Nos 2132 and 2133 of 1970
Appeal by certificate from the judgment and order dated June 22 1965 of the Calcutta High Court in IT Reference No 36 of 1961
Sukumar Mitra J L Hathi T A Ramachandran K L Hathi and P C Kapur for the appellant
V section Desai R N Sachthey and B D Sharma for the res pondent
The Judgment of the Court was delivered by Grover J
These appeals have been brought by certificate from a judgment of the Calcutta High Court in two Income tax References
It is most unfortunate that the statement of the case contains certain omissions and errors and does not appear to have been drafted with the usual care with which such statements are drawn
The assesses Guzdar Kajora Coal Mines Ltd which was incorporated on July 4 1945 purchased by a deed of convey ance dated April 3 1966 executed by the liquidators of Guzdar 744 Kajora Colliery Co Ltd all the colliery lands hereditaments and premises mines minerals powers and privileges and all other hereditaments together with the machinery thereon belonging to the latter company
It was stipulated in the deed of conveyance that the sale was to be effective from July 1 1945
The consideration for the transfer was Rs 6 lacs and was allocated as follows  a the value of the machinery plants stores including stock of goods grains coals at the pithead and other movable properties appertaining to the said colliery the property in which is capable of passing by delivery being 
Rs 350000 
b the value of the buildings and structures be longing to the said colliery being Rs 150000 
c the value of the rest of the properties appertaining to the said colliery not capable of being passed by delivery being Rs 100000  Soon after the assessee company came into existence it took over the business from the vendor company and claimed depre ciation for the assessment year 1946 47 on the basis of the figures the comparative statement of which is given in the statement of the case
This statement contains the written down value as per the assessment record of the vendor company the valuation of the assets as per the balance sheet of the vendor company and the valuation by the assessee company as per balance sheet as on December 30 1945
The Income tax Officer allowed depreciation on the basis of those figures
This state of affairs continued till the assessment year 1952 53 when the Income tax Officer again allowed depreciation on the old basis
Before the Appellate Assistant Commissioner the assessee raised a ground that the Income tax Officer should have worked out the depreciation figures on the basis of balance sheet valuation of the assets as per the audited accounts submitted by the assessee and as claimed in the return
With regard to the assessment year 1953 54 the same position was taken up
The assessee appealed to the Income tax Appellate Tribunal having failed in its contentions before the Appellate Assistant Commissioner
It was contended before the Appellate Tribunal by the assessee that although it had paid a sum of Rs 6 lacs as consideration for the transfer of the mines the value taken by the department for the purpose of determining depreciation Was much lower
It was pointed out that the purchase had been made after obtaining the 745 opinion of an expert and the assessee was being subjected to great hardship depreciation being determined only on the old written down value of the assets and not on the basis of the original cost of acquisition
The Appellate Tribunal was of the view that substantial injustice would result to the assessee if the depreciation continued to be allowed on the old basis if the case of the assessee had any substance
It was felt that a proper investigation as to the value paid by the assessee in taking over the old company was necessary
The matter was remanded to the Income tax Officer to hold an inquiry after giving an opportunity to the assessee to place all the available material in support of its claim
With regard to the assessment year 1953 54 also the case was remanded with similar directions
The Income tax Officer made a report on July 6 1960
According to his findings some of the Directors and Shareholders of the two companies were the same and they were connected in many ways
Furthermore the valuation of the depreciable assets and the consumable stores had been written up whereas the valuation of the non depreciable assets like mines etc had been written down
As regards the report of the expert A N Mitter dated September 1 1945 he was unable to contact him in spite of making an effort to do so
The report made by the second expert section N Mullick dated October 19 1955 and January 30 1957 together with the clarification made by him on November 20 1959 were considered by him
He also examined 8
N Mullick under section 37 of the Indian Income tax Act 1922 hereinafter called the Act 
He came to the conclusion that the vendor had been making good profits but no provision had been made for the goodwill of the company in the business and if such a provision had been made it would have worked out at Rs 256960 having regard to the profits made for the preceding four years
He made an allocation of Rs 6 lacs as follows 1 Good will Rs 256960 2 Mines and development as per balance sheet of Ms Guzdar Gajore Colliery Co Ltd as at 30 6 45
Rs248323 3 Stores and stock Rs60744 and worked out the value of other depreciable assets at Rs 33973  Before the Appellate Tribunal the remand report of the Income tax Officer was assailed on behalf of the assessee on various grounds
The Tribunal observed that when the assessments for the years 1946 47 and 1947 48 were made the assessee 13 Ll52SupCI73 746 chose to give the valuation in its balance sheet on a certain basis which was accepted and no appeal was taken to the higher authorities and although the rule of estoppel could not be applied but acquiscence of the assessee shows which way the wind blew
When a settled thing was sought to be reopened the Income tax Officer had a right to see whether there was any Justification for the radical departure from the settled practice
It was held that the Income tax Officer was to go behind the valuation
As regards the goodwill the contention raised on behalf of the assessee was that the same was included in the item of one lakh mentioned in the sale deed
According to the report of Mr Mullick it was included in the item of Rs 350006
This is what the Tribunal proceeded to observe It seems to us the simple truth of the matter is that the figure of Rs 350000  Rs 150000 and Rs 100000 were arbitrarily put
