Appeal No 376 of 1967
Appeal from the judgment and decree dated December 8 1965 of the Patna High Court in Misc
Judicial Case No 38 of 1962
M C Chagla and R C Prasad for the appellant
Jagadish Swarup Solicitor General G C Sharma R N Sachthey and B D Sharma for the respondent
The Judgment of the Court was delivered by Shah J
This appeal is filed with certificate granted by the High Court of Patna under section 66A2 of the Indian Income tax Act 1922
The India Machinery Stores P Ltd is a private company incorporated with the object of taking over the business carried on by the India Machinery and Mills Stores hereinafter called the vendors 
By an agreement dated August 2 1956 the Company agreed to purchase all the assets of the vendors goodwill and the book debts and other liabilities and claims against the Company as on the date of transfer in consideration of allotment of 260 fully paid up shares of the Company of the nominal value of Rs 260000 
It was provided by cl 4 of the agreement That all assets of the vendors in respect of all its business shall be taken over at the book value standing in the books of accounts of the vendors as on the 1st August One Thousand Nine Hundred Fifty six
 541 In a proceeding for assessment to tax for 1958 59 the Income tax Officer found that in the books of the vendors the value of stock as on August 1 1956 was Rs 177285 while in the books of the Company the opening stock taken over by the Company was valued on the same day at Rs 210285
The Income tax Officer held that the valuation by the Company of the opening stock was in clear violation of the terms of agreement between the vendors and the Company and added a sum of Rs 33000 representing the difference between the value of the closing stock in the books of account of the vendors and the opening stock in the books of account of the Company
The order was confirmed in appeal by the Appellate Assistant Commissioner and by the Income tax Appellate Tribunal
The High Court of Patna recorded their answer in the affirmative on the following question referred by the Tribunal Whether on the facts and circumstances of the case and upon a construction of the agreement of 2nd August 1956 the Tribunal was justified in holding that the sum of Rs 33000 forms part of the assessable profits of the assessee Company  A Division Bench of the High Court certified the case under section 66A2 of the Act as fit for appeal to this Court observing That the case fulfils all the requirements of section 66A2 of the Indian Income tax Act 1922 and is a fit case for appeal to the Supreme Court
 At the hearing of the appeal on behalf of the Commissioner of Income tax it is contended that the appeal is incompetent since the High Court in certifying the case as fit for appeal to this Court did not set out the question of law which this Court has to decide
It was urged that the certificate or the order certifying the case must disclose that some substantial question of public or private importance arises in the case and on that account the case is certified to be fit for appeal
In our judgment the contention must be accepted
Section 66A of the Indian Income tax Act 1922 which was added by the Indian Income tax Amendment Act 24 of 1926 by sub section
2 provides An appeal shall lie to the Supreme Court from any judgment of the High Court delivered on a reference made under section 66 in any case which the High Court certifies to be a fit one for appeal to the Supreme Court
 542 The phraseology of sub section
2 of section 66A of the Income tax Act is substantially the same as used in section 109 c of the Code of Civil Procedure 1908 article 133 1 c and article 1341 c of the Constitution
The Judicial Committee in Delhi Cloth and General Mills Company Ltd vs Income tax Commissioner Delhi1 observed  it will be noticed that the appeal thereby given is by sub section
2 confined to a case which the High Court certifies to be a fit one for appeal to His Majesty in Council
These words are textually the same as the concluding words of section 109c of the Code of Civil Procedure and coupled with the carefully limited referential words to the Code of Civil Procedure in sub section 3 suffice in their Lordships  judgment to exclude from any right of appeal cases which fall within the requirements of section 1 1 0 of the Code and are operative to confine that right to cases which are certified to be otherwise fit for appeal to His Majesty in Council In Banarsi Parshad vs Kashi Krishna Narain  Ant 
2 the Judicial Committee explained that the expression certifies to be a fit one for appeal in the Code of Civil Procedure is clearly intended to meet special cases such for example as those in which the point in dispute is not measurable by money though it may be of great public or private importance
To certify that a case is of that kind though it is left entirely in the discretion of the Court is a judicial process which could not be performed without special exercise of that discretion evinced by a fitting certificate
In Radha Krishn Das vs Rai Krishn Chand3 a Division Bench of the Allahabad High Court had issued a certificate stating that though the valuation of the case was below Rs 10000 yet as regards the value and nature of the case it fulfilled the requirements of section 596 of Act No XIV of 18 82 Code of Civil Procedure
