T.V. RAJAGOPALA RAO, J.M. ORDER questions involved in this appeal filed by assessee are whether on facts and in circumstances of this case Department can be allowed to reckon balancing charge under s. 41(2) of IT Act and to bring it to tax. If so, what is amount which can be assessed as balancing charge. 2. facts are few and they may be stated as under. assessee is ordinary HUF. assessment year involved is 1982-83 for which previous year ended by 31st March, 1982. assessee used to do business of leasing out cinema hall called Srinivasa Mahal at Palakol, West Godavari District. site on which Srinivasa theatre was constructed belonged to one Shri T. Krishnamurthy. In first instance, site was taken on lease for 25 years, i.e., 21 st April, 1957 to 20th April, 1982 by one Sri Y. Narayana Rao, who had constructed Srinivasa theatre on said site. theatre together with unexpired portion of lease rights in site were sold to Sri N. China Satyanarayana, etc., by registered sale deed dt. 3rd Feb., 1965. said cinema hall together with unexpired portion of lease rights in site were sold by Sri N. China Satyanarayana, etc., in their turn to Sri V. Venkatarama Raju son of Sri Subbaraju on behalf of assessee-HUF under registered sale deed dt. 6th March, 1968. On behalf of assessee-HUF Sri T. Krishnamurthy was requested to extend lease period (sic). In pursuance of agreement Sri T. Krishnamurthy executed registered lease deed dt. 1st Feb., 1968 extending lease period from 20th April, 1982 to 31st Dec., 1992. assessee-HUF leased out cinema hall to Sri K. Ramachandraraju and Sri K. Venkataramaraju on condition that they should pay rent of Rs. 12,050 per month. lease is for five years, i.e., from 1st June, 1980 to 1st May, 1985. lease deed was registered. lease amount was offered as business income derived by assessee-HUF and it was accepted by Department in income-tax assessments completed against assessee in previous years. Even while lease was existing assessee-HUF sold away cinema theatre together with all machinery and furniture along with unexpired portion of lease rights in site for Rs. 3,00,000 by means of registered sale deed dt. 2nd Nov., 1981 to one Sri K. Kanna Rao and his minor son. It may be mentioned that lease land is in three plots and all of them are situated in RS. No. 320/12 measuring 84 cents in Gunipudi village. super-structure of cinema hall, machinery and furniture were all purchased for Rs. 1,32,046 in 1968. In first spell of lease period ground rent that was agreed to be paid to Sri T. Krishnamurthy was Rs. 200 per month. However, for second spell of lease period though it purported to have been covered period from 20th April, 1982 to 31st Dec., 1992 rent payable per month or per year was not ascertainable from material on record. assessee-HUF executed sale deed dt. 2nd Nov., 1981 in favour of Sri K. Kanna Rao and his minor son Sri Venkateswara Rao for consideration of Rs. 3 lakhs. How consideration was fully received ultimately by vendors was stated in recitals of sale deed dt. 2nd Nov., 1981, copy of which is filed before us. It is in Telugu and free translation of said document is also filed along with it. 3. latest assessment order was dt. 28th Jan., 1974 for asst. yr. 1972- 73 completed by ITO, A-Ward, Palakol. perusal of same disclosed that as on 1st April, 1971 which is first day of asst. yr. 1972-73 WDV of building, machinery and furniture was noted to be Rs. 87,256. For asst. yr. 1972- 73 WDV of Rs. 8,599 was allowed. Till asst. yr. 1972-73 WDV allowed worked out to Rs. 87,256. Deducting therefrom depreciation of Rs. 8,599 allowed for asst. yr. 1972-73 at end of accounting year it would work out to Rs. 78,657. difference of Rs. 73,389 represents depreciation allowed in assessments up to and including asst. yr. 1972-73. assessment order for 1972-73 copy of which is filed by assessee before ITO disclosed that amount of Rs. 5,763 representing unabsorbed depreciation was ordered to be carried over to subsequent years. Deducting this, balance worked out to Rs. 67,6 21 . This amount of Rs. 67,6 21 was sought to be brought to tax as profit under s. 41(2) of IT Act. assessee objected to same and contended that as entire undertaking was sold away as going concern no question of any balance in charge under s. 41(2) could arise and assessee relied upon decision of Gujarat High Court in Artex Mfg. Co. vs. CIT (1981) 21 CTR (Guj) 31 : (1981) 131 ITR 559 (Guj). ITO overruled this objection of assessee stating that facts of case cited are quite different from facts on hand before him and ultimately he brought amount of Rs. 67,6 21 to tax in hands of assessee. 