and there was no clear cut or understandable break up of valuation  clause 3 of the break up in the deed of 3rd April 1946 which talks of the value of the rest of the properties appertaining to the said colliery not capable of being passed by delivery being valued at Rs 100000shows that these properties which had I not been in clause 1 and 2 were comprised in this and it seems too much to say that good will is included in this
it would be more true to say that good will was thought of or conceived of but not provided for in the break up of valuation
The appeals were consequently dismissed
The assessee moved the Tribunal for referring certain questions of law to the Tribunal
The following question was framed by the Tribunal and referred to the High Court  Whether on the facts and in the circumstances of the case the Income tax Officer was competent to go beyond the conveyance and fix a valuation of the assets on his own  The High Court was of the view that the Income tax Officer was competent to make a fresh computation as to the value of the assets of the assessee if the facts and circumstances of a particular case justified following such a course
Even on the question of valuation of the good will it was observed  Further it should be remembered that although the Income tax Officer has made the valuation of the goodwill by working out the normally accepted method of taking the profits of the four preceding years this 747 method of calculation or this normal practice has not been challenged by the assessee
The revenue has
examined all the relevant facts of the case including the reports of Mr Mitter and Mr Mullick and the Tribunal has agreed with those findings of facts and we do not think that we can interfere with those findings
The answer to the question referred was given in the affirmative
Learned counsel for the assessee has assailed the decision of the High Court on a number of grounds
It has been urged inter alia that the High Court had not kept in view the general and well established principle that the statement with regard to valuation contained in a formal document should be prima facie accepted as cornet
There can be no justification it has been pointed out for any court or Tribunal to rip up a transaction not impeached as dishonest and not proved to be such merely because the company may have paid an extravagant price for their property
A great deal of emphasis has been laid on behalf of the assessee on the report submitted by the experts justifying the valuation given in the deed of conveyance
In the absence of fraud collusion inflation or false transaction made with an ulterior purpose the Income tax authorities it is said were precluded from going behind the agreement of purchase in determining the purchase price fixing their own valuation
The other point canvassed on behalf of the assessee is that good will was not included in the valuation given in the deed of conveyance nor was it ever intended that any good will of the business should be sold by the vendor company
This contention however appears to run counter to What was argued before the High Court and the Tribunal nor can it be said to be covered by the question which was referred
On the case as put before the Appellate Tribunal and the
High Court and the question referred with regard to the two assessment years in question we are unable to see any such error or infirmity that would Justify interference by us in these appeals
_ It has been strenuously urged on behalf of the assessee that since the decision of the Tribunal or the High Court could not operate as res judicata for other assessment years with regard to which assessments are still pending the assessee would be entitled to raise all the points which are relevant with regard to the question of valuation for the purpose of determining depreciation
We have been pressed to indicate broadly the principles for future guidance as it will be open to the assessee to raise all the points relevant for the purpose of determination of the amount of depreciation allowance in the assessments which are still pending and have not been finally disposed of
748 Section 102 vi of the Act to the extent it is material is as follows 2 Such profits or gains shall be computed after making the following allowances namely vi in respect of depreciation of such buildings machinery plant or furniture being the property of the assessee a sum equivalent where the assets are ships other than ships ordinarily plying on inland waters to such percentage on the original cost thereof to the assessce as may in any case or class of cases be prescribed and in any other case to such percentage on the written down value thereof as may in any case or class of cases be prescribed Provided that a  b  c The aggregate of all allowances in res pect of depreciation made under this clause and clause vi a or under any Act repealed hereby or under the Indian Income tax Act 1886 II of 1886 shall in no case exceed the original cost to the assessee of the buildings machinery plant or furniture as the case may be Keeping in view sub section
5 of section 10 of the Act the original actual cost to the assessee of the asset with regard to which depreciation allowance is claimed has to be ascertained for the purpose inter alia of finding out the written down value in case of assets other than ocean going ships
For the purpose of getting the benefit of clause c of the proviso to sub section 2vi also the original cost has also to be ascertained
The Privy Council laid down in Commissioner of Income tax Madras vs The Buckingham and Carnatic Co Ltd Madras1 that the word assessee in section 102vi of the Act refers to the person who owns the assets and who is being assessed and depreciation allowance has to be based on the original cost of such property to such person
This principle was laid down in a case where the assessee had acquired the business of another assessee and it was emphasised that the original cost to be consi dered was the original cost to the person who was being actually assessed and not the original cost of those assets to the previous 1 749 owner of the business
Reference was made to the above decision of the Privy Council in the judgment of this Court in Jogta Coal Co Ltd vs Commissioner of Income tax West Bengal1 and it was observed We do not think that there is any doubt on the wording of the section or on the interpretation that has been put upon those words that the cost to be calculated for the purpose of depreciation allowance is the cost to the assessee and not to the person who makes the sale 
