Law:

Section:

Section 41(2) of the Income-tax Act, 1961 [Corresponding to section 10(2)(vii) of the Indian Income-tax Act, 1922] - Balancing charge - Assessment year 1956-57 - Assessee-company owned a cinema house - At meeting of board of directors it was resolved to sell cinema house with all equipments and machinery fittings - An exchange deed was accordingly executed whereby assessee received in shape of consideration five percent tax free cumulative preference shares held by purchaser - Whether aforesaid transaction amounted to sale within purview of second proviso to section 10(2)(vii) of 1922 Act - Held, no FACTS The assessee-company owned a cinema house. The cinema house was taxed on the profits made by exhibition of films. At a meeting of board of directors it was resolved to sell the concern with all the equipments and machinery fittings. Pursuant to the decision of the board of directors an exchange deed was executed between the parties. The assessee received in shape of consideration five per cent tax free cumulative preference shares held by the purchaser 'R' Ltd. Separate valuation was fixed for the immovable and movable properties. The ITO found that the value realised by assessee-company exceeded the written down value and he, accordingly, computed the profits under section 10(2)(vii) of 1922 Act and included that amount in the taxable income of the assessee. Both the AAC and the Tribunal confirmed the order of the ITO. On reference, the High Court, however, held that the transaction in question did not amount to sale within the purview of the second proviso to section 10(2)(vii) of 1922 Act. It accordingly, set aside the Tribunal's order. On appeal to the Supreme Court: HELD It was only if there was a sale of the cinema house and the other assets then the taxable profits were to be computed in the instant case under 10(2)(vii) of 1922 Act as the amount by which the written down value exceeded the amount for which the assets were actually sold. The words 'sale' or 'sold' have not been defined in the Income-tax Act, 1922. These words have to be construed by reference to other enactments. Section 54 of the Transfer of Property Act defines 'sale' as a transfer of…

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