Case Law Details
RELEVANT PARAGRAPH
10. We have heard the rival submissions and perused the material available on record. In terms of provisions of section 47 (xiv) of the Act I any transfer of a capital asset will not be regarded as transfer liable to capital gains tax, if the conditions under Clauses (a),'(b) & (c) of the said Section are complied with. Sub-clause(a) specifies that all assets and liabilities have to be transferred by the sole proprietary concern to the company.
This is what has been done In the instant case. The liabilities of the proprietary concern have been taken as including the amount of loan payable by the proprietary concern to .the proprietor as on 1.10.00. The balance In the current account of the proprietor as on 30.09.00 was treated as the liability of the sole proprietary concern to the proprietor , which he is entitled to withdraw on demand. The current account is very much a current liability, to be paid by the sole proprietary concern to the proprietor. Otherwise, the balance need not have been kept under current account in liabilities.
10.1 All current accounts whether in sole proprietary concern or in a partnership firm due to the proprietor/partner as the case may be, are current liabilities. This is the’ well accepted position in accountancy and also has been settled in law by judicial decisions.
10.2 When the assets and liabilities of the sole-proprietary concern have been transferred to the company, there was a clear agreement between the proprietor and the company (both are different legal entities) as to what constitute the assets and liabilities for the purpose of the transfer and what (s the “consideration” payable. In determining the liabilities for the purpose of transfer, It has been agreed that the current account balances of the proprietor In the books of the sole proprietary concern will be taken over as a liability! on loan account by the limited company and to be discharged as loan as such. Thus under sub-clause(a) of the section, such loan has to be necessarily to be transferred as a liability along with all other liabilities to comply with the provisions of sub clause (a). This is also a matter of agreement/ contract relating to the transfer and also in accordance with well accepted principles in accountancy.
10.3 Now, after transferring the liabilities as above, what remains as .balance only can be the “consideration” for purpose of the transfer. No part of the liability can enter into the computation of consideration. The Assessing Officer cannot convert the part of liability transferred as loan by the proprietary concern into consideration or part of the consideration.
10.6 So, “consideration” is something which arises on the basis of in agreement in a contract between the two persons for doing certain act or thing. The consideration therefore is what is agreed upon between the two parties. Thus where the consideration for transfer of an undertaking, is agreed upon as certain amount to be paid for transfer of the assets and liabilities such amount of consideration as agreed is to be applied/ adopted in all cases.
10.7 In the instant case, it has been agreed between the two parties that the consideration for the transfer of all the assets and liabilities of the undertaking, as determined and for which the shares are to be allotted was Rs. 2,55,00,000/ – which, initially was to be treated as an “advance” towards share capital against which shares are to be allotted by the company to the proprietor of the sole proprietary concern. The balance to the credit of the proprietor in the current account treated as loan due to the proprietor, therefore, will be a genuine liability of the sole proprietary concern’to the proprietor. Here, we are looking at the assets and liabilities of the sole proprietary concern as such, for purpose of section 47 (xiv) of the Act. Thus there could be no scope for any confusion, a$ to the nature of the liability due on loan account and as to the amount! of consideration payable to the proprietor by the proprietary concern. The consideration is payable by the limited company (transferee) to the sole proprietary concern which is the transfer-or, for the limited purpose of the transfer envisaged under this section, since the undertaking transferred to the company is that of the sole proprietary concern.
