Law: Income Tax Act, 1922

Section: 10(2)(vii),66(1)

JUDGMENT: NAIMUDDIN, J. 1. By this Income-tax Reference under section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the Act), the Income-tax Appellate Tribunal, Karachi Bench, Karachi by the order dated 19-12-1969, has referred the following question arising' out of its order dated 18-4-1968 passed in Income-tax appeal No. 655 of 1966-67. "Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the transaction of transfer of fixed assets was not a sale so as to attract the provisions of section 10(2)(vii) of the Income-tax Act." 2. The facts of the case giving rise to the above question are that a firm known as "Crescent Pak. Oil Mills, Karachi Manghopir Road, Site, Karachi, was carrying on business of manufacturing soap during the assessment year 1961-62. The firm was converted into a private limited liability company, the original partners of firm became the shareholders of the company by the same name by a vendors agreement dated 31-1-1961. The firm's running business as on 31-1-1961 was taken over by the company. According to the agreement goodwill, plants, machinery, motorcars, vehicles, furnitures, fixtures, other movable and immovable properties, assets, stocks in trade, books and other debts with benefits of all leases, securities, pending contracts, orders, engagements, services, all cash in hand or in banks, all bills and all rights, and properties belonging to the Vendors or to which the Vendors were entitled in connection with the management of the business of the firm, details and valuation whereof are listed in the Schedule annexed to the agreement, were taken over by the company. 3. The sale consideration of Rs. 48,00,900 was agreed to be paid as follows: "(i) Rs. 4,80,000 (Rupees Four Lacs Eighty Thousand) by the allotment amongst the Vendors proportionate to their shares in the partnership fully paid up shares of the Company initially from the capital outlay of Rs. 5 Lacs and thereafter immediately upon the sanction of the Government Authorities concerned to the requisite capital structure of the Company in the same proportion as their respective shares in the partnership and to the…

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