Commissioner Of Income-Tax, West Bengal Calcutta v. Calcutta Discount Co., Ltd

.. I COMMISSIONER OF INCOM&TAX, WEST BENGAL CALCUTTA v. CALCUITA DISCOUNT CO., LTD. April 10, 1973 [K. S. HEGDE AND H. R. KHANNA, JJ.] Income-tax-Riglzt of assessee to avoid tax. ,4 ppel/ate Tribunal-Disposal of appeal on 'teclmica/ities-Duty tu con-shirr substance of the matter. . The assessee company floated a subsidiary co.mpany during the ~ele-\'ant previous year and transferred to that su}J~tdtary company vanou5 l>harc! held by it at a certain rate. The authonttes under the lncome-tlx Act. 1922. held that the assessee and its subsidiary were two different kg01J entities that the transact:on was a bona fide transacttnn and that the assessee had not maJe any secret profits out of that transaction. The locomc-tax Officer, however, valued the shares transferred at the market riltc and held that the assessee company must he deemed to have made a profit. In appeal, the Appellate Assista~t Commissioner . set a.1ide thr order of the Income-tax Officer and rcrrutted the case to h1m for find-in~ out whether the assessee bad really mad.: any profits from the tran-,action.. 'The Tribunal dism~ed the appeal of the lncome-[a:t Offktr «l:!ain5t that order, summarily, on the ground that the Income-ta.-c Officer hotd not taken the necessary pleas that the dl!cision of the Appdlate A"i.~tant Commis~ioncr was incorrect in law. On reference. the High C..ourt held that the order of the Tribunal was an interlocutory on~ and that an application to male a reference to the High Court did not lie. Di.~missing the appeal to this Court. HELD: ( l) The Tribunal, instead of dealin~ with the substance or the matter had been unduly influenced by procedural technicalith:s. The conclu~ion of the Tribunal that the appeal memorandum was not in o.ccordance with law was al~o not correct a.'! no specific formula i~ r.eccsary for seeking relief at the hand of any court or tribunal if the necc~'ilry grounds are t-ahn. [.9550-E] (2) Dut the view of the Appellate Assistant Commissioner was cor-red .r.n.d there was no necessity to decide whether the Tribunal errcJ. in f d•~mJ!I.\Jng the appeal summarily. (958F-G} . lt is. a well ac~~~ pri~ciple o! law that an ll!i~~:ssee can sv arraol!,e lu' nff:urs u~ t_o mlnt_m1s_e ht~ taJt burden. Hc:nce, if the ass~ss~c to th1s 4:4.-'C_:m<lngcd t_ts. Wfa1rs tn such a manner ll!i t&.l reduce it! tax liability by ~t.;tl1mg a subsJJ,ary comp;my anJ transferring its shares to that subsidi-".Lry coa1pa~y a.nll thU5. ~orgo1ng part of its own protl~ and at thll same lime tn_a~hn~; JU su})\h.Jiary to earn some profits, such a cour~c is not G trnpermt~.aJblc under lilw. I957E-F] Commi5:.lont>r ul /ncom~ Tax, Gujarat,· v. A. Raman and Co. 67 J.T.R. II followed. . 'I , Sri Ri.Jmalinga ChooJumbikai Mill:J Ltd. v, Commisslonu of Jncomt· .u.t. J.fadral. 28 1.1 .R. 95:!. approved. Sharkey (/nsprctor of Taxn) v. Wunl;~r 1956 Appeal Cases 58 and· II /}r~Var·s 1'~a Cu. Lrd. v.- <;:om.misslonrr of Agricullura/ Jncor; 1.:-!~~. IV1'.1·t tfirnNI, «. l.T .R. G. dtst•n~Uishcd and uplainc:J. 952 CIVIL APPllLLATE JURISDICTION : C.A.No. 495 of 1970. Appeal by certificate from the judgment and order dated July 2S, 1969 of the Calcutta High Court in Income.Tax Refe· renee No. 61 of 1966. S. C. Manchanda, S. P. Nayar and R. N. Sachthey, for the B appellant. Sachin Chaudhuri, M. C. Chagla, T. A. Ramachandran'and D. N. Gupta, for the respondent. The Judgment of the Court was delivered by c HEGDE, J.-This is an appeal by certificate. It arises from the decision of the Calcutta High Court in a reference under S. 66(1) of the Indian Income-tax Act, 1922 (to be hereafter referred to. as the 'Act'). Three questions of law were referred to the High Court for ascertaining its opinion. Those que.-stions are .-- It arises from BY. GIR. Th. FT PAPE ONFTOD AT।(C2510, CH.) 953 IL ANAS wl abr: C.A.No। 1970-এর 495।wlaad AR 942 DOT SP WHATAT OT PPT 2507 SCIEN 1969-1 PTPPOl WAPKbA DAPA AVIAH A 1966। orarerata GS OH. FH. Habra, ayn. fF. TAA Aas GA. AA. HA। Cssro A Ae Yat, aN. HH. BT, fl. 9. AAeT Ads FG. aa. BY। আদালেতর রায় Bulaকরা me kT. 1. 