4. In appeal before CIT(A), Visakhapatnam argument that balancing charge cannot be brought to tax as entire undertaking was sold without specifying any value in respect of each individual depreciable asset and assessee relied upon besides decision already cited before ITO on two more decisions, one of Gujarat High Court reported in Sarabhai M. Chemicals (P.) Ltd. vs. P.N. Mittal, Competent Authority, IAC (1980) 16 CTR (Guj) 315 : (1980) 126 ITR 1 and CIT vs. Mugneeram Bangur & Co. (Land Department) (1965) 57 ITR 299 (SC) of Supreme Court. learned CIT(A) firstly held that it was unfortunate that ITO did not and could not lay his hands on records after asst. yr. 1972-73. He also found that in assessment records for present assessment year with which we are concerned, viz., 1982-83 valuer s report (Sri B.H. Subbaraju, Civil Engineer) was on record. It appears learned CIT(A) states that assessee instructed abovesaid engineer to make personal inspection and assess value of property expressly for purpose of ascertaining capital gains and said civil engineer made elaborate itemised valuation of entire property. In his report he discussed present state of each and every item of business asset comprised in sale deed which is now subject-matter of appeal before him. values placed by engineer over each item of building and machinery as well as furniture were given as each of them bears in September 1981. Thus, values were given in list which is shown as Annexure to CIT(A) s order which is as follows: Present Description net cost Rs. 1. Main Auditorium (a) GCI sheet roof portion 5805 sq. 57,854 ft. of plinth (b) RCC roof 21 23 sq. ft. (Plinth) 35,845 Theatre stage setting and ramp for 2. 5,000 seating 3. False ceiling 10,000 Special architectural features for 4. 2,000 theatre facia 5. Outside paving and compound wall 15,000 6. Booking-cum-tea & soda shop 3,000 7. Ladies waiting shed 2,500 8. W.C. shed 2,000 9. Furniture 50,000 10. Equipment and accessories 8,000 2,71,199 learned CIT(A) recorded that valuation by above engineer was done on 5th Sept., 1981 and sale of cinema hall, etc. took place well within two months from that date. He stated that he is thoroughly convinced that with view to ascertain market value of each and every item of depreciable asset valuation was got done by assessee. He also held that this valuation has greatly influenced to fix market value at Rs. 3 lakhs under sale deed dt. 2nd Nov., 1981. difference between Rs. 3 lakhs and Rs. 2,71,000 in view of learned CIT(A) would represent goodwill for which no value was put by valuer or this would represent thepro rataincrease in value of each asset in course of bargain or negotiations. Later learned CIT(A) h e l d that Supreme Court decision inMugneeram Bangur & Co. (Land Department)'scase (supra) and Gujarat High Court decision inArtex Mfg. Co.'scase (supra) have been discussed and distinguished inChandra Katha Industries vs. CIT (1982) 29 CTR (All) 317 : (1982) 138 ITR 168 (All). Ultimately he held perhaps basing his decision onChandra Katha Industries'case (supra) it is obvious that assessee has consciously fixed separate cost for individual items two months before sale. He held that it is against common sense that in transaction of sale of this type slump price could be just intuitively imagined and agreed upon. slump price, if any, is only convenient name for aggregate of prices individually determined after proper thought deliberately placed to avoid assessment of profits under s. 41(2). Thus he confirmed order of ITO and dismissed appeal preferred by assessee. Hence second appeal. 5. In grounds it is contended that in view of decisions in Artex Mfg. Co's. case (supra) and Mugneeram Bangur & Co. (Land Department)'s case (supra) no balancing charge arose on sale of cinema theatre, machinery and fittings since sale was for slump price. learned CIT(A) is not justified in doubting bona fides of sale deed so far as sale consideration is concerned. finding of learned CIT(A) that idea of slump price is clear after-thought is not justified and is only based upon suspicion and surmise. Mr. M.J. Swamy, learned counsel for assessee contended before us that sale is of both movable and immovable properties. He cited before us commentary of Chaturvedi and Pithisaria's Income-tax Law, Third