Now the original cost of a particular asset is a question of fact which has to be determined on the evidence or the material produced before or available to the Income tax authorities
Any document or formal deed mentioning the consideration or the cost paid for the purchase of an asset by an assessee would be a piece if evidence and prima facie the statements or figures given therein would show how much the cost of the asset to the assessee is
But if circumstances exist showing that a fictitious price has been put on the asset or there is fraud or collusion between the vendor and the vendee and there has been inflation or deflation of value for ulterior purposes it is open to the Income tax authorities to refuse to accept the price mentioned in the deed or alleged by the assessee and to ascertain what the actual cost was See Pindi Kashmir Transport Co Ltd vs Commissioner of Income tax Lahore 2  and Kalooram Govindram vs Commissioner of Income tax Madhya Pradesh Nagpur and Bhandara3
In this view  of the matter it is open to the Income tax authorities to determine and to the assessee to show
whether the good will of the business is or is not included in the consideration or the price paid for the acquisition of the asset
In other words even if it is not expressly mentioned that goodwill has been sold it can be shown and ascertained by evidence whether the same has been purchased or not by the assessee
The expression good will has been considered and explained by this Court in section C Cambatta  Co P Ltd vs Commissioner Excess Profits Tax Bombay4 and nothing more need be said about it
The principles stated by us are by no means exhaustive and are mainly illustrative
Keeping in view the facts of the present case we may make it clear that if circumstances exist for going behind the valuation as also the allocation given in the deed of conveyance it was and is open to the Income tax authorities to determine the valuation as well as the allocation between depreciable and non depreciable assets
1 2 3 4 750 The present appeals however must fail for the reasons stated earlier and are hereby dismissed
We make no order as to costs in this Court
VPS Appeal dismissed


Summary:
The appellant purchased on July 1 1945 the property of a colliery company and the consideration of Rs 6 lacs was allocated in the sale deed in a certain manner among the various items purchased
From the assessment year 1946 47 to the assessment year 1952 53 the appellant claimed depreciation on the basis of the written down value of the assets as per the
assessment record of the vendor company and the Income tax officer allowed depreciation on that basis
For the assessment year 1952 53 however the appellant contended that the depreciation should have been worked out on the basis of balance sheet valuation of the assets as per the audited accounts submitted by the appellant and as claimed in their return
The Appellate Assistant Commissioner held against the appellant
On appeal the appellate Tribunal remanded the matter to the Income tax Officer and the income tax Officer after inquiry held that some of the directors of the vendor company and the appellant were the same that the valuation of the depreciable assets had been written up while that of the non depreciable assets was written down and that no provision was made for the goodwill of the vendor company even though it was making good profits
He made the allocation of Rs 6 lacs in a different manner and included the goodwill of the vendor also as having been sold to the appellant and made provision for it from out of the Rs 6 lacs
The Tribunal accepted the report of the Income tax Officer and held that when the settled practice was sought to be reopened by the appellant the Income tax Officer had a right to see whether there was any justification for the departure that the break up of the valuation in the sale deed was in fact arbitrary and that it was unlikely that the goodwill was provided for in the break up of the valuation in the sale deed
On reference the High Court also held that the Income tax Officer was competent to go beyond the conveyance and refix the valuation and that he bad correctly worked out the valuation of the goodwill after examining all the relevant facts and reports of experts and that the method adopted was not challenged by the appellant
Dismissing the appeal to this Court HELD  In the case of an asset other than ocean going ships with regard to which depreciation allowance is claimed under section 102vi of the Income tax Act 1922 in view of section 105 the original actual cost to an assessee of the asset has to be ascertained for the purpose of finding out its written down value
For the purpose of getting the benefit of cl
c of the proviso to section 102 vi also the original cost to the assesseethat is theperson who owns the asset and who is being assessedhas to be ascertained
748F H 743 The original cost of a particular asset is a question of fact which has to to determined on the evidence or on the material produced before or available to the Income tax authorities
Any document or formal deed mentioning the consideration or the cost paid for the purchase of an asset by an assessee would be a piece of evidence and prima facie the statements or figures given therein show how much the cost of the asset to the assessee is
But if circumstances exist showing that a fictitious price has been put on the asset or there is fraud or collusion between the vendor and the vendee and there has been inflation or deflation of value for ulterior purposes it is open to the Income tax authorities to refuse to accept the price mentioned in the deed or alleged by the assessee and to ascertain what the actual original cost was
749C E Even if it is not expressly mentioned that goodwill has been sold it can be shown and ascertained by evidence whether it has been purchased or not by the assessee
749F G Commissioner of income Tax Madras vs The Buckingham  Carnatic Co Ltd Madras 935 ITR 384 Jogta Coal Co Ltd V Commissioner of Income Tax West Bengal 36 ITR 521 Pindi Kashmir Transport Co Ltd vs Commissioner of Income Tax Lahore  and Kalooram Govindranm vs Commissioner of Income Tax Madhya Pradesh Nagpur and Bhandara  referred to
tax Therefore in the circumstances of this case it was open to the Incomeauthorities to go behind the valuation as also the allocation given in the deed of conveyance and to determine afresh the valuation as well as the allocation between the depreciable and non depreciable assets
749G H