2 &. Al RA MANN Ade aaa।1a (A CEO SAC AAPANey, 1922-949 AAT 66 (1)-95 BRIA Patpor BWeebA IS GRGN Gaaed fas(TW aaa fad Cex Pal 24)।পাঠােনা হেয়িছল।Ce wast RT ( 1 +) SR Nw Wea A rIra_*gancsa1964 WEA 2201 OTe wlsad Be ate aeder ae ft A Peat a2 YASNMC Ga eae Aled oes, 1922-949 66 (1) WAM Sata 2efG Sea aa PaOHy el।( 2 ) UNE 1 Ae AAA God A Bods? VW OT A vas fotewm? QP ATনা CHBA14 (25(9তার abo)|AAT( 3.) Soar 2 spend AaPsfow, ERP oA alat set alto fefeto whereআিপল খািরজ কের ভুল কেরেছ িকনা। me kT. 1. 2 &. Al RA MANN Ade aaa।1a (A CEO SAC AAPANey, 1922-949 AAT 66 (1)-95 BRIA Patpor BWeebA IS GRGN Gaaed fas(TW aaa fad Cex Pal 24)। পাঠােনা হেয়িছল।Ce wast RT ( 1 +) SR Nw Wea A rIra_*gancsa BBP Panes A AW Aa Sod MA Iae AB Hae CR’ @ afe Wb aga Coed HOM BAA।amy froma fare cy fyNAb] 132 «88 AAS W-Ad PR AMS (a8 Gad (Ao bata।Ol Afe 3 a AGA WANHiya faa।ERD POF Alto AAT ASP A ATS OA WIR Pal AW AWE OT frawAs। FAT ARG Bay 1947-48, ANB BITS qkq ay ote aka 1946-47।ATA Nl CAM A APG CA-HWRAP HAY CLকেরিছল।PRO CAI RACAL (QR-13-L797Sup.Cl/7 0) Whether in view of the fact that the Tribunal's order dated 22nd July 1964 was an interlocutory order the Tribunal was competent to entertain an applicatioll purported to be under Section 66(1) of the Indian Income Tax Act, 1922, in respect of such order ? (2) If the answer to question No. 1 above be in th~ E affirmative, whether on the facts and in the circum .. stances of the case the Tribunal exercised its discretion judicially in not allowing the applicant's petition for raising the additional grounds ? ( 3) ,Whether on the facts antL in the circumstances of lhe case, the Tribunal erred in dismissing the appeal F summarily on the grounds stated in its appdlate order dated 3-9-1964 ? The High Court answered the first question in favour of the assessee and came to the conclusion that it was unneces~ary to amwer the remaining two questions. Mr. Manchanda. learned coumel for the Revenue did not seek to get any answer from us G on questions 1 and 2. His arguments were confined to question No.3. The material facts of the case as could be gathered from the case stated by the Tribunal are as follow~ Herein we are concerned with the assessment of the assessee H for the assessment year 194 7-48, relevant accounting year being the financial year 1946-4 7. The assessee company floated a sub-sidiary company named Messrs. Clive Row Investment ~H0ld· 13-L797Sup.Cll73 ing) Co., Ltd., quring the relevant previous year and transferred to that subsidiary company various shares held by it. In return the subsidiary company transferred to the assessee company its shares of the value of Rs. 1,38,81,173/ ... The book value of the shares transferred by the assessee company to its subsidiary was Rs. 1,66,69,391/~. Thu~ the assessee company sustained a loss of Rs. 27,02,398,/ ~ but it did not claim that loss in the return made on the ground that the transfer in question was made to its own subsidiary. The Income Tax Officer valued the shares trans-ferred b(y the assessee company to its: subsidiary at the market rate nnd on that basis came to the conclusion that the assessee com-pany must be deemed t~ have made a ~profit of. Rs. 1,02,40,546/-. The Income Tax Officer did not hold that the transaction between the assessee company and its subsidiary was not a bona fide transaction or the assessee company had made any secret profits out of that transaction. In other words, accord-ing to the Income Tax Officer even though the assessee company had not nl.ade any profits ]n fact, it must be deemed o have made a profit of Rs. 1,02,40,546/- solely on the ground that the market value of the shares transferred by the assessee company to its subsidiary is much more than their book value. Aggrieved by the decision of the Income Tax Officer the [t~sessce went up in appeal to the Appellate Assistant Commis~ sioner. The Appellate Assistant .Commissioner opined that the basis adopted by the Income Tax· Officer was unsustainable and .hence set aside the order of the Income Tax Officer and remitted the case back to