Edition, p. 1548 which is as follows: "Transfer of entire business for slump price-no balancing charge-capital g i n may result. Balancing charge under s. 41(2) arises only where any 'depreciable asset' (building, machinery, plant or furniture) is sold, etc. Where, however, entire business of undertaking together with its assets including depreciable assets and liabilities is sold for slump price without any item wise earmarking, s. 41(2) is not attracted. excess may be chargeable as capital gains (Artex Mfg. Co. vs. CIT (supra), Sarabhai M. Chemicals (P.) Ltd. vs. P.N. Mittal, Competent Authority, IAC (supra)." It is contended by Mr. Swamy that only business which assessee is carrying on and which was recognised by Department is leasing out cinema hall and by executing sale deed right to lease was transferred and hence business conducted by assessee was transferred. Further, learned CIT(A) himself stated while explaining difference between Rs. 2.71 lakhs and Rs. 3 lakhs that difference may be due to transfer of goodwill. Therefore, Mr. Swamy contended that sale involves whole of business of assessee including goodwill, unexpired portion of lease period as well as cinema hall building machinery, fixtures, etc. Therefore, in view of two Gujarat decisions, viz., Artex Mfg. Co.'s case (supra) and Sarabhai M. Chemicals (P) Ltd.'s case (supra) and also in view of Karnataka High Court decision in Syndicate Bank Ltd. vs. Addl. CIT (1985) 45 CTR (Kar) 68 : (1985) 155 ITR 681 (Kar) as no itemised value was put against depreciable assets, viz., building, plant and machinery, furniture and fixtures there is no scope to reckon balancing charge under s. 41(2). 6 . On other hand, learned Departmental Representative Sri C.V. Padmanabhan contended that in IT Act there is no sale called slump sale recognised and to substantiate this contention he takes us through ss. 45, 48 and 50 of IT Act, 1961. He contended that as per recitals of sale deed what is sold is building, plant and machinery and furniture which are all depreciable assets. He also invited our attention to passage in Sampat Iyengar's Income-tax Law, 7th Edition, Volume 2, p. 2071 under head 'Slump sale' learned commentator secured law into his book as follows: "Slump sale: This section makes no differentiation between sale of assets in course of carrying on of business or at time of closing down o r discontinuance of business. closing down sale will therefore be within purview of sub-section. It is also applicable to case of transfer of assets as part of sale of entire undertaking. However, even in such cases, it must be possible to say that particular asset has been sold for particular price. It has therefore been held that this provision is attracted only where there is transfer of plant, machinery, building or furniture and not to case where whole business as going concern is taken over for slump price." As can be seen that learned author stated that balancing charge under s. 41(2) is attracted to case of transfer of asset as part of sale of entire undertaking and learned author also cited authority of Supreme Court in CIT vs. B.M. Kharwar (1969) 72 ITR 603 (SC), Madras High Court in R.M. Veerabhadra Thevar vs. CIT (1973) 92 ITR 357 (Mad) and Bombay High Court in Akbar Mfg. & Press Co. Ltd. vs. CIT (1957) 31 ITR 99 (Bom). Besides relying upon way of distinction sought to be made by learned CIT(A) between cases cited on behalf of assessee and case on hand in impugned order Sri Padmanabhan sought to contend that Sarabhai M. Chemicals (P.) Ltd.'s case (supra) is case dealing with acquisition of immovable property under Chapter XX-A of IT Act. So, ratio of that decision cannot be applied to case on hand. So also he sought to distinguish decision of Karnataka High Court in Syndicate Bank Ltd.'s case (supra) by stating that that was case dealing with compulsory acquisition of business undertaking and issue before them was ascertainment of capital gains. It is contended that recitals of sale deed dt. 2nd Nov., 1981 which is before us for our consideration would clearly reveal that this is not sale of whole undertaking or complete business of assessee. Simply because lease amount derived by assessee was accepted as business income it does not mean that sale of cinema hall together with machinery, plant and fixtures would constitute sale of whole business. Sri Padmanabhan contended that goodwill was never sold under terms of sale deed. There is not even specific