Law:

Section:

Section 10A of the Excess Profits Tax Act, 1940 - Transaction - Meaning of - Assessment year 1944-45 - Whether where assessee-firm which was carrying on agency business, obtained a tent-making contract from 'M' and transferred such contract in favour of one of partners, transfer of contract amounted to 'transaction' within meaning of section 10A - Held, yes Words & Phrases: Word 'transaction' as occurring in section 10A FACTS One 'K', who was a manager of the assessee-firm, was taken as partner. The assessee, which was carrying on agency business, secured a tent-making contract from a company 'M'. During relevant accounting year the assessee gave up its interest in tent-making contract to 'K'. For the purposes of assessment of income-tax for 1944-45 the profit from the tent-making contract was assessed as belonging to 'K' and was not added to the assessable income of the applicant-firm. The Excess Profits Tax Officer, however, considered that the assignment of the tent-making contract by the applicant-firm to one of its partners, 'K', was a transaction designed to avoid or reduce the liability to excess profits tax. The Tribunal came to the conclusion that the probabilities of the case justified the finding that the main purpose was to avoid or reduce the liability for the payment of the excess profits tax. The grounds on which they based their finding were: (a) that the business was yielding substantial profits, (b) that the transfer was made without valuable consideration, (c) that the transfer was made voluntarily, and (d) that the transfer was made to a person intimately connected with the assessee firm as its manager and later as its partner. On reference: HELD The word 'transaction' is derived from the word 'transact' which means 'to manage', 'to perform', and 'transaction' means 'act of transacting; management of any affair'. Any business deal can be a transaction, there is no reason to hold that a gift or a sale of the business itself was not a transaction. Section 10A, lays down that for the purposes of assessment of the excess profits tax a transaction, the main purpose of which is the evasion of the tax, can be ignored by the Excess Profits Tax…

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