that Offi~r for finding out whether tbe assessee had really made any profits in the transaction in ques~ion . As al!ainst that order the Income Tax: Officer went up in appeal to the Income Tax Appellate Tribunal. In the appeal memo the Income Tax Officer took only three grounds, namely : "(1) For that on the .facts and in the citcumstau" ces of the case the learned Appellate Assistant Com-missioner of Income-tax should have held that the shares transferred by the assessee company to its subsi-diary during the year of account should be valued, for the purposes of assessment under the Indian Income-tax Act, at their market price. (2) For that the learned Appellate Assistant Com-missioner of Income~tax misappreciated the facts of the present case and wrongly applied the decision of the Madras High Court .in 28 I.T.R. 952. (3) For that the· learned Appellate Assistant Com-missioner ignored the principle that the cases of the pre-&ent type the sum to be taken for the disposal of the stock-in trade of the assessee is not what the assessee A B c D E F ~ has chosen to treat as his receipt but what he would normally have received for it in the due course of trade.'' He did not plead that the order of the Appellate Assistant Com-missioner was incorrect· in law and therefore, should be set aside. B It appears thao at the hearing the counsel for the assessee took the plea .that as the Income Tax Officer had not taken the ground that the order of the Appellate Assistant Commissioner was not in accordance with law, consequently it should be se~ ttside, the Tribunal could not gra.Qt the relief asked for by the Income Tax Officer. At that stage, as seen from the records, the Income Tax Officer applied for amending his appeal memo but that c prayer was rejected by the Income Tax Appellate Tribunal. Ultimately the Tribunal dismissed the appeal of the Income Tax Officer summarily on the ground that necessary pleas have not been taken. Thereafter, at the instance of the Revenue the questions set out earlier were referred to the High Court. The procedure adopted by the Tribunal appears to us to be somewhat strange. The Tribunal instead of dealing with the substance of the matter appears to have been unduly influenced by procedural technicalities. We are also not im-pressed with the conclusion of the Tribunal that the appeal memo was not in accordance with law. No specific formula is neces-'.E sary for seeking relief at the hands of any court or Tribunal if the necessary grounds are taken in the appeal memo. Had we come to the conclusion that the decision of the Income Tax Appellate Commissioner was wrong in law we would have had no hesitation in answering the three questions for-.F mulated above in favour of the Revenue and directing the Tri-bunal to reconsider the matter. But, in the view that we are taking the answers to those questions would become purdy academic. · The Appellate Assistant Commissioner came to the conclu-sion that the assessee and its subsidiary were two different legal entities. This conclusion was not and could not be challenged. All the authorities under the Act have come to the conclusion that the transaction between the assessee and its subsidiary company was a bona fide transaction and the assessee had not made any secret profits out of the transaction in question. It H may be that the assessee had transferred its valuable shares at cost price to its subsidiary in order to so arrange its affairs as to reduce its tax burden. The question whether such an arrangement is permissible or not, we shall presently examine. As seen earli~r the Appellate Assistant Commissioner came to the conclusion that unless the Income Tax Officer on the basis of material before him is able to come to the conclusion that the assessee had really made profits in the transaction. it is not permissible for him to add back to the assessee's return any fictional income. In our opinion that conclusion is fully in ac-cordance with law. Qaafs oer war ore, ail yapat shrine a a fare Cees” GB, Ah aT BWAPTA? 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