attornment of lease of cinema hall. lessees, viz., Sri K. Ramachandraraju and Sri Venakataramaraju did not figure either as witnesses to sale deed or executed fresh lease deed in favour of vendees. Further it is recited that sale is subject to lease agreement dt. 11th June, 1980. only right created in vendee was to receive rent payable under above lease deed dt. 11th June, 1980. It is also clearly admitted that all licences essential to run cinema hall were already transferred in favour of lessees. It was stipulated that vendees should get transferred in their names all such licences from lessees direct and in getting such transfer of licences in their favour if presence of vendors will be necessary then vendors would be ready to attend public offices or Courts whenever necessary at expense of vendees. Therefore, Sri Padmanabhan argued that licences were also not transferred in favour of vendees. There is no specific stipulation whereunder vendors allowed vendees to run cinema hall under caption 'Srinivasa Mahal'. Therefore, there was no question of making over goodwill of cinema hall to vendees. learned Departmental Representative contended that decision of Supreme Court in Mugneeram Bangur & Co. (Land Department)'s case (supra) was impliedly overruled by amendment of proviso 2 to s. 10(2)(vii) of Indian IT Act, 1922 and this position was made clear by later Supreme Court decisions in B.M. Kharwar's case (supra) and CIT vs. K.B. Kalikutty (1969) 78 ITR 533 (SC). Therefore Sri Padmanabhan contended firstly that there are decisions of Supreme Court, Madras High Court and Bombay High Court going contrary to decisions of Gujarat High Court in which it is held that even though it is slump sale balancing charge can be brought to tax. Secondly, he contended that on facts that recitals of sale deed do not justify to call sale of whole business undertaking and so even decision cited on behalf of assessee would not be of any help to him. Thirdly, he contended that in this case there is clear evidence to show that there is itemised value of each and every depreciable asset and even though it is slump price if value of depreciable asset can be ascertained then s. 41(2) clearly attracted even according to assessee. Fourthly, he contended that Supreme Court decision in Mugneeram Bangur & Co. (Land Department)'s case (supra) does not hold field any longer and that Atrex Mfg. Co.'s case (supra) and Sarabhai M. Chemicals (P.) Ltd.'s case (supra) are overruled by later decision of Allahabad High Court in Chandra Katha Industries' case (supra) and lastly he argued that decisions cited by him are to be preferred to those cited by assessee. 7. Mr. Swamy in reply contended that assessee agreed to pay capital gains. Sec. 41(2) comes into play only when one should be able to quantify sale of depreciable asset. It can be done only if one knows price of depreciable asset. When once it is not known it is not possible to bring to tax balancing charge. 8 . Thus, we heard both parties fully and exhaustively. Let us first consider whether case law cited on behalf of assessee would help advance his case in appeal before us. In Artex Mfg. Co.'s case (supra) sale is of entire undertaking as going concern by firm to company. In that case assessee was firm. private company was formed with view to take over business of assessee as running concern. agreement w s entered into between firm and company on 31st March, 1966, according to which business carried on till that date by firm was sold to company as going concern and partners of erstwhile firm became company as going concern and partners of erstwhile firm became shareholders of company. partners were given shares in same proportion in which partners shared profits or losses of firm. purchase consideration was fixed at Rs. 11,50,400 and this amount was paid in shape of 11504 fully-paid equity of Rs. 100 each and shares were allotted in accordance with shares of partners in assessee-firm. ITO held that surplus in respect of certain items was chargeable under s. 41(2) whereas in appeal AAC held surplus is assessable under s. 41(2) and status of assessee being that of registered firm principle of mutuality was not attracted. In those circumstances Gujarat High Court held that what was transferred and sold was whole business of undertaking together with its assets and liabilities for slump price and it was not sold by any itemised value or item by item price fixed for different assets of firm. In those circumstances, surplus was not assessable under s. 41(2). Their Lordships of Gujarat High Court no doubt followed decision in CIT vs. Mugneeram Bangur & Co. (1963) 47 ITR 565 (Cal.). 