COMMISSIONER OF INCOME TAX vs. MUGNEERAM BANGUR & CO.

CIVIL APPEAL No. 310/1964Supreme Court[1965] 3 S.C.R. 61131 March 1965Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI A COMMISSIONER OF8 pages
AI SummaryDismissed

What were the facts?

The assessee, Mugneeram Bangur & Co. (Land Department), a firm engaged in land development, sold its entire business as a going concern to a company promoted by its partners. The sale agreement dated July 7, 1948, stipulated a purchase price of Rs. 34,99,300, to be satisfied by allotting preference and ordinary shares in the purchasing company. A schedule to the agreement listed various assets, including 'Land' at Rs. 12,68,628.77 and 'Goodwill' at Rs. 2,50,000. The Income Tax Officer (ITO) sought to tax Rs. 2,50,000, contending it represented profit from the sale of stock-in-trade (land). The Appellate Assistant Commissioner (AAC) held it was goodwill and, as part of a capital sale, not taxable. The Income Tax Appellate Tribunal (ITAT) disagreed, finding that the value of stock could be traced and profits were taxable. The High Court, in an Income Tax Reference, was asked to decide several questions, including the nature of the Rs. 2,50,000 and whether taxable profit arose from the sale.

What did the Supreme Court hold?

The Supreme Court held that on the facts of the case, the assessee was not carrying on the business of purely buying and selling land. Instead, they were engaged in buying land, developing it, and then selling it. The sale was of the entire concern as a going concern, and no part of the slump price could be attributed to the cost of the land. The Court applied the principles from Commissioner of Income-tax, Kerala v. West Coast Chemical and Industries Ltd. and Doughty v. Commissioner of Taxes, which state that if a slump price is paid and no portion is attributable to stock-in-trade, it may not be possible to hold that there is a profit other than what results from the appreciation of capital. The mere fact that the schedule listed a value for land did not automatically mean that part of the slump price was attributable to it, especially as there was no evidence of an attempt to evaluate the land on the date of sale. Since the vendors were transferring the concern to a company constituted by themselves, no effort would ordinarily be made to evaluate the land as of the sale date. The Court concluded that the sale was of the whole concern and no part of the slump price was attributable to the cost of land, therefore, no part of it was taxable. Consequently, questions 2, 3, and 4 were answered in the negative. The Court did not explicitly address question 1 regarding the ITO's competence to file the appeal, but its dismissal of the appeal implies it was not a ground for interference.

What were the issues?

1. Whether the Income-tax Officer was competent to file an appeal before the Tribunal against the order of the Appellate Assistant Commissioner? (Question of procedure) 2. Whether the sum of Rs. 2,50,000 represented the surplus on the sale of lands which was the stock-in-trade of the assessee or was the value of goodwill alleged to have been transferred? (Question of mixed law and fact, concerning the nature of the amount under Section 2(15) of the Income Tax Act, 1922) 3. Whether by the sale of the whole business concern, there was taxable profit in the sum of Rs. 2,50,000? (Question of law, concerning the taxability of profits from a slump sale under the Income Tax Act, 1922) 4. Whether, in view of the finding that the entire share capital of the vendee company (excepting seven shares) was taken over by the vendor firm in lieu of the sale price of the business as a whole, there was any profit in the amount of Rs. 2,50,000 taxable under the Indian Income Tax Act? (Question of mixed law and fact, concerning the determination of taxable profit in a slump sale) Assessee's Arguments: The assessee argued that the sale was of a whole concern, and no part of the slump price was attributable to the stock-in-trade (land). They relied on the principle that a sale of a whole concern does not give rise to taxable profit unless a specific part can be identified as stock-in-trade. They also pointed to the fact that the Rs. 2,50,000 was shown as goodwill. Revenue's Arguments: The revenue contended that the assessee's business was purely buying and selling land, making it stock-in-trade. They argued that the amount of Rs. 2,50,000 was profit attributable to the sale of this land, which was part of the slump price.

Which sections of the Income-tax Act were involved?

Section 66

AI-generated summary — verify with the full judgment below

, A COMMISSIONER OF INCOME TAX v. MUGNEERAM BANGUR & CO.

March 31, 1965 [K. SUBBA RAO, J. C. SHAH AND S'. M. S!KRI, JJ .] Income-tax Act (11 of 1922)-Sale of going concern-Slump price B -When part attributable to stock-in-trade. a D E F G The business of the assessee firm, carrying on land development business was sold as a going concern to a company· promoted by the assessee ::; partners. The purchase price included sums for th.e val':1e of land, goodwill, etc. The amount shown as the valuie of th.e goodWlll \?as sought to be aseessed to income-tax on the grounds (1) that the assessee's business was purely one of buying and selling land and (ii) the amount was profit attributable to the sale of land which was the stock-in-trade of the assessee. In appeal to this Court. HELD: On the facts of this case it could not be said that the £ssessees were carrying on the business of l)Urely buying and selling land. They were engaged in buying land, developing it and then selling it. The sale was the sale of the whole concern and no part of the slump price was attributable to the cost of the land. If that was so, no part of it was taxoble. [617H-618A, E] Commissio

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