Commissioner of Income-tax Vs. Jaideo Oil Mills - Court Judgment

Excerpt:
direct taxation - succession - sections 49 (1), 50 (1), 50 (2) and 256 (2) of income tax act, 1961 - partnership business of a taken over by assessee-company which was incorporated in 1947 under an agreement - whether company was a successor to entire business of partnership - entire business including goodwill and benefit of pending contracts taken over by assessee-company for purpose of computing capital gains - assessee cannot be deprived of status of successor to partnership - benefit of sections 49 (1) (iii) (a) and 50 (2) can be given to assessee-company. - - the tribunal has found that, as a result of the agreement, the business carried on by the partnership was taken over as a going concern together with goodwill, plant, engine, machinery, spare parts, tools, utensils, stores, stock of raw material, stock-in-trade, stock of containers, carts, motorwagons, office furniture and all other assets, properties, articles and things as well as the full benefit of all pending contracts and engagements of the said partnership, save and except that the cash in hand at the bank belonging to the partnership as also its outstanding and debts were not taken over. 4. in view of the well-settled position set out in the decision of the supreme court in the case of cit v.mrs. sujata v. manohar, j.1. this is an application under section 256(2) of the income-tax act, 1961. according to the department, the tribunal ought to have raised the following two questions of law and referred them to us for determination :'(1) whether, on the facts and in the circumstances of the case, the tribunal is right in law in holding that the assessee-company's case is covered by the provisions of section 49(1)(iii)(a) of the income-tax act, 1961, and, consequently, the assessee is entitled to exercise the option of substituting for its cost the fair market value as on january 1, 1964 ? (2) whether, on the facts and in the circumstance of the case, the tribunal is right in law in holding that the provisions of section 50(1) are not applicable to the assessee-company's case for the purpose of computing the capital gain on the sale of boiler on which depreciation was allowed ?'2. the assessee-company was incorporated on november 15, 1947. the promoters of this company were five brothers of the jaideo family. it took over the partnership business of messrs. govardhandas jaideo under an agreement of november, 1947. article 4 of the articles of the association of the company sets out the terms and conditions of the agreement of november 13, 1947, between the partnership and the company. the tribunal has found that, as a result of the agreement, the business carried on by the partnership was taken over as a going concern together with goodwill, plant, engine, machinery, spare parts, tools, utensils, stores, stock of raw material, stock-in-trade, stock of containers, carts, motorwagons, office furniture and all other assets, properties, articles and things as well as the full benefit of all pending contracts and engagements of the said partnership, save and except that the cash in hand at the bank belonging to the partnership as also its outstanding and debts were not taken over. the tribunal has on these facts come to the conclusion that the company was a successor to the entire business of the partnership.3. it is not in dispute that the boiler and the engine which have been sold in the assessment years 1980-81 and 1981-82 formed part of the machinery which was originally transferred to the company from the partnership.4. in view of the well-settled position set out in the decision of the supreme court in the case of cit v. k. h. chambers : [1965]55itr674(sc) , the assessee-company is not sufficient to disentitle the assessee-company from claiming the status of successor to the partnership when the entire business including its stock-in-trade, goodwill and the benefit of pending contracts was taken over by the assessee-company for the purpose of computing the capital gains. therefore, the tribunal has rightly held that the benefit of section 49(1)(iii)(a) read with section 50(2) of the act can be given to the assessee-company. in these circumstances, in our view, it would be academic to raise the questions which are now sought to be referred as the answer to these questions is obvious.5. the application is, therefore, rejected.6. rule is discharged.7. no order to costs.