9 . In K.B. Kalikutty's case (supra) facts are that assessee was running business of plying buses. He plied buses for some time in previous year and sold them in that year. question was whether amount realised by him in excess of their WDV up to their original cost was taxable under second proviso to s. 10(2)(vii). Supreme Court held that even on assumption that sale of business was closing down sale or realisation sale amount was nonetheless taxable since sale was made after amendment of second proviso to s. 10(2)(vii) by Act No. 67 of 1949. In that case their Lordships held that in CIT vs. Ajax Products Ltd. (1965) 55 ITR 741 (SC) Supreme Court clarified position about effect of amendment made in 1949 in proviso and they have also explained impact of amendment made in second proviso on three conditions laid down by Hon'ble Supreme Court in CIT vs. Express Newspapers Ltd. (1964) 53 ITR 250 (SC). Then their Lordships of Supreme Court observed as follows: "The words 'whether during continuance of business or after cessation thereof' were not present in unamended proviso. In two decisions cited earlier, in absence of such words, this Court held that to attract said proviso machinery shall have been sold before business was closed down. This clause omits that condition for exigibility of tax." Following above decision later decision of Supreme Court in K . B . Kalikutty's case (supra) held that amending words in proviso eliminated third condition which had been laid down for its applicability in previous decision, viz., that machinery shall have been sold when business was being carried on and not for purpose of closing it down or winding it up. Mugneeram Bangur & Co. (Land Department)'s case (supra) is case decided before second proviso to s. 10(2)(vii) of Indian IT Act, 1922 was amended in 1949. In Mugneeram Bangur & Co. (Land Department)'s case (supra) no doubt Supreme Court held as follows: "Held, that sale was sale of whole concern and no part of price was attributable to cost of land and no part of price was taxable. fact that in Schedule to agreement price of land was stated did not lead to conclusion that part of slump price was necessarily attributable to land sold. What was given in Schedule was cost price of land as it stood in books of vendor and even if sum of Rs. 2,50,000 attributed to goodwill could be added to cost of land, there was nothing to show that this represented market value of land." Firstly, in this case we do not feel any difficulty to come to conclusion that substance of transaction points out that it is sale and not exchange. title of deed is given as sale. We are also to hold that sale does not comprise of whole business. assessees by themselves are not doing any business or running cinema hall on their own. There are no liabilities to business of assessees. There is also no stock-in-trade to assessee's business. goodwill also was never mentioned as one of items sold. Further, vendors and vendees are strangers to each other. None of vendors subsequently joined vendees in running business. In those circumstances we are of view that neither Mugneeram Bangur & Co. (Land Department)'s case (supra) nor Artex Mfg. Co.'s case (supra) applies to facts of case. From correct appraisal of recitals of sale deed dt. 2nd Nov., 1981 we can only come to conclusion that transaction is sale of cinema hall building, machinery, fixtures and furniture as well as right to unexpired portion of lease. In B.M. Kharwar's case (supra) there is firm which carried on business of manufacturing, purchasing and selling cloth. Subsequently, it closed its manufacturing side of business and transferred its machinery to private limited company in share capital of which partners of firm had same interest as they had in assets and profits of partnership. While assessing firm for asst. yr. 1959-60 ITO, Surat, brought to tax under s. 10(2)(vii), proviso (ii) of IT Act, 1922, Rs. 40,743 being excess realised over written down value of machinery under s. 10(2)(vii). In Kharwar s case (supra) Supreme Court postulated that sale of business may secure either fixed price or asset in exchange. Supreme Court held following: "But counsel for assessee is right in contending that Tribunal has recorded no finding whether