In that case the value of the subject matter was less than Rs 10000 and the Judicial Committee observed that even though section 596 was referred to there was nothing to show that the Judges who had issued the certificate had exercised their judicial discretion upon the matter in deciding whether in order to comply with section 595 c and section 600 the case was a fit one for appeal to Her Majesty in Council
 On that ground the appeal was dismissed as incompetent
1 LR 54 1
A 421
2 LR28 IA11
3 I R 28 1
A 1821
543 In Radhakrishna Ayyar vs Swaminatha Ayyar1 the High Court granted a certificate in a case in which the claim was Rs 4560 due as rent
The certificate recited  It is hereby certified that as regards the value of the subject matter and the nature of the question involved the case fulfils the requirements of sections 109 and 1 1 0 of the Code of Civil Procedure and that the case is a fit one for appeal to His Majesty in Council The Judicial Committee observed that where any certificate is  granted certifying a case it is of the utmost importance that the certificate should show clearly upon which ground it is granted
Indealing with the argument that the case was covered by section 109 c of the Code of Civil Procedure 1908 their Lordships observed There is no indication in the certificate of what the nature of the question is that it is thought was involved in the hearing of this appeal nor is there anything to show that the discretion conferred by section 109c was invoked or was exercised
Their Lordships think that these certificates are of great consequences that they seriously affect the rights of litigant parties and that they ought to be given in such a form that it is impossible to mistake their meaning upon their face Again the Judicial Committee observed in Commissioner of Income tax Central Provinces  Berar vs Sir section M Chitnavis2 that when a certificate is granted under section 66A of the Income tax Act it must be on a question affecting not only a particular assessee and depending upon the state of the evidence in a particular case but a question of great public importance affecting assessees generally and depending upon general principles
In granting the certificate the High Court merely observed that it was a fit case for appeal to the Supreme Court  they did not indicate the grounds which persuaded them to hold that it was a fit case for appeal to this Court
It would be conducive to better administration of justice if in certifying a case under section 66A2 of the Indian Income tax Act as a fit case for appeal the High Court sets out the question of law which they regard as of great public or private importance which falls to be decided by this Court
Mr Chagla contended that the rules laid down by the Judicial Committee applicable to a certificate issued under section 109c of the Code of Civil Procedure 1908 and under section 596 of the Code of 1882 in regard to appeals in civil matters have no bearing in determining the meaning of section 66A2 for the High Court 1 L R 48 1
A 31
2 L R 59 I A 290
544 exercises advisory jurisdiction on a reference on questions of law and on that account even if the question of law which in the view of the High Court arises is not stated in the certificate it may be presumed when the High Court has certified a case to be fit for appeal that a substantial question of law is involved and the technical defect in the certificate may be
ignored
We are unable to accept that argument
It is true that under section 661  2 of the Indian Income tax Act 1922 only a question of law may be referred to the High Court for opinion but the right to obtain a certificate under section 66A2 arises only when in the proposed appeal a question of great public or private importance arises
It cannot be held that because a question of law alone may be referred to the High Court under section 66 of the Indian Income tax Act in the proposed appeal a question of law of great public or private importance necessarily arises
Any other view would make every opinion of the High Court in a reference under section 66 appealable to this Court
In our view the certificate granted by the High Court was defective
It was also urged that a practice is fairly common in some of the High Courts to certify a case under section 66A2 without recording any reasons or the grounds for certifying the case and we may not penalize the Company when we are enunciating the true rule for the first time
But the practice in our judgment was laid down many years ago by the decisions of the Judicial Committee that a certificate under section 66A2 which does not set out precisely the grounds or raise a question of great public or private importance does not comply with the requirements of the Act
The jurisdiction of this Court to entertain an appeal from the opinion recorded under the Indian Income tax Act arises only when a certificate is properly issued by the High Court or when this Court grants special leave under article 136 of the Constitution
In our judgment there is again no merit in the appeal
By cl 4 of the agreement dated August 2 1956 it was expressly provided That all assets of the vendors in respect of all its business shall be taken over at the book value standing in the books of accounts of the vendors as on the 1st August One Thousand Nine Hundred Fifty six
