as business profit. The AAC deleted the addition after accepting the…

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