transfer was of nature of sale, and on materials on record no answer to question submitted by Tribunal can be recorded. By s. 10(2)(vii), proviso (ii), excess over written down value, subject to maximum prescribed thereby, may be brought to charge to tax only if building, machinery or plant is sold. This Court pointed out in CIT vs. R.R. Ramakrishna Pillai that transaction by which person carrying on business transfers assets of that business to another assessable entity may take different forms and may have different legal effects. assets of business may be sold at fixed price to company promoted by person who carried on business; if price paid for or attributable to asset exceeds written down value of asset proviso (ii) to s. 10(2)(vii) of Indian IT Act, 1922, would ex facie be attracted. Where person carrying on business transfers assets to company in consideration of allotment of shares, it would be case of exchange, and not of sale, and true nature of transaction will not be altered, because for purpose of stamp duty or other reasons value of assets transferred is shown as equivalent to face value of shares allotted. person carrying on business may agree with company that assets belonging to him shall be transferred to company for certain money consideration and that in satisfaction of liability to pay that money consideration, shares of certain face value shall be allotted to him. In that case there are in truth two transactions-one transaction of sale and other contract under which shares are allotted in satisfaction of liability to pay price. Court further observed that s. 10(2)(vii), proviso (ii), on plain terms used therein is attracted if there be sale of building, machinery or plant and amount for which sale takes place exceeds written down value of assets transferred. If there is no sale, proviso has no application." Supreme Court also held that if parties have chosen to conceal by device legal relation, it is open to taxing authorities to unravel device and to determine true character of relationship. But legal effect of transaction cannot be displaced by probing into 'substance of transaction'. If we adopt tests laid down by Hon'ble Supreme Court in above case and apply them to facts on hand there is no other way for us except to hold that under sale deed dt. 2nd Nov., 1981 only sale of depreciable assets like building, plant, machinery, furnitures and fixtures plus unexpired portion of lease rights was conveyed for consideration of Rs. 3 lakhs to vendees. It is no doubt true that assessee is receiving lease amounts from its lessees was considered as business income. But in such case inasmuch as no liabilities, if any, sustained by assessees were made over to vendees no stock-in-trade was also made over to vendees and no goodwill of assessee was made over to vendees and vendees and vendors being different even tests laid down to hold that it is sale of whole business or this is slump sale was not satisfied. Further, having regard to valuation report obtained from registered civil engineer on 5th Sept., 1981 under which each and every depreciable asset was valued only two months before sale made us hold that there was definite material on record to ascertain market value of depreciable asset. Further, only non- depreciable asset according to us is unexpired portion of lease period. quantification of such right is not impossible. It can easily be found out from rent deed dt. 1st Feb., 1968 got executed for 10 years from Sri T. Krishnamurthy. Unfortunately rent agreed upon is not mentioned in sale deed. Therefore, in our opinion, sale price attributable to depreciable assets sold by assessee under sale deed dt. 2nd Nov., 1981 is Rs. 3 lakhs minus rent over land payable for unexpired portion of lease. As this information is not available with us we remand matter to CIT (A) to call for registered rent deed dt. 1st Feb., 1968 executed by N. Venkataramaraju in favour of Sri T. Krishnamurthy to ascertain rent payable for unexpired portion of lease period from 2nd Nov., 1981 to 31st Dec., 1992 and deduct same from out of sale transaction. resultant figure should be taken to be price fetched to assessee by way of sale of depreciable assets. After ascertaining sale price of depreciable assets CIT (A) is directed to compute balancing charge under s. 41(2) and add to income of assessee according to law. 10. In result, appeal is allowed for statistical purposes. *** K. KANNA RAO v. INCOME TAX OFFICER