 It is undisputed that the stock in trade was entered in the books of account of the vendors on the date of transfer of the undertaking at Rs 177285 and the Company valued the stock in trade at Rs 210285
It is true that to the deed of transfer is annexed a Schedule of the assets and liabilities taken over by the Company and in the Schedule the value of stocks at Patna Muzaffarpur and 545 Purnea is shown at Rs 21028587
No attempt was made to explain the discrepancy between the operative part of the agreement and the valuation shown in the Schedule
The Income tax Officer was of the view that the Company had inflated the opening stock so as to reduce the ultimate profits
That view was confirmed by the Appellate Assistant Commissioner and by the Tribunal
No question of law arose out of the order of the Tribunal
The reference itself was incompetent
The appeal fails and is dismissed with costs
GC Appeal dismissed


Summary:
The appellant was a private limited company incorporated with the object of taking over the business carried on by another company
By an agreement dated August 2 1956 the appellant company agreed to purchase all the assets goodwill etc
of the vendors
By cl 4 of the agreement it was provided that all assets of the vendors in respect of their business shall be taken over at the book value standing in the books of accounts of the vendors as on August 1 1956
The Income tax Officer in proceedings for the assessment year 1958 59 found that in the books of the vendors the value of stock  as on August 1 1956 was Rs 177285 but in the books of the appellant company the opening stock taken one was valued on the same day at Rs 210225
The latter valuation also appeared in the Schedule annexed to the deed of transfer
The Income tax Officer observed that the valuation by the appellant company of the opening stock was in clear violation of the agreement between the vendors and the Company
He accordingly added a sum of Rs 33000 representing the difference between the value of the closing stock in the books of account of the vendors and the opening stock in the books of account of the Company
The order was confirmed in appeal by the Appellate Assistant Commissioner and by the Income tax Appellate Tribunal
In reference the High Court of Patna upheld the view taken by these authorities
A Division Bench of the High Court certified the case under section 66A2 of the Indian Income tax Act 1922 observing that the case fulfilled all the requirements of the said section and was a fit case for appeal to the Supreme Court
The Revenue contended in this Court that the certificate was incompetent as the question of law which had to be decided was not set out and no question of public or private importance had been disclosed
HELD  i In granting the certificate the High Court merely observed that is was a fit case for appeal to the Supreme Court   they did not indicate the grounds which persuaded them to hold that it was a fit case for appeal to this Court
It would be conducive to better administration of justice if in certifying a case under section 66A2 of the Indian Income tax Act as a fit case for appeal the High Court sets out the question of law which they regard as of public or private importance which falls to be decided by this Court
543 G ii It is true that under section 661 and 2 of the Indian Income tax Act 1922 only a question of law may be referred to the High Court for opinion but the right to obtain a certificate under section 66A2 arises only when in the proposed appeal a question of great public and private importance arises
It cannot be held that because a question of law alone may be referred to the High Court under section 66 of the Indian Income tax Act
in the proposed appeal a question of law of great public or private importance necessarily arises
Any other view would make every opinion of the High Court in a reference under section 66 appealable to this Court
544 B C 540 The practice followed in some of the High court of issuing certificates under section 66A2 without recording reasons or grounds for certifying the case would not justify a departure in the present case from the practice laid down many years ago by decision of the Judicial Committee of the Privy Council according to which a certificate under section 66A2 which does not set out precisely the grounds or raise a question of great public or private importance does not comply with the requirements of the Act544 E Commissioner of Income tax Central Provinces of Berar vs Sir section M Chitnavis LR 59 IA 290 followed
Delhi Cloth and General Mills Company Ltd vs Income tax Commissioner Delhi LR 54 IA 421 Banarsi Parshad vs Kashi Krishna Narain  Anr LR 28 IA II Radha Krishn Das vs Rai Krishn Chand LR 48 IA 31 and Radhakrishna Ayyar vs Swaminatha Ayyar LR 48 IA 31 applied
iiiThe appellant made no attempt to explain the discrepancy in the valuation of the stock transferred
The Income tax Officer was of the view that the company had inflated the opening stock so as to reduce the ultimate profits
That view was confirmed by the Appellate Assistant Commissioner and by the Tribunal
No question of law arose out of the order of the Tribunal
The reference itself was incompetent
545 A B